Michael Lewis on Goldman Sachs

Today at Bloomberg, Michael Lewis has an interesting column on the constant Goldman Sachs bashing that we've seen in the media, and makes an off-hand reference to the controversial Rolling Stone article by Matt Taibbi.

Lewis goes point by point to rebuff the attacks on Goldman, concluding with this:

Rumor No. 5: Goldman Sachs is “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”

Those words are of course taken from a recent issue of Rolling Stone magazine and they are transparently false.

For starters, the vampire squid doesn’t feed on human flesh. Ergo, no vampire squid would ever wrap itself around the face of humanity, except by accident. And nothing that happens at Goldman Sachs -- nothing that Goldman Sachs thinks, nothing that Goldman Sachs feels, nothing that Goldman Sachs does --ever happens by accident.

This is a gutsy stance, but I think he misses the point.

Matt Egan recently had a piece at the Fox Business News website on the Goldman-bashing phenomenon, quoting me as calling Goldman the "King Rat of Wall Street." He didn't capitalize the expression but he should have. I was referring to the James Clavell novel and 1960s movie about a prisoner of a Japanese prison camp who somehow manages to accumulate wealth while all around are suffering.

It's only natural to feel envy but with Goldman it's more than just that. The public and media have a genuine reason to wonder why Goldman emerged unscathed from the financial crisis, to question the extent to which the bailout benefited Goldman, and to question its many decades of intimate ties to the government.

It's a mistake to dismiss the genuine questions that have been raised about Goldman as mere envy. Lewis seems oblivious to the genuine and well-warranted anger that people feel, and that's a mistake.

But he's right about one thing: Goldman needs to cease its longtime policy of keeping hautily keeping the media at arm's length--assuming that's what he means by "we who are inside Goldman Sachs must open a dialogue with you who are not. Not for our benefit, but for yours."

He's got that partly right. Goldman needs to open itself up for the sake of its own reputation and continued ability to generate obscene profits.

© 2009 Gary Weiss. All rights reserved.

Fixing the Financial System

Michael Lewis and David Einhorn have an essay in the New York Times today, "The End of the Financial World as We Know It," which is one of the very best I've found on the current financial mess and how not to repeat it.

Actually we already know one way out of the mess, which is already happening because of the change in administrations: get rid of the appalling head of the SEC, Christopher Cox. In recent days, Cox has actually admitted that one of the centerpieces of his agency's reaction to the financial crisis, its assault on short-sellers, was a crummy idea.

His excuse was, in effect, that he was too weak-kneed and cowardly to put up with pressure from the Treasury and Federal Reserve, which in turn were no doubt knuckling under to pressure from Wall Street. Read all about this disgraceful bureaucrat's mea culpa here.

Indeed, Lewis and Einhorn note that "The task [the SEC] has performed most diligently during this crisis has been to question, intimidate and impose rules on short-sellers — the only market players who have a financial incentive to expose fraud and abuse."

The prescriptive part of their piece, broken out separately here, makes several excellent recommendations, among them that the government simply nationalize banks that are otherwise "too big to fail."

Their two final observations are less ambitious:

Close the revolving door between the S.E.C. and Wall Street. At every turn we keep coming back to an enormous barrier to reform: Wall Street’s political influence. Its influence over the S.E.C. is further compromised by its ability to enrich the people who work for it. Realistically, there is only so much that can be done to fix the problem, but one measure is obvious: forbid regulators, for some meaningful amount of time after they have left the S.E.C., from accepting high-paying jobs with Wall Street firms.

[I'd add to that a restriction on jobs with public companies, as they are regulated by an increasingly narcoleptic SEC.]

and...

But keep the door open the other way. If the S.E.C. is to restore its credibility as an investor protection agency, it should have some experienced, respected investors (which is not the same thing as investment bankers) as commissioners. President-elect Barack Obama should nominate at least one with a notable career investing capital, and another with experience uncovering corporate misconduct. As it happens, the most critical job, chief of enforcement, now has a perfect candidate, a civic-minded former investor with firsthand experience of the S.E.C.’s ineptitude: [Bernie Madoff would-be whistleblower] Harry Markopolos.

Sure, but how likely is it that Obama is going to do that? His choice for SEC chairman, FINRA chief Mary Schapiro, was an appalling endorsement of the status quo. That does not bode well for future SEC appointments.

As Susan Antilla pointed out at the time, "Schapiro comes to the job with the mindset that financial industry members should be part of the policing process." Her appearing on the cover of the penny stock-pumping organ "Equities" magazine, which she went out of her way to heartily endorse, indicates to me that she is more part of the problem than the solution.

As the lamentable Schapiro appointment indicates, it appears that Obama has surrounded himself with advisors that makes any significant change in market regulation unlikely. Still, I'd be delighted to be proven wrong.

© 2009 Gary Weiss. All rights reserved.