The Dirt Bag Chronicles

'N every gimmick-hungry yob digging gold from rock 'n roll
Grabs the mike to tell us, he'll die before he's sold.
But I believe in this—and it's been tested by research—
he who fucks nuns, will later join the Church.

— The Clash, "Death or Glory"

Seriously, now, can we all just agree to put a stake once and for all in this Goldman Sachs reputation-thingy?

I have repeatedly shaken my head in wonder over the years at Goldman Sachs' apparently preternatural ability to maintain an absolutely spotless public image while simultaneously soiling itself in full view of everyone in the most miserable and abject manner possible.

The white shoe investment bank has slip-streamed for years on its hoary reputation as the industry's premiere, incorruptible bastion of unbiased advice for corporate clients, even as it has led the industry in self-dealing and unprecedentedly egregious conflicts of interest, like the famous example of being on all three sides of the NYSE/Archipelago transaction. Its proprietary trading operations continue to awe and terrify spectators and participants alike in the capital markets, even as its internal hedge funds have tripped over their own genitalia more times than can be recounted in a family newspaper. And, most impressively of all, the storied house has developed a reputation for grooming leaders and senior executives for high position in industry, academia, and government which even David Halberstam's Best and Brightest would envy.

Unfortunately for its boosters and acolytes, however, the wheels seem to be rapidly coming off the last carriage in this juggernaut. Henry Paulson, who looked like he stepped right out of Central Casting on his way to Treasury, proved himself not only tongue-tied and inarticulate in his role as chief spokesman for the American financial system but also shortsighted, ill-prepared, and inept in dealing with its burgeoning collapse. Robert Rubin, who has been walking on water for, oh, the last ten years or so, not only tripped and fell headfirst into the soup but also made a fool of himself by arguing indignantly that he is not even damp. Today, we get the spectacle of former Golden Boy and Christopher-Reeves lookalike John Thain getting frogmarched out of Bank of America on the back of an $87,000 rug.

How far the mighty have fallen.

* * *

There was a day, I grant you, not too long ago, when Goldman's reputation was frustratingly well-earned. Speaking from my long experience as a competitor and collaborator with GS on many deals, I rarely met anyone from its investment bank who ranked better than a B+ player in terms of intelligence, transaction skills, or client management capabilities, no matter what his or her resumé might lead you to believe.¹ But those boys (and girls) were disciplined, and they communicated the hell out of each other all the time. They were fierce about protecting and burnishing their firm's reputation, and they arguably spent more time managing and massaging their clients' perceptions about Goldman's performance than they did actually serving them. This, plus the firm's no-star culture, gave most clients a tremendous sense of security and institutional competence that assuaged any doubts they might have had about the individual bankers on their own deal.

As for themselves, Goldman Sachs bankers below the level of Partner were famous on the Street for being both significantly underpaid (and sometimes even overworked) relative to their peers at other firms. The firm did not hire or tolerate prima donnas. Before the firm's IPO, the prestige and set-for-life wealth which accompanied a Goldman partnership were what kept most of the rank and file slaving away in relative obscurity. Its employees had tremendous esprit de corps, and top management did an outstanding job both harnessing and preserving that resource. Goldman bankers were like the Borg, and that's who most clients wanted in their corner.

But it has been some time now since Goldman's reputation has outstripped both its capabilities and its intentions. Gus Levy's brilliant strategy that GS should be "long term greedy" is clearly a dusty relic honored in name only within the confines of 85 Broad Street. More than a year and a half ago, before Wall Street and the rest of the global economy decided to skydive without a parachute, a grizzled veteran of the ancien régime, John Whitehead, launched an unprecedented broadside at his former colleagues and mentees. His basic criticism: in a futile attempt to keep up with pay levels at hedge funds and other principal investing firms, Goldman executives were gutting the institutional culture of their firm by stoking the destructive fires of personal greed.

Nineteen months later, I find it hard to argue with Mr. Whitehead's analysis or predictions.

