NewGeography.com blogs

Greg Smith’s resignation lament in the New York Times, Why I Am Leaving Goldman Sachs, has rightly caused an uproar. He writes, “I can honestly say that the environment now is as toxic and destructive as I have ever seen it,” implying that it has been toxic and destructive all along. Tell us something we don’t know.

Twenty years ago when I worked at JP Morgan, the public bond underwriters and pension managers complained that they were at a disadvantage when competing for business with Goldman because they weren’t allowed to “pay to play”, i.e. make political contributions in exchange for business.

Those two banks had long been at opposite ends of the spectrum. A century ago, the original J. Pierpont Morgan told counsel for a Congressional committee investigating the money trust that the most important criterion for supplying commercial credit was character, “Because a man I do not trust could not get money from me for all the bonds in Christendom.” Language, I must add, that distinguished him in ways large and small from moneylenders like Mr. Goldman and Mr. Sachs. Fifteen years ago an unnamed executive summed up the difference in business practices between the two banks to a Times reporter: “Morgan will show up with 20 people for a three-hour presentation to a client. Goldman Sachs will just send two people to sketch out a deal on a napkin at the golf club bar.”

With Robert Rubin, Henry Paulson, and Jon Corzine among the ranks of Goldman's recent former CEOs who have distinguished themselves in government and finance, you learn almost everything you need to know about the contemporary Goldman ethic, good and bad. Current honcho Lloyd Blankfein has said they are doing “God’s work.” For a Goldman investment banker to evoke the almighty as justification, he has to feel real heat.

Mr. Smith feels let down by corruption in Goldman’s corporate culture:

“It might sound surprising to a skeptical public, but culture … revolved around teamwork, integrity, a spirit of humility, and always doing right by our clients…. I am sad to say that I look around today and see virtually no trace of the culture that made me love working for this firm for many years."

A closer look at that culture would reveal something besides always doing right by the client. Corporate culture is really a nice way of moving people with a variety of motives in lockstep. One man’s client service is another man’s rapacious self-interest. Given the profitability of modern finance, rapacious self-interest has had an inexorable pull. The habits ingrained through a strong corporate culture are merely instruments for moving the herd along. Call it conformism, and in this, as in so many other areas, there’s no question that Goldman is a leader.

Upon reading Smith’s op-ed, I opened an excellent reference volume, The Wiley Book of Business Quotations, to the Goldman Sachs entry for corporate culture. (Okay, maybe that isn't quite accurate—I compiled the book myself and knew what was there.) I found Theresa M. Potter's New York Metropolitan Diary column of November 13, 1996:

Dear Diary:
Overheard on the elevator at Goldman Sachs on a recent “dress-down Friday,” a conversation between a long-time partner and a smartly attired young analyst.
Partner (sternly): It’s Friday. You’re not supposed to be wearing a tie.”
Analyst (crestfallen): “But it’s not silk.”

It’s a slippery slope.

The latest BLS release for metro area unemployment has full year averages for 2011 available, so we can see which cities added the most jobs last year. On the whole, it was a much better year for metros than we’ve seen in the recent past. The national economy added jobs, and all but two large metros did as well. New York City added the most jobs of any region, but given that it is far and away the biggest city in America, it should do so. NYC ranked only the middle of the pack on a percentage growth basis. On that measure, Austin, Texas was number one.

The top percentage gainer in the Midwest region? Detroit, Michigan. Perhaps this shouldn’t be surprising either, as manufacturing is pro-cyclical.

Here is the performance of the metro areas in the United States with more than one million people, ranked by percentage change. The data is also available in spreadsheet form.

This first appeared at Aaron's blog, Urbanophile.com.

Today, history will be made. Rod Blagojevich is going to jail in Littleton, Colorado. Blagojevich will join his predecessor Governor George Ryan who’s in prison in Terre Haute, Indiana. America’s fifth largest state will now have two back-to-back Governors in federal prison at the same time. What other state in America can say that? Both Illinois Governors were convicted of major felonies. Have Illinois voters turned the corner on supporting corrupt politicians? It appears not. Recently, U.S. Attorney Patrick Fitzgerald has been busy. Long time Chicago Machine boss William Beavers was indicted on tax fraud. Tuesday, Illinois State Rep. Derrick Smith was arrested on a federal bribery charge.

Here's a report from WLS-TV:

The Federal Transit Administration (FTA) has intervened in the Honolulu Mayor's race against challenger and former Hawaii Governor Ben Cayetano. Governor Cayetano and Mayor Peter Carlisle are locked in a bitter contest that could determine whether the proposed $5.1 billion rail line is built. Mayor Carlisle is a strong supporter of the rail line. Challenger Cayetano has promised to "pull the plug" on the rail system. Recent polls show that the project's former thin majority support among Honolulu residents has now turned to opposition.

