Fabulous lessons from Fab
By John Manley
Three years ago, Goldman Sachs bond trader Fabrice Tourre, emailed his girlfriend Marine. Amid the amour and tendresse, “Fabulous Fab” expressed his misgivings about his job: he was conflicted about selling financial instruments that he thought were destined to fail.
Though Fab tried to rationalise his role as a small cog helping the huge engine of the capital markets operate more efficiently, he didn’t appear entirely convinced that this cleared him of any ethical responsibility.
“Anyway, not feeling too guilty about this,” Fab wrote to Marine in January 2007. “The real purpose of my job is to make capital markets more efficient and ultimately provide the U.S. consumer with more efficient ways to leverage and finance himself, so there is a humble, noble and ethical reason for my job amazing how good I am in convincing myself !!!”
The SEC charges in a civil suit that Tourre and Goldman fraudulently marketed a synthetic CDO by hiding crucial information from investors, including the role that hedge fund Paulson & Co played in picking mortgage products tied to the CDO. Paulson & Co subsequently shorted the Abacus CDO.
Tourre is due to testify before a US Senate panel on Tuesday, along with Goldman Chief Executive Lloyd Blankfein and other former and current executives.
In another email, Fab admitted to a friend his concern over selling products into a market that was crumbling: “It’s bizarre I have the sensation of coming each day to work and re-living the same agony – a little like a bad dream that repeats itself.”
Fabulous Fab wasn’t the only individual in the subprime mortgage market who believed that the bubble was going to burst. Many, including Paulson, were well-known to be betting against the market.
Fab was on the horns of a dilemma – a dilemma that must be familiar to many in the financial markets. Do you carry on marketing your company’s products, even though you, personally, think they’re going to fail?
Clearly, what you don’t do is what the SEC has accused Goldman and Tourre of doing, and which they deny – you don’t lie about your products to clients.
But what do you do, if your job is to market an IPO or a bond issue and you’re not 100% convinced it’s a winner?
Do you admit your concerns to clients? If you do, you won’t shift many securities.
Do you admit to your bosses you have no confidence in the issue? That might be a career-limiting exercise.
Or do you just smile and tell clients this is the best investment opportunity they’ve ever seen? Couldn’t that be construed as misrepresenting your products to your clients?
One unfortunate lesson we might learn from Fabulous Fab is that, if you do have any misgivings about the products your company tells you to design, market and sell: don’t admit it in any emails.
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