* * *

I don't know about you, Dear Readers, but I find the spectacle of Mr. Thain spending over $1.2 million to redecorate his already palatial office at Merrill Lynch at the same time he was cutting back on employees' use of car service, business travel, and client entertainment—expenses normally made in the service of revenue generation—a wee bit tasteless. Certainly, the sense of entitlement implicit in such behavior seems of a piece with the fat signing bonus Mr. Thain negotiated for himself when he jumped to head Merrill and the packages he arranged for chief lieutenants as well.² (Capital markets head Thomas Montag, another Goldman alum shitcanned today, will walk away with the tidy sum of $39.4 million in cash for less than six months' work, plus accelerated vesting, also in cash, of the restricted Merrill stock he received for the Goldman shares and options he gave up when he joined the Thundering Herd.)

Some people might ask what's the big deal. Surely Bank of America negotiated these employment packages at arm's length, and Thain and Montag simply demonstrated their excellent banker skills by negotiating great packages for themselves, no? And, in the context of Merrill Lynch's then-monstrous income statement, a $1.2 million redecoration expense cannot have even risen to the level of a rounding error. The CEO of a global investment bank needs an impressive office to wow clients and cow subordinates, doesn't he?

Yes, but.

* * *

Thain is certainly not alone in exploiting his position atop a gigantic global investment bank to indulge his personal pleasures at shareholder expense. During his empire-building phase at Citigroup, Sandy Weill installed wood-burning fireplaces in both his Midtown and Tribeca offices for a rumored cost of several hundred thousand dollars apiece, continuing a tradition he had begun all the way back to his stint at Shearson.

During good times, no-one seems to notice or mind such extravagances, because they are so small in the scheme of things. When the worm turns, however, as it is doing now, the long knives come out, and it is an entirely different matter.

Perhaps Mr. Thain is simply unlucky, someone who rose to power at the best-reputed investment bank on Wall Street during a time when shareholders, lenders, and prime brokers could not wait to throw their money at the money spinners of 85 Broad Street and who now does not know how to behave in these straitened times. Perhaps Goldman itself is an institution whose time has come and gone, and whose reputation now faces a long, hard decline from the pantheon of banking greats. Messrs. Thain, Paulson, and Rubin certainly rode Goldman's coattails into positions of wealth, power, and reknown. It does not seem unreasonable to expect Goldman's own reputation will wither as its former demigod alumni crash and burn all around it.

In any event, I think it fair to let everyone at Goldman in on a secret the rest of us have known for quite some time: Your shit does stink, after all.

¹ Lest my Patient Readers suspect an unalloyed case of sour grapes in their Dedicated Correspondent, be it known that I claim no special gifts in these areas either, just the ability to judge them in others, which is not that difficult. Also, for full disclosure, I admit that I too tried to get into Goldman Sachs as a wee bairn fresh from business school, but I tested too high for independence and insubordination, which were not viewed kindly by the firm at the time.
² And of a piece, as well, with the approximately $115 million Bob Rubin siphoned out of Citigroup since 1999, in recompense for performing an advisory job with no explicit duties, responsibilities, or even—as he currently insists—accountability, all the while helping persuade the Board and CEOs to steer the company into a ditch.

© 2009 The Epicurean Dealmaker. All rights reserved.

The Choice of Herakles

A dialogue, from The Memorabilia, or Recollections of Socrates, by Xenophon, translated by H.G. Dakyns:

I. Duty, or Virtue:

"I will not cheat you with preludings of pleasure, but I will relate to you the things that are according to the ordinances of God in very truth. Know then that among things that are lovely and of good report, not one have the gods bestowed upon mortal men apart from toil and pains. Would you obtain the favour of the gods, then must you pay these same gods service; would you be loved by your friends, you must benefit these friends; do you desire to be honoured by the state, you must give the state your aid; do you claim admiration for your virtue from all Hellas, you must strive to do some good to Hellas; do you wish earth to yield her fruits to you abundantly, to earth must you pay your court; do you seek to amass riches from your flocks and herds, on them must you bestow your labour; or is it your ambition to be potent as a warrior, able to save your friends and to subdue your foes, then must you learn the arts of war from those who have the knowledge, and practise their application in the field when learned; or would you e'en be powerful of limb and body, then must you habituate limbs and body to obey the mind, and exercise yourself with toil and sweat."

