Why I Am Leaving Goldman Sachs

Tropo · 14th Mar, 2012

http://www.nytimes.com/2012/03/14/opinion/why-i-am-leaving-goldman-sachs.html?_r=1&hp

Chris C · 15th Mar, 2012

I read a letter by Warren Buffett back in 2006 that just makes me think that The Goldman Sachs model was inevitable:

The explanation of how this is happening begins with a fundamental truth: With unimportant exceptions, such as bankruptcies in which some of a company's losses are borne by creditors, the most that owners in aggregate can earn between now and Judgment Day is what their businesses in aggregate earn. True, by buying and selling that is clever or lucky, investor A may take more than his share of the pie at the expense of investor B.

And, yes, all investors feel richer when stocks soar. But an owner can exit only by having someone take his place. If one investor sells high, another must buy high. For owners as a whole, there is simply no magic -- no shower of money from outer space -- that will enable them to extract wealth from their companies beyond that created by the companies themselves.

Indeed, owners must earn less than their businesses earn because of "frictional" costs. And that's my point: These costs are now being incurred in amounts that will cause shareholders to earn far less than they historically have.

To understand how this toll has ballooned, imagine for a moment that all American corporations are, and always will be, owned by a single family. We'll call them the Gotrocks. After paying taxes on dividends, this family -- generation after generation -- becomes richer by the aggregate amount earned by its companies.

Today that amount is about $700 billion annually. Naturally, the family spends some of these dollars. But the portion it saves steadily compounds for its benefit. In the Gotrocks household everyone grows wealthier at the same pace, and all is harmonious.

But let's now assume that a few fast-talking Helpers approach the family and persuade each of its members to try to outsmart his relatives by buying certain of their holdings and selling them certain others. The Helpers -- for a fee, of course -- obligingly agree to handle these transactions. The Gotrocks still own all of corporate America; the trades just rearrange who owns what.

So the family's annual gain in wealth diminishes, equaling the earnings of American business minus commissions paid. The more that family members trade, the smaller their share of the pie and the larger the slice received by the Helpers. This fact is not lost upon these broker-Helpers: Activity is their friend, and in a wide variety of ways, they urge it on.

After a while, most of the family members realize that they are not doing so well at this new "beat my brother" game. Enter another set of Helpers. These newcomers explain to each member of the Gotrocks clan that by himself he'll never outsmart the rest of the family. The suggested cure: "Hire a manager -- yes, us -- and get the job done professionally."

These manager-Helpers continue to use the broker-Helpers to execute trades; the managers may even increase their activity so as to permit the brokers to prosper still more. Overall, a bigger slice of the pie now goes to the two classes of Helpers.

The family's disappointment grows. Each of its members is now employing professionals. Yet overall, the group's finances have taken a turn for the worse. The solution? More help, of course.

It arrives in the form of financial planners and institutional consultants, who weigh in to advise the Gotrocks on selecting manager-Helpers. The befuddled family welcomes this assistance. By now its members know they can pick neither the right stocks nor the right stock pickers. Why, one might ask, should they expect success in picking the right consultant? But this question does not occur to the Gotrocks, and the consultant-Helpers certainly don't suggest it to them.

The Gotrocks, now supporting three classes of expensive Helpers, find that their results get worse, and they sink into despair. But just as hope seems lost, a fourth group -- we'll call them the hyper-Helpers -- appears. These friendly folk explain to the Gotrocks that their unsatisfactory results are occurring because the existing Helpers -- brokers, managers, consultants -- are not sufficiently motivated and are simply going through the motions. "What," the new Helpers ask, "can you expect from such a bunch of zombies?"

The new arrivals offer a breathtakingly simple solution: Pay more money. Brimming with self-confidence, the hyper-Helpers assert that huge contingent payments -- in addition to stiff fixed fees -- are what each family member must fork over in order to really outmaneuver his relatives.

The more observant members of the family see that some of the hyper-Helpers are really just manager Helpers wearing new uniforms, bearing sewn-on sexy names like HEDGE FUND or PRIVATE EQUITY. The new Helpers, however, assure the Gotrocks that this change of clothing is all-important, bestowing on its wearers magical powers similar to those acquired by mild-mannered Clark Kent when he changed into his Superman costume. Calmed by this explanation, the family decides to pay up.

