>Goldman’s evil reputation
During the best of times Goldman was criticized for working “both sides of the deal.” People grumbled, but still did business with the bank, sometimes out of necessity. These days, things are more sinister. Goldman is accused of owning the allegiance of top government officials, manipulating bank bailouts to favor itself, paying executives lavish bonuses at the expense of taxpayers, profiting from high-frequency trading, and reverting to its high-risk, high-leverage ways to generating revenue (aka multi-million dollar bonuses).
Much of this is sour grapes. Fact is Goldman weathered the financial crisis better than other banks, was forced by the government to accept TARP funding (recently refunded with interest) and just reported record quarterly earnings. People, especially during hard times, like to hate supremely-successful organizations. In that regard, Goldman Sachs is like the New England Patriots or New York Yankees of commerce. Goldman is not tone-deaf to what is going on and CEO Lloyd Blankfein is reported to have cautioned employees to keep a low profile and avoid conspicuous consumption.
Does that mean that Goldman has nothing to worry about? Not really. Pulling strings with Paulson, Geithner, Summers, et al is one thing, fending off congressmen hopped up on populist rage is another. Not many in Congress are willing to have an thoughtful discussion about the role of risk-taking and risk management in modern capital markets, but the nature of public concensus on those complex issues is the primary risk facing Goldman and why reputation matters to the firm.
Fueling negative sentiment about Goldman is an column from an unlikely source: Rolling Stone. Matt Taibbi’s now famous column argues that Goldman manipulated the governement into doing its bidding during the height of the financial crisis. Even New York magazine has attempted to shed light on Goldman’s dealings and its article suggests that Goldman itself was close to failure back in September.
The influence of Taibbi’s article, in particular, demonstrates an important fact about media today. Because it is so easy to share news and opinion via email and the Web, where an article is published is less relevant today than in prior years. What influences people is who circulates the article to whom. In other words, while I might not think Rolling Stone is an authority on capital markets, if I am referred to Taibbi’s article by someone I know and trust, I am likely to ascribe greater credibility to the piece (and, in turn, circulate the piece, furthering its influence).
This is both an opportunity and a threat to institutions large and small. On one hand, companies don’t necessarily need the Wall Street Journal to get ideas into the marketplace. On the other hand, it is much more difficult to contain negative publicity because of the degree to which reputation-damaging opinion can be syndicated by individuals.
Regulation, driven by excesses on Wall Street, is coming, but I don’t expect Goldman to be particularly affected. Goldman will jettison its bank charter and get back to the real work of printing money.