II. Happiness, or Vice:

"I see you, Heracles, in doubt and difficulty what path of life to choose; make me your friend, and I will lead you to the pleasantest road and easiest. This I promise you: you shall taste all of life's sweets and escape all bitters. In the first place, you shall not trouble your brain with war or business; other topics shall engage your mind; your only speculation, what meat or drink you shall find agreeable to your palate; what delight of ear or eye; what pleasure of smell or touch; what darling lover's intercourse shall most enrapture you; how you shall pillow your limbs in softest slumber; how cull each individual pleasure without alloy of pain; and if ever the suspicion steal upon you that the stream of joys will one day dwindle, trust me I will not lead you where you shall replenish the store by toil of body and trouble of soul. No! others shall labour, but you shall reap the fruit of their labours; you shall withhold your hand from nought which shall bring you gain. For to all my followers I give authority and power to help themselves freely from every side."

III. Duty, or Virtue:

"Nay, wretched one, what good thing hast thou? or what sweet thing art thou acquainted with—that wilt stir neither hand nor foot to gain it? Thou, that mayest not even await the desire of pleasure, but, or ever that desire springs up, art already satiated; eating before thou hungerest, and drinking before thou thirsteth; who to eke out an appetite must invent an army of cooks and confectioners; and to whet thy thirst must lay down costliest wines, and run up and down in search of ice in summer-time; to help thy slumbers soft coverlets suffice not, but couches and feather-beds must be prepared thee and rockers to rock thee to rest; since desire for sleep in thy case springs not from toil but from vacuity and nothing in the world to do."

* * *

The long and fevered pursuit of Happiness we have followed in this country for many years is over. We have woken with a start from our beguiling dreams of effortless success, enduring fame, and endless wealth, nursing a raging hangover. Before us lies the dispiriting vision of a steep and stony road out of a dim and drear valley.

Many have speculated on the various reasons we have come to this pass. Commentators, spectators, and participants all flog their pet theories, and the only thing more certain than their pointing of fingers at every culprit they can imagine is that virtually no-one is pointing his finger at himself.

But the moralist in me—repressed, ignored, and ridiculed most of the time, I grant you—begs to differ.

It has been a long time in this country since the ideals of sacrifice, honor, courage, and integrity were both admired and aspired to by the common man. (These words sound so dusty and awkward that I am almost—almost—embarrassed to write them here.) What is admired now is fame and its idiot cousin, celebrity, and wealth and its bastard offspring, money-for-nothing. How else can you explain the millions of column inches wasted on the vapid self-promotion of a brainless, talentless, beauty-less hotel "heiress?" Or the fact that Steve Schwarzman is mostly known outside financial circles for the egregiously self-congratulatory 60th birthday party he threw to crown himself the new King of Wall Street?

Sure, we make an occasional nod to the old virtues, like when we applaud the tense and wary knots of servicemen and women passing through an airport on our way to a Disneyland vacation or a billion-dollar closing dinner. We know we are supposed to admire such things, and the people who embody them. At some level most of us probably do. But what have we Americans sacrificed lately? When did you last act with honor, courage, or integrity?

Much is made by everyone about the greed and rampant, unbridled speculation that convulsed Wall Street over the last several years. Billions, if not trillions, of dollars were squandered in pursuit of ever-increasing bonuses for bankers and ever-increasing profits for shareholders (many of whom were the very same bankers in charge of the asylum). Of this, there can be no doubt. But these bankers did not act in a vacuum. Everyone who purchased a stock, or mortgaged a house, or took out a home equity line over the last seven years helped inflate the bubble which continues to burst.

Do not plead ignorance to me. No matter how far you were from the centers of finance, did you really believe it was your God-given right to enjoy 20+% annual price appreciation in your cookie-cutter Vegas mini-mansion? Did you really think it was clever or even prudent to treat your home like an ATM, withdrawing cash every quarter to purchase the cars, clothes, and plasma televisions your bog-standard middle management job wouldn't allow you to afford? Really?

