Investment Banks Ethos

Posted by Jeff Carter
on October 22nd, 2012

Top 10 Financial TARP Recipients (Photo credit: Cory M. Grenier)

Are investment banks corrupt? If you read the rhetoric of the past five years, you’d certainly come to that conclusion. Those dirty bankers……

Howard Lindzon has an interesting post on Goldman Sachs, and I think you could fill in the blank with any bank. As an independent trader, I battled banks every day. You knew they were bigger than you, and when they traded, they generally had an edge somewhere else. But, they weren’t always right when it came to trading commodities. If you were quick, sometimes you could leverage against them and make some money.

Certainly, in many transactions, they take a lot of juice off their customers. They have perfected ways to do it so the customer doesn’t even know it. If they are really good, they get the DOJ or SEC to write it in regulations so the practice is codified and legal. That takes the onus off Goldman, and puts it on the government. Hence, Government Sachs.

One trader I knew had a Goldman shadow. Goldman hired an employee to trail him where ever he went. The employee kept track of his position. One day, the trader looked at his shadow and said, “Let me see where you have my position.”. The Goldman employee gulped, and handed him the position card. My friend said, “Nope, you got it wrong, here is my position.”, and he carded it up for Goldman correctly.

Goldman was the muppet in that situation.

Investment bankers can provide extremely valuable services for customers. But, when they are proprietary trading, generally they do treat the market place like it’s filled with muppets. Since they don’t respect the market, why should we respect them?

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