Why I Left Goldman Sachs

The Book of the Week is “Why I Left Goldman Sachs” by Greg Smith, published in 2012.

This career memoir details how the author experienced the change for the worse in corporate culture of stock brokerage Goldman Sachs (GS) over the course of a little more than a decade, from 2000 to early 2012. The company lost its way in terms of its mission and values, which embodied fiduciary duty and integrity.

In 2000, the author completed the selective, elitist, highly coveted summer internship program at the brokerage. He saw how principled the money managers were in recommending truly suitable transactions to their clients; not necessarily the most profitable ones.

When he began working there as a full-fledged staff member the following year, he took to the work, possessing the right combination of talents, skills and abilities to focus for long hours on conferring with clients and doing what was financially best for them. The goal was to build trust in order to foster a long-term relationship. It stands to reason that that is a more profitable course of action than seeking to rake in maximum money in the short term– which would provoke disloyalty from the client, when the client realizes he’s been taken advantage of.

Smith writes that a gradual change was occurring at his workplace around the start of 2005. At the time, he admittedly was “drinking the Kool Aid” like everyone else. The megabucks were multiplying because conflicts of interest were increasing betwen the brokerage and the government and other entities with which the brokerage was associated in various ways. The CEO and COO of GS were all for it. Their yearly letter to shareholders reasoned that such conflicts were inevitable, and were a sign that business was good. A telling example: GS netted approximately $100 million when it helped its client, the New York Stock Exchange merge with publicly traded, electronic exchange Archipelago in a $9 billion deal.

In the early 2000’s, one trend in the securities industry that would contribute to huge financial losses for the big firms including GS, was automated trading via software. The autotraders of the different firms were programmed to engage in largely the same behavior. They sought to trade in obscure, off-the-beaten path investments in markets in which it was difficult to find a buyer when it came time to sell. And they were all trying to sell at the same time. That was not a condition the autotrader creators had anticipated.

Another aspect of the big picture was that the people selling the financial products– more specifically, derivatives– did not themselves, understand what they were selling. It might be recalled that a derivatives debacle plagued the securities industry in 1994. Apparently, in 2007-2009, the greedy people involved in this rerun of a financial catastrophe failed to read their history, or had short memories. And governments of entire countries like Libya, were suffering losses of billions of dollars, thanks to GS, in 2007.

Read the book to learn much more about the outrageous occurrences borne of avarice witnessed by the author and the world during what became for him, an ordeal, characterized by the saying, “The fish rots from the head down.”

The Snakehead

The Book of the Week is “The Snakehead” by Patrick Radden Keefe, published in 2009. This ebook recounts the details of a pivotal human-smuggling incident involving people of Chinese descent.

In early June 1993, a boat hit a sandbar in Breezy Point in the borough of Queens (New York City) in New York State. Most of its occupants were illegal immigrants originally from China. They were “smuggled” rather than “trafficked” in that they had willingly bribed a “snakehead” to help them move to the United States without identification documents, knowing the risks of their journey full well. Trafficked individuals also have the desire for a better life, but are usually unaware that they will be sold as property.

Organized crime in Chinatown in New York City in the 1980’s was rampant, consisting of not just arrangements to further illegal immigration, but of extortion, gang warfare, conspiracy, hostage-taking and money laundering. “But there was only so much money in shakedowns, burglaries and kidnappings.” The heroin trade carried heavy prison sentences. On the other hand, there was big money (approximately $30,000 for the snakehead per person) in human smuggling and it carried light prison sentences.

At the start of the 1990’s, two major reasons that immigration laws were lenient for political asylum seekers from China were: 1) The 1989 Tiananmen Square massacre had reminded the world of oppression in China, and 2) The country had a draconian population-limiting political system, allowing women to bear only one child and thereafter be forced to have an abortion or the men, to have forced sterilization. Another factor that contributed to the arrival of an excessive number of illegals on U.S. shores around 1990 was the fact the the Immigration and Naturalization Service was a poorly treated, underfunded and understaffed agency, that competed with the customs department– whose contraband confiscations made it a political darling.

Read the book to learn: why, around 1990, there was also a shift in the transportation method, routes and entry points for illegal smuggling; which perpetrators got caught and their fates; and the valid arguments on both sides of the debate over the legal and ethical issues on people’s entering a nation without the legal means to do so.

The Law of the Jungle – Bonus Post

This blogger skimmed the ebook, “The Law of the Jungle” by Paul M. Barrett, published in 2014.  This is the story of a decades-long court case involving oil contamination in the Amazonian rain forest of northeastern Ecuador, to which a number of cliches apply:

Pox on the houses of both the plaintiff and the defendant;

A man is known by the company he keeps; and

When you lie down with dogs, you get fleas.

