Abigail Hofman: A tale of two streets
The disconnect between Wall Street and Main Street widens.
As golden Goldman Sachs ushered in the round of second-quarter bank earnings, bankers breathed a sigh of relief and tried hard not to look smug. After two bleak years, the sun is once again high in the sky with the promise of big year-end bonuses, rising property prices in the banker heartlands, and a proper summer holiday on the 200-foot yacht moored in Porto Cervo. But for anyone not involved in finance the gloom persists: credit is scarce, unemployment is rising, wage increases are minimal and pensions have shrunk.
This tale of two streets will not have a happy ending. Some spineless commentators mutter: " A healthy banking system is a prerequisite to a healthy economy." As far as I’m concerned what is good for Goldman is not necessarily good for America. A hefty proportion of Goldman’s second-quarter revenues were from trading and principal investments, prompting two questions: is this sustainable and is it beneficial for the overall economy? The answer to the first question is probably not and to the second maybe. For the year ending November 2008, Goldman had net earnings of $2.3 billion but only paid a puny $14 million in tax. Compensation and benefits for the year were $10.93 billion. A Goldman source said: "For the years 2001–07, we were the eighth-largest corporate taxpayer in the US, contributing a total of $19.4 billion."
The backlash has already started. In July, Matt Taibbi wrote an article in Rolling Stone magazine entitled "The great American bubble machine " which is a prolific polemic against Goldman. The firm is denigrated as "a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money". The thrust of the article is that Goldman is greedy, malevolent and too well connected to lose. One purple paragraph rants: "The bank is a huge, highly sophisticated engine for converting the useful, deployed wealth of society into the least useful, most wasteful and insoluble substance on Earth — pure profit for rich individuals." A Goldman insider told me that the article was riddled with inaccuracies and had no basis in fact. Nevertheless, the piece interests me because it represents the view of those who have their noses pressed up to the glass of the financial world and feel totally alienated by what they see. "It reminds me of Nazi Germany and the witch-hunt against the Jews," a mole mused. "The public is looking for scapegoats and that’s not healthy."
I admire several things about Goldman: it is a great trading firm that manages risk well. Also it discourages the cult of stars: even chief executive Lloyd Blankfein is studiously low-key. This is not true of all bankers. Roger Jenkins, a senior executive at Barclays Capital, is often in the news, partly because of his own prowess but largely because of his upwardly mobile wife, Diana. How would you feel if your wife was photographed in a men’s magazine dressed only in her underwear (plus stiletto shoes and a corset) whispering something to a scantily clad Cindy Crawford? Would you feel proud, irritated or embarrassed? GQ magazine recently ran a piece entitled: "Inside Hollywood’s sexiest hotel room". Diana (formerly Dijana) Jenkins organized a photo-shoot for a number of celebrities at a hotel suite in Beverly Hills. The shots have been compiled into a coffee-table book and the proceeds of the book’s sales will apparently go to the Sanela Diana Jenkins International Justice Clinic, which raises funds to stop human rights violations. This is commendable but why does GQ show the women semi-naked whereas the men are swaddled in clothes? The journalist who wrote the piece purrs: "A Malibu-based entrepreneur and philanthropist, married to Barclays CEO Roger Jenkins, Diana devotes her days to defending human rights, having witnessed genocide in her Bosnian homeland."
I’m sure John Varley, the real CEO of Barclays, is too modest to complain that his title has been usurped by an underling who is not even a direct report. Jenkins latest role was as chairman of Barclays investment banking and investment management in the Middle East. Varley won’t have to worry abut being usurped for much longer, but he may need to worry about his revenues from the Middle East. Jenkins is leaving Barclays to set up his own advisory boutique with offices in London, the Middle East and that well-known financial centre, Los Angeles.
And can it be true, as a mole insists, that GQ’s rival, Esquire magazine, wants to commission a feature on Barclays’ president, Bob Diamond? I sincerely hope this rumour is not true. My view remains that a low profile is the best profile. Financiers should stick to what they do best: making money. A senior banker might, if so advised by the corporate communications department, proffer a periodic profile to the financial press. But the pages of glossy magazines should be left to proper celebrities such as Madonna or George Clooney.
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