Goldman Sachs & Pop Psychology

The Goldman Sachs booth on the floor of the New York Stock Exchange
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The Goldman Sachs booth on the floor of the New York Stock Exchange

Goldman Sachsshould forget about the new age pop psychology and instead examine the basic structural elements of their business.

That's Jesse Eisinger basic thesis, posted at ProPublica Goldman's navel gazing notwithstanding, here's the core issue:

"The covenant that equity investors have struck with investment banks goes something like this: Deliver high returns and we will allow employees to take about half of the revenue for themselves as compensation. It was always a bad bargain, made worse by the financial crisis. Lehman investors were wiped out. Bear Stearns investors took huge hits. (Whether investors have learned from that experience, or whether they have learned to expect bailouts, is debatable.)"

And, according to Eisinger, here is the result:

" Investors prefer annuities to swing-for-the-fences profits. Compared with pure asset managers and investment banks that specialize in either advisory work or making markets, Goldman stock trades at a discount these days. Goldman's price-to-earnings ratio stands at less than 10, while Lazard [13] (a pure advisory firm), Jefferies (a market maker) and BlackRock (an asset manager) trade at significantly higher multiples."

Eisinger reaches that conclusion after wading through all the intolerable self-help speak – the effects of which can be, at times, rather stultifying. And more than a little self-serving for Goldman:

"Of course, releasing the report is a public relations stunt. Some of it was welcome, like the increased financial disclosure. Some may fall by the wayside, like most New Year’s resolutions. Some seems as disingenuous as any piece of professional flackery."

But, more than being merely self-serving, the extent of Goldman's couch trip suggests something deeper:

"Goldman’s effort fits neatly into what the historian (and former New York councilwoman) Eva S. Moskowitz has called the therapeutic gospel, a doctrine so ingrained in American society that few of us consciously recognize it. The gospel consists of three tenets: Happiness is the supreme goal, problems stem from psychological causes, and those psychological problems are treatable."


"The therapeutic gospel is all about me and my problems. Goldman thinks its problems stem, if not from psychological issues, then from attitudinal ones. Significant management and operational changes are starkly missing from Goldman's leaf-turning exercise. Instead, Goldman has decided that its troubles emanate from not having treated clients nicely. Or, more likely, Goldman thinks its problem is that the world thinks Goldman didn't treat its clients nicely."

It almost amounts to an inverted form of the fundamental attribution error. Social psychologists use that term to refer to our tendency to attribute others' weaknesses and mistakes to defects in character rather than structural causes. (For example, if you fail to complete a required assignment your lazy. If I felt complete the same assignment I merely overworked by my boss.)

Perhaps Goldman's thinking is that constraining the debate to the domain of attitudinal issues— however unflattering and disconcerting they may be to the firm- is preferable to engaging in a sincere dialogue about the structural implications of their business. Or perhaps the source of their superficial, personality driven analysis is the result of a kind of 'groupthink'—where the interpersonal dynamics of groups influence the very perceptions and behaviors of its members. Or, finally, perhaps Goldman's biases are so deep seated that they can only be adequately explained by attributing them to factors that exist entirely on the subconscious plane.

In any case: To resort to such speculation is to engage in precisely the kind of airy navel gazing that Eisinger's article seeks to condemn.


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