Starting in 1993, the plaintiff, represented by a greedy, egotistical, loudmouthed, yet shrewd attorney– Steven Donziger– claimed that defendant, Texaco, and then successor Chevron oil company, had caused illness, deaths, and damage to the quality of life of thousands of farmers and tribesmen in Ecuador. The Amazonians were allegedly poisoned by the oil-contaminated streams where they fished, bathed and gathered drinking water. The oil company had established a presence in their villages since 1964, when it forged an agreement with the Ecuadorian government to drill on 3.5 million and later, 4 million acres in the Oriente region.

The author tells a suspenseful, controversial story that reveals valid arguments on both sides. There was evidence of serious disruption of villagers’ lives. This included cancer clusters and other health issues that plagued the Ecuadorians, pollution of the place where they lived, the unintended consequence of violent fighting for jobs and over income inequality between Indians and homesteaders, etc. directly attributable to the activities of, and inept cleanup of, oil that allowed spreading of toxic chemicals by, the petroleum companies. On the other hand, over the years, the economy of the country of Ecuador made great strides due to the companies’ building of, and heavy investment in, transportation infrastructure and the side effects of job creation and good political relations that would not have occurred but for the corporate presence in Ecuador.

According to the author, the plaintiff’s attorney went after “big oil” rather than “… a struggling national government responsible for letting down its people” because big oil had more sex appeal. It could also be that big oil had deeper pockets.

In sum, “The oil pollution suit was not unique. Ecuador’s judiciary had a well-earned reputation for corruption and chaos.”

Read the book to learn of the various sleazy tactics employed by both sides in the dispute, and to get a concise, eloquent summary of the whole story– read the “Conclusions” section of this ebook.

In the Name of Profit – Bonus Post

This blogger skimmed the ebook, “In the Name of Profit” by multiple co-authors, originally published in 1972. This depressing set of anecdotes on corporate greed simply reminds the reader that there is nothing new under the sun.

One theme is that through the 1950’s and 1960’s, big manufacturers such as Goodrich and General Motors had constructive knowledge that the products they sold were defective. Purchasers had bad experiences, and were seriously injured or were killed by those products. The companies’ attorneys and their employees rationalized that “‘planned obsolescence” meant progress. “But the meaning is clear: ‘Go cheapen the product so we can make more money.” In the case of drug company Richardson-Merrell, the product wasn’t cheapened, but rather, serious side effects were downplayed or hushed up and the results of FDA pre-approval testing were fabricated. Unsurprisingly, the company and its subsidiaries hired top-dollar attorneys skilled at helping businesses weasel out of legal trouble.

Another topic covered was Napalm, whose evolution began at Guadalcanal during WWII. “The Napalm fire bomb was deliberately designed as an indiscriminate terror weapon for mass destruction and death among civilians.” When people in Vietnam were harmed, Dow Chemical’s legal defense was bolstered by the fact that it had received orders by the U.S. Government to make the controversial product.

This ebook also discussed stock manipulation and corporate takeover. SEC laws were shown to be very lax in the 1950’s and 1960’s, as one particular perpetrator did jail time for various securities violations, but after his release, went right back to his old tricks. One Herbert Korholz repeatedly gamed the system with acquisitions. President of the Susquehanna corporation, he was able to bribe directors and officers in taking over another company with a secret tender offer of a share price higher than what was to be offered to the general share-owning public. “Profit-making firms can cut their taxes magnificently by merging with big losers…” One Maurice Schy, an attorney, attempted to make the government aware of Korholz’s unethical, unlawful and disgusting behavior, by filing lawsuits through the years, to no avail. Government officials were mired in conflicts of interest (favorable to Korholz’s interest) and ruled against Schy every time except one; a ruling was pending as this book was being released in 1972. Schy had finally gotten a possible break only because there was another case brought by another party against Korholz’s companies’ illegal activities.

In sum, we human beings are a mixed bag of evolutionary traits; altruism and greed among them. On many occasions, greed wins out, and we never seem to learn from those past occasions.

The Billionaire’s Apprentice

The Book of the Week is “The Billionaire’s Apprentice” by Anita Raghavan, published in 2013. This ebook describes the investigation into the activities of a few Wall Streeters who were accused of insider trading in the past several years. Most of the accused happened to be of South Asian descent–from  Sri Lanka and India.

One concept the book conveys to readers is that it is unknown how many American securities-industry professionals are benefiting from insider trading, but the people in this book just happened to get caught because there was sufficient evidence against them to prompt the SEC, US Attorney’s office and FBI to go after them, rather than other possible offenders. The departments involved included the SEC’s Market Abuse Unit and the Department of Justice’s Securities and Commodities Fraud Task Force in the legal jurisdiction of the Southern District of New York (covering Manhattan and the Bronx, according to the author).

