The Investment Scientist

Don’t Be a “Muppet”

Posted on: April 4, 2012

A Muppet

If you had a busy March, you are forgiven for not paying attention to Greg Smith’s open letter explaining why he is leaving Goldman Sachs. In his “resignation” letter, the Goldman Sachs executive sheds a bright light on the culture of this premiere Wall Street investment bank. Let me quote at length:

What are three quick ways to become a leader?

a) Execute on the firm’s “axes,” which is Goldman-speak for persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit.

b) “Hunt Elephants.” In English: get your clients — some of whom are sophisticated, and some of whom aren’t — to trade whatever will bring the biggest profit to Goldman. Call me old-fashioned, but I don’t like selling my clients a product that is wrong for them.

c) Find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym.

…I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients. It’s purely about how we can make the most possible money off of them…

It makes me ill how callously people talk about ripping their clients off. Over the last 12 months I have seen five different managing directors refer to their own clients as “muppets,” sometimes over internal e-mail.

Now you may take comfort in the fact that you are not rich enough to be one of Goldman’s muppets – reportedly you need to have $10mm to be in their sights. Don’t worry, your friendly financial advisor from a different Wall Street investment bank will put your interests first, or so says its glossy brochure.

Don’t for a moment believe that. As part of my services, I have reviewed hundreds of portfolios handled by “famed” Wall Street brokerages; I can tell you these firms all try to make the most money off of their clients by stuffing their portfolios with complicated financial products with hidden costs.

Goldman Sachs may be the foxiest of all the foxes, but the Wall Street firms are all foxes – they want to eat your nest egg. Don’t let them guard your hen house.

Get my white paper: The Informed Investor: 5 Key Concepts for Financial Success.

2 Responses to "Don’t Be a “Muppet”"

In my honest opinion, Goldman, Bear-Stearns, Citi, Merrill-Lynch,BOA, all the “to big to fail” banks should have been allowed to seek bancrupcy protection like any other company. Second tier banks who were not in trouble could have purchased their assets at market value and the system would have been replenished with new blood at the top, stronger ideas, the market could move along, and we’d have a better environment for all who deal with Broker-Banks.

What we have is the product of a group of companies that were rewarded handsomely for failing to “lay off” the risk, either to other banks or insurance companies. After that reward, how long could it be until they were doing the same thing again?

Ron, thanks for your comments. I agree with you they should be let to fail. Smaller and more ethical companies would have emerged. The culture of corruption would have taken a cleansing. Now nothing has changed.

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Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC.


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