I didn't think so. Just as all those rich pals of Bernie Madoff knew, at some level, that something just wasn't right with his year-in, year-out 10–12% returns, come hell or high water. But they took the plunge anyway. Who wouldn't want into a sure thing, even if it smelled to high heaven? Who, indeed, would turn down money for nothing?

* * *

Well, the days of the apparently free lunch seem well and truly over. Masters of the Universe face the prospect of working for years just to get back to breakeven, much less earn performance fees, and Titans of Wall Street are busy helping the Missus shop for bulk toilet paper at Costco, if they are not testifying in bankruptcy court.

Tomorrow, we will witness the swearing-in of the first black President of the United States. Many of us in this country voted for this man under the rubric of change. Most of those who voted for his opponent advocated change, as well. But now that we have it, just what sort of change have we voted for? Do we even know?

I don't know, and I refuse to make any predictions about this administration or the next few years in our economy. But what I will say is that the change we should be looking for—the change that will ultimately make a lasting difference in our country, our economy, and our lives—better come first from within.

It is not too late to take the high and stony road to Virtue. It is not too late to remind ourselves what it means to exercise restraint, to celebrate the old virtue of simple competence when we undertake a job. To do well, to work hard, because it is our job; to take pride in a job well-done, not because we think we're going to win the lottery. It is also time, in my humble opinion, for integrity to replace unprincipled greed, for humility and modesty to replace hubris, and for honor and courage to replace opportunism. The good news—and the hard news, as well—is that all of you get to make your own decision on the subject.

And there, Dear Readers, is the rub. For, in the immortal words of Pogo:

"We have met the enemy and he is us."

© 2009 The Epicurean Dealmaker. All rights reserved.

A Garland Briefer than A Girl's

Robert Rubin is retiring.

It is past time. He has had a long run, but I am afraid the former charter member of the Committee to Save the World has worn his honors and his reputation out.

Now he must play an old man's game, working long days and nights, against declining health and energy, to salvage the reputation he squandered in his dotage. There certainly is no upside to him remaining at Citigroup, where he has been reduced to shooting holes in his own resumé by defending the indefensible.

I used to like and respect Bob Rubin. Not so much any more. No-one gives a shit what I think, but I know I am not alone.

They say investment banking is a young man's game. Rubin is yet another example, from a sad and unexpected direction, of the ultimate truth of those words.

* * *

The time you won your town the race
We chaired you through the market-place;
Man and boy stood cheering by,
And home we brought you shoulder-high.

To-day, the road all runners come,
Shoulder-high we bring you home,
And set you at your threshold down,
Townsman of a stiller town.

Smart lad, to slip betimes away
From fields where glory does not stay
And early though the laurel grows
It withers quicker than the rose.

Eyes the shady night has shut
Cannot see the record cut,
And silence sounds no worse than cheers
After earth has stopped the ears:

Now you will not swell the rout
Of lads that wore their honours out,
Runners whom renown outran
And the name died before the man.

So set, before its echoes fade,
The fleet foot on the sill of shade,
And hold to the low lintel up
The still-defended challenge-cup.

And round that early-laurelled head
Will flock to gaze the strengthless dead,
And find unwithered on its curls
The garland briefer than a girl’s.

— A.E. Housman, To an Athlete Dying Young

© 2009 The Epicurean Dealmaker. All rights reserved.

Greatest Hits of 2008

Whew! I'm glad that's over.

What a miserable and bloody year 2008 was. I don't know about you, Dearly Beloved and Much Suffering Readers, but I couldn't wait to see the back of it. Alas, my relief is tempered by certain knowledge that we will only be allowed to doff last year's stylish habiliment of funereal black in exchange for donning this year's model of sackcloth and ashes.

This is the way the world ends
This is the way the world ends
This is the way the world ends
Not with a bang but a whimper.

— T.S. Eliot, "The Hollow Men"

Anyway, I am sure many of you are wondering why I am troubling you on the morning after what should have been an epic quest to forget 2008, so I will make my remarks brief.