Another concept is that the investigating organizations and the securities industry are staffed with many people who, during their careers, switch allegiances. They might go from being a prosecutor to being a defense attorney, or from brokerage executive to government regulator, or vice versa. In this book the “old boy network” is alive and well. Arguably, conflicts abound.

Read the book to learn, among other extremes, about wiretapping (not the NSA’s), about one of the accused who “had several phones– at least thirteen– and he used them all” and a $30 million legal bill.

Law Man – Bonus Post

This blogger skimmed the book “Law Man” by Shon Hopwood published in 2012. In this personal account, Hopwood details his actions as a bank robber, and their consequences, complete with the romantic subplot.

In May 1999, the author was permanently placed in prison in Peoria. He felt relief because “Mostly I wanted my hard time to begin so it would start to end.” He told the reader of the term “chester”– short for “child molester.” Luckily, early on, Hopwood found an inmate who became his mentor, who taught him how to fashion a wooden-handled steel rod; the best weapon in the prison– which housed a metal fabrication plant. “… you can run it straight through a man’s liver. But what’s better is a lot of friends.”

More than three quarters of the prisoners were wannabe rap stars. Hopwood wrote, “You must have a job in prison; it’s not supposed to be a vacation, after all.” Postage stamps were the major means of exchange. Whenever the post office raised the price of stamps, the prison economy was disrupted.

On one occasion there was a gang brawl in the exercise yard involving attempted murder, resulting in a four-day lockdown of the entire prison. “In a world of attention-craving narcissists, lockdowns border on cruel and unusual punishment.”

Read the book to learn how the author was responsible for a change in a major legal ruling, an occurrence whose odds were akin to winning the lottery.

Savage Spawn

The Book of the Week is “Savage Spawn” by Jonathan Kellerman, published in 1999. This short ebook, authored by a child clinical psychologist, discusses topics associated with violent children, including serial killers, psychopaths, psychology professionals, the nature/nurture controversy and violence in the media.

The cynical Kellerman writes that “profiles” of serial killers should be taken with a grain of salt: “Profiles are most effective as career builders for retired FBI agents seeking to be best-selling authors and consultants to the film industry, but they miss the mark as often as they hit.”

Kellerman believes that psychopaths (conscienceless people) cannot be rehabilitated because:  1)  “…no medication has been found that alters antisocial behavior” and 2) they do not respond to the treatment of traditional psychotherapy because they lack insight and the desire to change.

At least since the mid-twentieth century, due to competition with psychotherapists (who hold PhD’s) to treat patients, psychiatrists have been big advocates of attributing biological causes to mental health disorders in order to prescribe medication.

The author provides a real-life example of two boys, thirteen and eleven, who, in spring, 1998, went on a shooting spree at a middle school and killed four girls and a teacher, and wounded ten other kids and another teacher. Kellerman thinks that had the kids not had access to firearms, “…their misdeeds likely would have expressed themselves as some variant of schoolyard bullying, perhaps a knifing.”  He proposes one simple rule for “…preventing child criminality: Restrict access to firearms [to kids].” Teaching psychopathic kids “practical shooting” will result in their bullying other kids. After the occurrence of untoward events, adults who gave kids guns, even with training, should never wonder why such events occurred.

Obviously, it is hard to pinpoint all of the exact causes of violent incidents. Psychological research that would produce a general consensus on the causes of extremely violent behavior would require: a) a long-term study of a sufficiently large number of subjects, and b) other difficult, expensive measures that would minimize bias. Kellerman mentions that longitudinal biological studies of psychopathology have been performed in Scandinavia, but he fails to provide details.

It is inconclusive which, genetics or the environment, is the more responsible for violence committed by kids. The fact that “Genetic traits can make themselves apparent at any age.” throws more of a wrench in the works. The author opines that media violence is not a proximate cause of violent behavior; kids who injure or kill people would probably do so anyway, regardless of the movies or TV shows they had watched. The author’s own children consumed a large quantity of carnage on-screen, and were none the more physically hostile for it. However, Kellerman cannot resist saying, “…media violence is likely to endure as a fruitful source of research grants for social scientists…”

Read the book to learn:  a) the relationship between the heart rate of certain toddlers and probable future violent behavior;  b) three strong predictive factors of violence in teenagers; c)  the age before which, if there is an arrest record– a lifetime of criminality is likely, too;  and d) how to intervene in the lives of high-risk youngsters to try to head off violent behavior.