Goldman v World 2 - Who Wins and Why?
This continues yesterday's post.
Blankfein was even more impressive on Charlie Rose, where he didn't have to fend off naked hostility while answering questions that required remedial finance rephrasings before he could even attempt an answer.Â He seemed genuinely concerned, maybe even remorseful, about the way the firm's role as a market maker had created conflict, or at least the appearance of conflict, with it's clients.Â
Blankfein is worried about the first criticism, and maybe the third (which is related, since Goldman chose to hedge it's own bets when it thought the real estate mortgage markets were overheated, not sound the alarm).Â Â In fact the core âclientsâ - Goldman shareholders, advisees, holders of funds managed by Goldman â have done well.Â Institutions climbing into a synthetic CDO were probably never âclientsâ, in the narrowest sense of the term (although Mr. Cuomo may be trying to prove otherwise),Â but what Goldman could have done better is shout this in plain English so clearly the whole world understood what duties it was undertaking with whom, rather than relying upon boilerplate in the offer sheets.Â Â Blankfein is sounding a note of regret, but he is wisely allowing other voices, Goldman investor Warren Buffet and journalists like Fareed Zakaria, to come to Goldman's defense on this issue.Â The SEC case is a little more involved than these voices would lead you to believe, but they are right, and clear, about the big picture and if they overlook some of the more sordid details in the SEC claims of affirmative misrepresentation by Fabulous Fab, well, so much the better for Lloyd & Co.
Over the last few weeks Goldman hasÂ implemented a much improved PR strategy in responding to criticisms that it bet against its clients and caused the crash, but what about the other critiques - crazy casino business, too much comp, runs the world? The SEC, US Attorney and NY Attorney General Cuomo may be coming to Goldman's rescue with investigations of Morgan Stanley, Citi, Deutsche Bank and others.Â Nothing like a little distraction and a reminder â other banks were doing the same thing as Goldman, just not as well.Â Congress will actually help out too.Â If it doesn't want banks running a casino it can say so â that's part of what the derivatives battle in financial reform legislation is all about- and at the same time remind people that synthetic CDOs, and other exotics that don't seem to do much for Main Street, were legal.Â What about those angry shareholders â seriously, who wants a feud with the Christian Brothers?Â Well, the same types of resolutions are presented to shareholders of other companies, usually drawing lower votes.Â The activist shareholders are not going away, they may eventually prevail, but if Goldman management improves its general image, treats the activist shareholders with respect, maybe even makes a concession or two, the shareholder situation will return to normal.Â In fact, despite its current villain status,Â Goldman has been repeatedly recognized as a leader in some areas of corporate social responsibility.
So what's left?Â Too much compensation?Â Lloyd did ease off for a year, but I don't think management really wants to change this one.Â You might see a splashy charity campaign to offset some of the bad PR around comp, but Goldman already has active charity programs.Â Â Rules the world?Â Hey, I'm scared.Â Those kind words about Mr. Blankfein were no accident. Somehow I think Goldman management hopes we will all just forget about this one.
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