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A Muppet's view of Goldman Sachs

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18 March 2012. It wasn't surprising to me to read in a New York Times piece entitled "Why I am leaving Goldman Sachs", how people "talk about ripping their clients off", and, how various managing directors "refer to their own clients as muppets". New York Stock Exchange The raison d'être of companies is to make a profit - they do this by offering a service or selling a product. And some companies manage to charge higher margins than others for the same product/service, in other words they are better at "ripping their clients off". It's only the naive who believe that companies solely have their best interests at heart. The only thing that was surprising was that Greg Smith (a South African who last week resigned from Goldman Sachs) wrote the piece at all - most participants in financial services companies are too scared to speak their mind so freely - it's career limiting.

Smith schooled in Johannesburg

Smith hails from Johannesburg, South Africa, where he schooled at King David's Linksfield, and was a top ping pong player.

This muppet's experience of Goldman Sachs

I interacted with Goldman Sachs for about a year. I've also worked extensively with financial sales-folk, and they are generally friendly & wonderful people to be around, but so overwhelmed by the ever-growing range of products they have on their menu, that they don't have an intricate knowledge of many of them. The Goldman Sachs salesman I worked with was the most persistent financial salesperson I've met, and had a deep knowledge of his product. He was very good at figuring out where the areas were in our business that Goldman Sachs could potentially work with us, and pitched a fairly complex derivatives solution to one of the issues. I was impressed at how well Goldman Sachs are connected, with the solution allowing them to act as the middleman, connecting buyers with sellers, and taking their cut at very little risk to themselves (they never ever told me enough to figure out what their cut would be!). I was well aware that Goldman aren't a charity and were aiming to make money out of the deal, and I paid attention to what their interests were, and how they, as a conflicted party, might want to close the deal even if it wasn't in our interests. I think that the mistake that some of us muppets make, are that the financial solutions are so complex, that we place trust in our counterparty that they are looking after our interests, rather than taking the effort to figure out the products. In my particular case, after a few meetings, I decided that there were better solutions to the issue than what Goldman Sachs proposed (and getting them to let go of that was like trying to tear a bone from a pitbull terrier).

Goldman Sachs investment conference in London

During the process of working with them, I was invited to a Goldman Sachs investment conference in London, and was looked after like a king. The conference was at a luxurious estate just outside London, and the investment presentations were first class. There was a lot of sales pressure - Goldman employees were very keen on finding issues in our business and areas where they could help. I remember at dinner a Goldman Sachs executive saying that 98% of people who have attended their investment conferences have subsequently closed a deal with them. So, the investment conferences are free, but there's a huge expectation that you'll do business with them. All companies want to perfect the art of closing deals, but Goldman Sachs are masters at it.

What to take from this

When you're dealing with companies (including but not only financial services companies) carefully consider what their interests are. Clearly one interest would be making money out of you, and this may lead them to direct you to the solution that will make them the most money rather than the one that is in your interests. Products, especially financial products, can get complex - never buy something that you don't understand.

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