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Michael Lewis on Goldman Sachs

Michael Lewis channels his inner Goldman Sachs i-banker. Here's a taste:

Rumor No. 2: When the U.S. government bailed out AIG, and paid off its gambling debts, it saved not AIG but Goldman Sachs.The charge isnt merely insulting but ignorant. Less responsible journalists continue to bring up the $12.9 billion we received from AIG, as if that was some kind of big deal to us. But as our CFO David Viniar explained back in March, we were hedged. Our profits from AIG rounded to zero.People who dont work at Goldman Sachs, of course, find this implausible: How could $12.9 billion round to zero? Easy, but you just need to understand the mathematics.Lets assume AIG transferred $12,880,560,250.34 of taxpayer money to Goldman Sachs. A Goldman outsider, asked to round this number, might call it $12,880,560,250.00. Thats not how we look at it; at Goldman we always round to the nearest $50 billion, so anything less than $25 billion rounds to zero.Think of it that way and you can see that $12,880,560,250.34 isnt even close to not rounding to zero.

Go read the whole thing.

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Interesting. Reminds me of the i-banker shenanigans Lewis wrote about so ably in "Liar's Poker," the story of his first years on Wall Strret and the anything goes mentality that was tolerated so long as the $SSS kept flowing into the firm's coffers and the partners' pockets. The macho, take-no-prisoners atmosphere at the firm was best exemplified in the million-dollar game of liar's poker that was played on the trading floor of the NYSE, and by the "BSD" compliment that every new i-banker, male or female, so eagerly sought.

"Reminds me of the i-banker shenanigans Lewis wrote about so ably in Liars Poker, ..."Michael Lewis was not an investment banker - he worked in fixed income sales and trading. "Liar's Poker" was, among other things, about that experience at Solly on the bond desk and some of the protagonists there, not investment bankers.

I'm going to take your word for it, MAT. I confess to not knowing a whole lot about where investment banking ends and bond trading begins. I've always thought, perhaps wrongly, that investment bankers also get involved in securities trading, both equity and debt. If so, perhaps it's for a different purpose (e.g., raising capital) than sales to individual customers. The latter was clearly what Lewis and his colleagues were doing, so I stand corrected if that's outside the scope of an investment banker's employment. Still, it seems to me, novice in these things that I am, that the Wall Street mentality didn't (and doesn't) observe clear boundaries when the false god Mammon pays a visit to The Street.

William Collier: The technical differences are not so important as the cultural ones. The one-line answer is who their respective clients are - for investment bankers, it is an external client whereas the sales and trading desk essentially has the investment banker the client it serves. That's a big reason for the cultural difference. The world described by Lewis in "Liar's Poker" is very unique to the trading floor. The investement banking culture - full disclosure, I used to work as an investment banker at a bulge bracket bank - is quite different in tone, more akin to a law firm such as Skadden or Wachtell, than to what is described in Lewis's book. To your larger point, however, certainly both professions are very richly compensated ones and there are obviously implications with regard to that which we see elsewhere such as professional sports, politics, entertainment, academia, etc. where behavior not ordinarily tolerated by an fans, voters, employers or whoever is overlooked due to money and celebrity and power and the like. I would add that some people who don't know much about corporate finance (I am not saying you are among them) like using the phrase i-banker or a variant thereon as a pejoritive for people who work in finance so that was the reason for my initial comment.

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About the Author

Eduardo Moisés Peñalver is the John P. Wilson Professor of Law at the University of Chicago Law School. He is the author of numerous books and articles on the subjects of property and land use law.