Is paranoia necessary to survive on Wall Street?
In one sense, Goldman Sachs is no different from other investment banks. Junior employees are expendable. Like goldfish, investment banks eat their young when brand-protection and self-interest make cannibalism seem rationale.
Smart guys, rainmakers, anybody in the trenches--they're all vulnerable. Case in point: "fabulous Fab" otherwise known as Fabrice Tourre. He's thirty-one. His time at Goldman Sachs, it seems, is running out.
I'm no apologist for Tourre. But he's turning into a villain, which misses the point. Here's why:
1. During 2006, Goldman's traders clashed over the direction of subprime mortgages.
According to the New York Times, there were two camps inside Goldman Sachs. The pro-CDO traders enjoyed the upper hand until the fourth quarter of 2006. They placed big bets that mortgage bonds were safe and would rise in value.
These traders skirmished with others inside Goldman, who were structuring bets against subprime. In a firm the size Goldman Sachs, it's plausible that different camps had conflicting calls on CDOs.
2. Fabrice Tourre, negative on CDOs, found a way to do business.
There are no bonuses for avoiding train wrecks. Wall Street pays employees to write business. Not to wring hands and cry, "The sky is falling."
Tourre generated $15 million in fees from a hedge fund that shared his skepticism. Abacus 2007-AC1 was a synthetic CDO, which means it was based on credit default swaps. Said another way, Abacus 2007-AC1 could only exist by virtue of an investor's negative sentiment. In this case, it was John Paulson.
3. After subprime blew up, Goldman employees acknowledged Tourre's prescient call.
Goldman Sachs made $4 billion on its short bets during 2007. I never worked at Goldman and have no direct knowledge whether Tourre reached hero status. But employees, according to The New York Times, acknowledged and respected his market savvy.
"Egol and Fabrice were way ahead of their time," said a former Goldman worker. "They saw the writing on the wall in this market as early as 2005."
Somewhere along the way, Tourre received a $2 million bonus. Investment banks don't pay this kind of money to people who do a bad job.
4. In an angry world, Tourre became an easy target.
Goldman paid about $16 billion in bonuses on its 2009 bungee-jump earnings. This comp decision turned into the mother of all PR nightmares--except perhaps for one. Fabrice Tourre wrote some really unfortunate e-mails.
First, there was "fabulous Fab." Tourre's words evoke images dating back to Tom Wolfe's Bonfire of the Vanities. Now, there are additional e-mails that reveal Tourre's doubts about subprime and details about his personal life. On Saturday, Goldman released them, which led the Wall Street Journal to write:
The scope of the released documents led to widespread speculation that Goldman was seeking to make more-senior executives who also are caught in an uncomfortable political and public-relations spotlight look better by comparison to the 31-year-old trader.
I'm not buying it. Fish rot from the head down. And so do corporations. If Goldman Sachs turned negative on the subprime sector during the first quarter of 2006, why didn't they pull the Abacus 2007-AC1 deal at the last minute. Firms pull deals all the time.
5. It's not just "client beware." It's "employee beware."
We'll see what happens to Tourre in the months to come. On the Abacus 2007-AC1 pitch book, I counted the names of sixteen Goldman Sachs employees. It's not clear, from the marketing materials, why Tourre was so prominent on this deal.
We know Goldman will maximize its self interest. It's normal behavior. We know Goldman faces huge challenges to its brand. There's not only the Abacus problem but also the allegations that link an ex-director to insider trading at Galleon.
What we don't know, in the aftermath of the financial crisis, is whether the employees of investment banks can trust their firms. If firms sacrifice their employees, Tourre in this case, what kind of future does scapegoating spell for Wall Street and the guys in the trenches?
Our 2024 Coverage Needs You
It's Another Trump-Biden Showdown — And We Need Your Help
The Future Of Democracy Is At Stake
Our 2024 Coverage Needs You
Your Loyalty Means The World To Us
As Americans head to the polls in 2024, the very future of our country is at stake. At HuffPost, we believe that a free press is critical to creating well-informed voters. That's why our journalism is free for everyone, even though other newsrooms retreat behind expensive paywalls.
Our journalists will continue to cover the twists and turns during this historic presidential election. With your help, we'll bring you hard-hitting investigations, well-researched analysis and timely takes you can't find elsewhere. Reporting in this current political climate is a responsibility we do not take lightly, and we thank you for your support.
Contribute as little as $2 to keep our news free for all.
Can't afford to donate? Support HuffPost by creating a free account and log in while you read.
The 2024 election is heating up, and women's rights, health care, voting rights, and the very future of democracy are all at stake. Donald Trump will face Joe Biden in the most consequential vote of our time. And HuffPost will be there, covering every twist and turn. America's future hangs in the balance. Would you consider contributing to support our journalism and keep it free for all during this critical season?
HuffPost believes news should be accessible to everyone, regardless of their ability to pay for it. We rely on readers like you to help fund our work. Any contribution you can make — even as little as $2 — goes directly toward supporting the impactful journalism that we will continue to produce this year. Thank you for being part of our story.
Can't afford to donate? Support HuffPost by creating a free account and log in while you read.
It's official: Donald Trump will face Joe Biden this fall in the presidential election. As we face the most consequential presidential election of our time, HuffPost is committed to bringing you up-to-date, accurate news about the 2024 race. While other outlets have retreated behind paywalls, you can trust our news will stay free.
But we can't do it without your help. Reader funding is one of the key ways we support our newsroom. Would you consider making a donation to help fund our news during this critical time? Your contributions are vital to supporting a free press.
Contribute as little as $2 to keep our journalism free and accessible to all.
Can't afford to donate? Support HuffPost by creating a free account and log in while you read.
As Americans head to the polls in 2024, the very future of our country is at stake. At HuffPost, we believe that a free press is critical to creating well-informed voters. That's why our journalism is free for everyone, even though other newsrooms retreat behind expensive paywalls.
Our journalists will continue to cover the twists and turns during this historic presidential election. With your help, we'll bring you hard-hitting investigations, well-researched analysis and timely takes you can't find elsewhere. Reporting in this current political climate is a responsibility we do not take lightly, and we thank you for your support.
Contribute as little as $2 to keep our news free for all.
Can't afford to donate? Support HuffPost by creating a free account and log in while you read.
Dear HuffPost Reader
Thank you for your past contribution to HuffPost. We are sincerely grateful for readers like you who help us ensure that we can keep our journalism free for everyone.
The stakes are high this year, and our 2024 coverage could use continued support. Would you consider becoming a regular HuffPost contributor?
Dear HuffPost Reader
Thank you for your past contribution to HuffPost. We are sincerely grateful for readers like you who help us ensure that we can keep our journalism free for everyone.
The stakes are high this year, and our 2024 coverage could use continued support. If circumstances have changed since you last contributed, we hope you'll consider contributing to HuffPost once more.
Support HuffPostAlready contributed? Log in to hide these messages.