Goldman needs to lose Gekko image

August 4, 2009

So, Goldman Sachs has a “Gordon Gekko feel to it” according to an executive at Brand Asset Consulting. In a survey of leading U.S. brands, the market research firm has reached the conclusion that the investment bank’s stature has been diminished in the eyes of the public by recent events.

Somehow, this fails to do justice to the emotions the name Goldman <GS.N> stirs in the breast of the average American.

Goldman’s stature isn’t diminished; the firm is becoming actively hated, and this emotion is going mainstream. When Rolling Stone magazine recently published a story describing Goldman as a “vampire squid wrapped around the face of humanity”, its author, Matt Taibbi, was simply saying what a lot of people think — if more eloquently and memorably.

Normally, the good opinion of the wider world, or of its rivals, shouldn’t matter too much to the steely-eyed Wall Street firm. So long as Goldman continues to be supremely well-represented in the corridors of power, retains the respect (if not affection) of its clients, and is able to hire the brightest bankers, then what Joe Public thinks is surely largely irrelevant.

Goldman itself seems to believe this. Despite public revulsion at the excesses of Wall Street, it has returned as quickly as possible to normal service sucking up cheap government and Fed funding, making pots of money trading for its own account and paying fat bonuses to staff. Meanwhile, it has liberated itself from the political fetters of the TARP.

 But it’s conceivable that the great squid has miscalculated.
 
The risk it is running is not that clients will desert the firm. It is more that the hostility of the general public may make it vulnerable to a populist backlash. Quite what form this may take is unknown. But history provides an uncomfortable parallel from the thirties — the last time the public thirsted for revenge on Wall Street. In 1933, an equally well-connected and powerful firm, the house of Morgan, was broken up after a celebrated series of Congressional hearings that take their name from the committee’s counsel, Ferdinand Pecora.
 
Called upon to investigate the causes of the 1929 crash, Pecora mounted a populist attack on Morgan. Some of what he uncovered was scurrilous, such as the existence of a “preferred list” by which the firm rewarded influential friends (such as ex-president Calvin Coolidge) with shares in stock offerings at deeply discounted rates. But much was innocuous. True, Morgan partners paid no taxes in 1931 and 1932. But what was lost in the hubbub was that they did so because of heavy stock market losses.

So unpopular was Morgan with the public, however, that the bandwagon swiftly became unstoppable. The government had not planned to rope private banks like Morgan into new banking legislation designed to stop deposit taking “national” banks from underwriting securities. But when the national banks offered to accept the so-called Glass-Steagall restrictions without demur so long as Morgan was included, its goose was cooked.

As Ron Chernow observed in his book “The House of Morgan” the firm was caught on the hop because it did not take the hostility it faced seriously until it was too late. Morgan believed public opinion to be largely irrelevant to men of business. Yet when the public turned on Morgan, not even its powerful friends could defend it from one determined district attorney.
 
This may be the mistake that Goldman too is making. The qualities that have allowed it to become so dominant in its industry could work against it in the public arena.  After all, would Lloyd Blankfein do any better on the stand than Jack Morgan?
 
There is no modern-day equivalent to Glass-Steagall on the horizon, and it is unclear what legislation could clip Goldman’s wings without damaging the rest of the investment banking industry. But Goldman has become identified in the public mind with a shadowy and greedy business that helped to trigger a vast crisis. That makes it vulnerable in a way it has not been in the past.
 
In the film Wall Street, the odious Gekko advises a novice trader to get a dog if he wants a friend. To date that has seemed to typify Goldman’s attitude. The bank could do with a few more friends — preferably of the human kind.

8 comments

Comments are closed.