Dedicated followers of these pages will remember that I have been accustomed in the past to intermittently publish a brief list or two of posts appearing on this site which my Esteemed Audience has deemed worthy of particular attention, under the characteristically modest rubric of "The Canon." Attentive readers will also have noticed that it has been some time—since mid-2007, in fact—since I have updated this list. At the same time, this very period has been one during which an unusually large and varied quantity of folly, hubris, incompetence, greed, and other forms of Human Ordure particularly susceptible to your Dedicated Correspondent's gimlet gaze has been hitting the Fan of History.

I would apologize to you for this omission, but I must admit I have been rather too busy trying to keep my own head above water, and dispatching real-time reports from the front lines of chaos and despair, to be much concerned with conducting retrospectives. After all, when you are up to your ass in live alligators, it is usually considered ill-judged to devote much time to skinning, tanning, and mounting the hides of the few you have managed to kill.

Fortunately, you busy little scamps have continued to click away on this site throughout my absence, and, through the good offices of Google ("Do no evil [which does not lead to increased profits and the humiliation of Jerry Yang]") Analytics we have the results of your voting at hand. I must say I am gratified by the continuing increase in traffic to this little opinion emporium. Why, total page views on this site during 2008 edged comfortably into six figures, even after subtracting the tens of thousands of hits generated by the small army of Howler Monkeys I employ to boost ad revenue. (Word to the wise: bananas, bought in bulk, are still cheaper than AdWords.)

By a huge margin, the vast majority of you Dear Readers seem to come to this site via the main page. This indicates to me that either a) most of you are eager to sample my nutritious and tasty morsels of wisdom the minute they have been published—fresh from the oven, as it were—or b) most of you have shockingly indiscriminate taste. (Being in reasonably equable temper this morning, I will be magnanimous and assume the former.) The second most frequent page visit last year was to my profile, presumably by readers new to the site, email-harvesting spam-bots, or those few deluded souls who still look forward to the day I reveal my true identity (q.v., when Hell freezes over).

Barring these two entries (and the former's paler, wonkier cousin, /index.html), seven actual posts show up in the top ten list of visited pages for 2008. Without further ado, here they are:

THE CANON, Special Limited 2008 Edition

1) Overheard at 85 Broad Street (June): Venerable former white-shoe investment bank and now toaster-retailer Goldman Sachs demonstrates conclusively how not to fire people. (Warning: rated 11 on a scale of 1 to 10 on the Excoriometer, for very, very naughty language. TED was—how shall I put this—more than mildly pissed.)

2) The K-T Boundary (September): My prediction for the "future"—if one can call it that—of the investment banking industry after The Panic of 2008. Many, many words, most of which actually mean something for a change.

3) Ring, Ring! It's the Cluephone, for You (October): Pity the poor investment bankers. They really, really wanted bonuses this year and were hoping against hope a few months ago they might actually receive them. In cash. Oh well.

4) Scatology (March): Bear Stearns takes the pipe, in every sense. I would not object if you characterized this as a rant.

5) Et in Arcadia Ego (November): TED takes advantage of the recent ass-whuppin' of Harvard University's endowment to draw a few measured conclusions about higher education in America. Hey, I just spent a small fortune on private school tuition, so I'm allowed.

6) Molon Labe (September): Ruminations on the parallels between soldiers of fortune from different ages: Sparta and the present day. TED feels besieged by political correctness, and wallows in paranoid self-pity.

7) Bubble Land (May): A semiotic deconstruction of the Blackstone Group's first annual report as a publicly-owned company. Given that BX has lost almost 79% of its value from the 2007 IPO price, this annual report may soon become a one-of-a-kind collector's item. Snap it up, campers!

And for those of you with absolutely nothing to do over the long holiday weekend, feel free to peruse some previous entries from the list.

Look On My Works, Ye Mighty, and Despair!
More Works to Look On and Despair

One of these days, I might actually get around to filling in the lacuna from the second half of 2007, as well, but I wouldn't hold my breath if I were you.

Happy New Year.

© 2009 The Epicurean Dealmaker. All rights reserved.