And that's where we are today: A record portion of the earnings that would go in their entirety to owners -- if they all just stayed in their rocking chairs -- is now going to a swelling army of Helpers. Particularly expensive is the recent pandemic of profit arrangements under which Helpers receive large portions of the winnings when they are smart or lucky, and leave family members with all the losses -- and large fixed fees to boot -- when the Helpers are dumb or unlucky (or occasionally crooked).

A sufficient number of arrangements like this -- heads, the Helper takes much of the winnings; tails, the Gotrocks lose and pay dearly for the privilege of doing so -- may make it more accurate to call the family the Hadrocks. Today, in fact, the family's frictional costs of all sorts may well amount to 20 percent of the earnings of American business. In other words, the burden of paying Helpers may cause American equity investors, overall, to earn only 80 percent or so of what they would earn if they just sat still and listened to no one.

Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac's talents didn't extend to investing: He lost a bundle in the South Sea Bubble, explaining later, "I can calculate the movement of the stars, but not the madness of men." If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the fourth law of motion: For investors as a whole, returns decrease as motion increases.
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Tropo · 15th Mar, 2012

11 Reasons America Would Be A Better Place Without Goldman Sachs

11 Reasons America Would Be A Better Place Without Goldman Sachs - Seeking Alpha

wdongli · 16th Mar, 2012

Tropo said: ↑

...reasons-america-would-be-a-better-place...[/url]
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We could find more than any number of reasons why capitalism should be at its end, actually it has motivated a lot of clever and ethical people turned it as their causes.

However they just forget anything from human kind could do bad or good things based on the contexts and conditions. How many youths who were promising and capable, dedicated their life for the pig chiefs rather than their workers since communism became popular in this world.

***
Most of market players don't know and have not capability to analyze what different scenarios of consequences ahead but tend to be judges for what they just could not really know. Business sometimes do need the capital and they just could not get the capital from market by themselves. The profit could motivated the people for unfair deals. Don't throw your baby with the bath water into the windows, which is right or wrong logically?

Sword can kill people and also can protect people. Human has very complicated minds. They do need different things in different environments. Do you know those? If you don't know these basic, the more reasons you find for what you believe the more damages you would make to you and others.

What is the most fearful matter in the war? Things changes but the commanders just plan as what it was 3 or 4 years ago! Still could not figure out why genius tend to fall into the hell? They have no IQ for basic logic and common senses as I did before 2004.

***
Wrong belief and stubbornness kill all of promising matters! Right belief in one field and abused in other fields would result in humiliated losing! Market is a place to win for profit and voting and political movements are the ways to correct the social ills.

Human needs the market as he needs the second wealth or third wealth distribution, which are about the balance between the motivation and equality. All equal->all in the hell! 99% struggle for mouths->robbing and revolution. In this sense Australia seems have a very good system which better than US and China.

So a balanced mental framework is necessary condition if you really want to be fair and get what you deserve in the market. If you just cry since you could lose what you have or could not get what you get, you could be extremists on somethings Mr. Market hates to see.

***
But we have to know desperate people would be the losers since desperate people do desperate things, and since GFC and the crashes in last one years, just have generate too many bad things to make anyone in the market feel some sort of desperation.

Yes there's a lot of desperation, there's a lot of people living very close to the edge. It's not a happy time. it certainly puts enormous pressure on it. There is a resurgence of biases, a resurgence of illogical thinking and action.

Yes it makes the time you just could not find the reasons to be happy. Crashes hit you. Recovery is the time for you to miss the train. You believe it is zero sum games where people think 'your win is my loss.

So what will happen? You don't care about the chances any more even you still could not leave the lines and patterns aside. Happy life in the market is not easy!

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Why I Am Leaving Goldman Sachs

Tropo Well-Known Member

Chris C Well-Known Member

Tropo Well-Known Member

wdongli Well-Known Member

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Why I Am Leaving Goldman Sachs

Tropo Well-Known Member

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