Sebastian Mallaby, author of More Money Than God: Hedge Funds and the Making of a New Elite, has written an oped in the FT (subsciption likely needed) highlighting the exquisitely self-interested spinelessness of Goldman, Sachs, which has just published a hippy-shit manifesto of promises to love its clients more after paying out a bunch of money to the SEC rather than defend its conduct and business model in court. Particularly righteous is Mallaby’s defence of hedge funds, which have taken such media stick in the past couple of years when it was really the money pigs of the investment banking establishment who deserved the spanking. I don’t go a bundle on either group as a species, but the Wall St. investment bankers are so obviously more malign.
All you actually need to read of Mallaby’s piece is the last two pars, so here they are:
‘The truth is that investment banks are rife with potential conflicts – first between their trading and that of their clients, and second between various classes of customer, whom banks may serve as advisers, market-makers, underwriters or as a fiduciary. No amount of yogic incantation can harmonise these split personae; the solution is to break banks into functional units, so that merger experts, marketmakers and proprietary traders no longer cohabit. A refashioned Wall Street of specialist boutiques would be healthier for customers. And since the boutiques would be smaller than today’s megabanks, they might be small enough to fail.
Of course, this has long been evident to anyone who cared to look. An army of specialist advisory firms and hedge funds – ignorantly attacked as “shadowy” because they lack publicists and friends in Washington – has sprung up on the principle that focused private partnerships are preferable to conflicted behemoths. But for years policymakers have shrunk from challenging the big investment banks, comforting themselves with the thought that if the customers did not like them they would vote with their wallets. The customers, for their part, have been either awed or ignorant. Perhaps Goldman’s pieties will encourage them to wake up.’
I am not sure the very last bit is quite right: that customers have gone with the investment banks only because of awe and ignorance — though there is plenty of both about. Customers have also gone with big investment banks because the regulatory structure hasn’t given them options. You can’t go to a hedge fund for an IPO or working capital. The politicians are therefore doubly to blame. And who has put more of its people into senior US political jobs in the past 20 years than any other big bank? Goldman. One day I will blog about my bizarre encounter with Hank Paulson in a West Virginia toilet.