At a 1:30 p.m. press conference yesterday (March 13), Governor Cayetano released e-mails from the FTA indicating concerns about the rail project. According to Cayetano, "Not only it is apparent that FTA officials share some of our concerns, but it's also apparent that they warned the city about pending litigation if certain things were not done."

One of the FTA emails, obtained from the administrative record said “I do not think the FTA should be associated with their lousy practices of public manipulation and we should call them on it.”

Reflecting a surprising ability to "turn on a dime," FTA quickly responded in an apparent attempt to diffuse Governor Cayetano's point. According to KITV, "In response to the press conference, a spokesman for the Honolulu Authority for Rapid Transportation issued the following statement on behalf of the FTA:"

There is no question that this project has overcome early obstacles because of a much improved Federal partnership with the City of Honolulu and State of Hawaii over the last several years. The Federal Transit Administration believes that this project will bring much needed relief from the suffocating congestion on the H-1 Freeway and provide a real transportation alternative for the people of Oahu as gas prices rise.

Curiously, the FTA's statement contradicted its own previous position on the traffic impact of the rail line. In its January 2011 "record of decision" for the project, FTA indicated:  "Many commenters [on the Draft EIS] reiterated their concern that the Project will not relieve highway congestion in Honolulu. FTA agrees..." Further, it is unusual for federal agencies to take part in local election campaigns.

The Honolulu rail project was covered in more detail in a recent newgeography.com commentary, Honolulu's Money Train.

Clarification (March 15). The complete quotation above was not used because it was not necessary to the point, which was FTA agreed that highway congestion would not be relieved by rail in its record of decision, but in its statement on Tuesday appears to have reversed that view. We are unaware of any change in the technical documentation that would have justified such a change.

"FTA agrees." in the article above, has been changed to "FTA agrees..."

I love the Omaha World Herald – I read papers all over the world and this one is the best local paper I’ve seen. The bias is largely limited to the Opinion pages and they do original research on local topics. For national and world news, they have reporters outside the Omaha metro, but they also include the best of the news wire articles. The paper is a readable length, yet it contains enough stories that you know what’s going on but not so many that it’s a repeat of the nightly news from the national broadcast networks. Mostly, I like the way they let the reader connect the dots.

A perfect example appeared on Sunday March 11, 2012 on page 10A in the print edition. Two stories occupy the three columns on the left side of the page. The story occupying the top of the three columns is about IBM’s Watson supercomputer (from Bloomberg news). Watson’s newest consulting client will be Wall Street bank Citigroup, Inc. “the third-largest U.S. lender.” Directly beneath that is a story from the Associated Press (AP) about Main Street abandoning Wall Street – seems that if individual “ordinary” investors do not start giving their money to Wall Street banks again soon, the re-inflated stock market bubble will deflate – bye-bye Dow 15,000.

How do these two stories relate? Well, Citigroup is feeding information to Watson on “sentiment and news not in the usual metrics” like what you post on Facebook or search on Google. Citigroup will use Watson to “analyze customers’ needs” and process that with their client data to figure out how to get you to put your money back where it makes them the most money in fees and commissions.

Watson doesn’t come cheap – according to the Bloomberg News article, banks spent $400 billion last year on “information technology,” helping to generate $107 billion in revenue for IBM. How can banks afford to spend billions of dollars to get consultations with a computer? The answer is in the AP article in the bottom of the same columns: “corporate America has racked up double-digit profit gains” since the official end of the Great Recession in 2009.

These two articles make me a little happy. The first one pleases the economist in me because an American company with a real product is going to thrive by charging Wall Street billions of dollars for something. The second article pleases me because it means that Main Street got the message – don’t eat the hot dogs at the Wall Street party because the fuel for the weenie roast is your future. Let the machines do it.

[NOTE: Omaha.com links are available without registration for up to 2 weeks after publication. Access to the archives requires email registration.]

Susanne Trimbath, Ph.D. is CEO and Chief Economist of STP Advisory Services. Dr. Trimbath’s credits include appearances on national television and radio programs and the Emmy® Award nominated Bloomberg report Phantom Shares. She appears in four documentaries on the financial crisis, including Stock Shock: the Rise of Sirius XM and Collapse of Wall Street Ethics and the newly released Wall Street Conspiracy. Dr. Trimbath was formerly Senior Research Economist at the Milken Institute. She served as Senior Advisor on United States Agency for International Development capital markets projects in Russia, Romania and Ukraine. Dr. Trimbath teaches graduate and undergraduate finance and economics.