Wednesday, October 20, 2010

Progress... the Goldman way

Truly, it's one of the most interesting business dilemmas of the new millennium. Goldman Sachs is raking in money, hand over fist, maximizing opportunities to profit despite an enduring and severe recession that is crippling the rest of the country.

If you look at their website, they tell you right up front what they believe in: progress. Because it's everyone's business. And Goldman Sachs is bringing "people, capital and ideas together to help our clients and the communities we serve."

They've also launched a new PR campaign that helps educate the masses on the benefits Goldman offers to the nation.

And yet, they get no respect.

Why is that, one wonders?

Because their PR campaign about their impact on progress is a lot of hogwash. It's PR mumbo jumbo. If we've learned ANYTHING about Goldman Sachs during this recession, it's that they'll do ANYTHING for a buck.

And the only client they serve faithfully, with dedication and respect, is their internal customer. Themselves.

How do I know? Because for two years now, they've told us that if they don't get their bonuses, the bright minds of Goldman Sachs will leave. In a huff. Because their bonus didn't live up to the brand promise of working for Goldman.

NEVER MIND that the financial sector (of which Goldman is the self-professed leader) exists today thanks only to a generous welfare policy coming out of Washington.

NEVER MIND that the economy is in a shambles, thanks in part to questionable investment instruments coming out of companies like Goldman Sachs, investment "opportunities" that packaged up bad debt and sold it to pension funds, etc.

NEVER MIND that Goldman Sachs can sell an investment instrument to one party, while simultaneously selling insurance to another guaranteeing a tidy profit should the Goldman Sachs investment instrument explode like a grenade, killing all the investors.

Try translating that business model to any other industry - meat packing, pharma, toy manufacturers, etc. As an example, let's just say an egg distributor knew its egg farms were filled with salmonella, that the eggs they sold were tainted by this bug, and it was, in their expert mind, a possibility that their eggs would cause serious illness to those who consumed them. [After all, they know how to count their chickens and eggs!] To maximize profit, to hedge against the catastrophe of an impending salmonella outbreak, they not only sold the eggs, but packaged up and sold a generous insurance policy to an outside firm (for a nice sum) that allowed the outside firm to profit enormously from the pain and agony caused by a salmonella outbreak.

Goldman Sachs can do what an egg company cannot. Yes, it paid a fine of $550 million for "mistakes" it has made in the Abacus deal, for "misleading investors," providing "incomplete information" and failing to clue the investors in on the fact that John Paulson was on the other side of the deal. But the deal itself would have been okay, if not for those paperwork issues.

Not really. Not if you want people to respect you. You cannot sell something to one party and sell insurance to another that ensures profit if your instrument fails catastrophically.

To earn respect, you actually need to stand by your instruments. You need to help your investors, not make them realize that if you choose to invest with Goldman, it's "buyer beware."

PR mumbo jumbo is meaningless without action to back it up, and Goldman Sachs has a long way to go to burnish the image of a once proud firm. In the meantime, they can happily count on their bonuses. Because let's face it. The bankers at Goldman are very, very, very good at capitalizing on the distress of others.

Strange that they suddenly need respect to go with their bonuses. But they might just be realizing that a "buyer beware" business model can turn customers into former customers.