Mr. Smith Goes to Wall Street

The emails came pouring in yesterday, from friends and family, all with one, innocuous question: “What did you think of the ‘Why I Am Leaving Goldman Sachs’ editorial in the New York Times?”

The fact is I hadn’t read it: the day-to-day utility of op-ed pieces in any newspaper are slim-to-none, and the Times—with its special brand of high-and-mightiness combined with the kind of straight-faced hypocrisy only a family-controlled institution can maintain in the public marketplace (the recently ‘retired’ CEO at that organization, which prides itself on a devotion to egalitarian causes such as unjust CEO payouts, recently received a $23.7 million exit package for leading the Times over a 7 year period during which its share price dropped 80%)—is no exception.

Nevertheless, I did read the piece, and I am still scratching my head at why it got so much attention. After all, the odd mix of shameless self promotion [“I was selected as one of 10 people (out of a firm of more than 30,000) to appear on our recruiting video”] and playing-to-the-audience self-righteousness [“It makes me ill how callously people talk about ripping their clients off”] sure sounds like a Goldman guy talking.

Besides, did he think he was taking his “bronze medal for table tennis” to work for UNICEF?

Anybody who has worked with, around and against Goldman Sachs (and I’ve been doing that, on and off, for almost 30 years) knows what apparently never crossed one man’s noble mind: Goldman Sachs is, and was, and always will be, run for the benefit of its partners and shareholders.

How otherwise to explain the fact that Goldman’s return on equity—the most basic measure of a company’s profitability—puts its peers to shame year after year (40% in a good year, 5% in 2008, the worst-year-since-the-Great-Depression)?

More personally, I first became aware of Goldman’s clout well before Mr. Smith Went to Goldman Sachs. It was in the early 1990’s, and Robert Maxwell, “the Bouncing Czech,” was using company pension money to prop up shares of Mirror Communications Corp—a company I was short (betting against) because of its obvious financial shortcomings.

So obvious were those shortcomings that the only wonder (in my mind) was the stock never seemed to go down. The firm I was with—a client of Goldman Sachs at the time—eventually threw in the towel on our Mirror Corp short when the cost of borrowing the shares (through Goldman Sachs, I might add) made it too expensive to bother with. While Mirror Corp eventually collapsed (after Maxwell was found floating dead in the Atlantic Ocean), it was too late to help: we had already moved on.

But it was a great lesson that has stayed with me to this day: I learned, the hard way, that whoever was backing up Robert Maxwell had more money than we did…and in the end, money, rather than noble intentions, wins on Wall Street.

Still, did I write an op-ed for the Wall Street Journal about how unfair the Mirror Corp short squeeze was? No. We bit the bullet, and moved on. That’s what you do on Wall Street.

Now, in case you are wondering who was helping Robert Maxwell in those days, the answer is contained here, in the UK Department of Trade and Industry report on the Maxwell scam. For the record, the report states: “The investment bank with whom he principally dealt was Goldman Sachs.”

Mr. Smith should have done his homework.

Jeff Matthews

Author “Secrets in Plain Sight: Business and Investing Secrets of Warren Buffett”

(eBooks on Investing, 2011) Available now at Amazon.com

© 2012 NotMakingThisUp, LLC

The content contained in this blog represents only the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business by Mr. Matthews: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.