Andrew Ross Sorkin: Wall Street's Confidant

Over a span of three months that saw Goldman Sachs sued and settle and financial reform debated and pass, aiCIO spoke with Sorkin, a New York Times reporter and the author of Too Big to Fail, for a special extended Interrogation.

“I have found this whole process very odd. It’s very peculiar that the one firm that succeeded and probably did a better job than anyone else is being vilified more than anyone. It’s a little strange. Even more than a little strange. But we live in a country where schadenfreude is almost a part of the way we live. It’s part of the culture almost, so everyone wants to take down the big dog. I wrote the piece [on Goldman’s customers staying loyal] because if you read the headlines or listen to TV, oftentimes you come away with the sense that the public is outraged, the Congress is outraged; everyone is supposedly so outraged by the behavior of Goldman and other members of Wall Street, yet the people who are supposed to be the most outraged are the customers, because they’re the ones ostensibly getting screwed. I spent an enormous amount of time over the last few months trying to understand what their customers think, because if they think Wall Street is screwing them, these customers should be running out the door. But they’re not outraged. If customers were so upset you’d think clients would be running to all kinds of boutique firms, and in some cases that is happening, but there is not a major move in that direction, which I thought there might be, frankly. Part of that may be inertia. You’re talking about companies and individuals who have been doing deals together for a very long time, and often made a lot of money together on those deals, and they may be reluctant to sacrifice those relationships. [As for political rhetoric] the question is whether this was just a political tool for Obama to push through legislation, or part of a broader philosophical view about how to approach business. In practice, most people think the legislation’s actually not that tough, that Wall Street shouldn’t be particularly up in arms about that, [because Obama’s] bark is stronger than his bite. Having said that, for some reason—in part because Wall Street is a place filled with so many egos—the bark is what has stung so many of them. I was with a very prominent hedge fund manager this weekend who felt kind of hoodwinked by Obama. In the run up to the election, he felt Obama really understood Wall Street and business, and wanted to do things to make business more efficient. He never appreciated what he now thinks is sort of an underlying, cynical view that he thinks Obama has about the world of business, a deep hatred almost. Many people I run into in finance that supported Obama the first time, not only voting but also financially, have every intention of doing the opposite next time.”

On Target With Andrew Ross Sorkin

On the possibility that the current environment is unsustainable and maintained by ‘groupthink’:

Sorkin: When you look at the characters in [Sorkin’s Too Bigto Fail], there is a great amount of groupthink, and I think that poses the biggest problems to the system, to regulatory reform, to all of it. It’s a function of how people have been educated, and made connections, and approached the business. Part of the point of the book, in a way, was to show to readers what people don’t necessarily realize, which is that behind the scenes there was a group of 40 to 50 people who are all related in one way or another making most of the decisions. Part of the idea of the book was just demonstrating this in stark relief, and the book in many ways became a story of this small group of people. [But] there has been a significant shift in terms of people at the top trying to understand what’s going on below them. If there has been a lesson learned, it’s that they need to be on top of their businesses. My conversations indicate a sense that they need to get back to more connection with the real economy. On the other hand, they have infrastructures that do other things, they have headcounts to maintain and money to make and instruments that are part of what [some call] a zero-sum game. Goldman announced today that they’re setting aside 43% [of profits] for compensation, instead of the usual 50%. People thought that when they did this last quarter it was a one-off show of humility. Now it’s happening again, so there might be some structural changes that are happening.

On Wall Street versus the BP oil spill, regarding complexity and risk management:

Sorkin: There’s a complete and utter parallel in terms of risk management. To me, it’s not that mistakes are somehow new, it’s that the scale is new, because everything is bigger, everything is greater. The stakes have risen: all of a sudden, there is this global environment with all this money pouring in and things changing and happening so quickly. It’s not necessarily the risk per se, it’s the speed and size. And people aren’t talking about limiting complexity or trying to rein things in. It’s a great theoretical issue, but it’s not getting any attention on the Street.

On the much more virulent villainization that’s coming not from the President, but from ordinary people, the media, and the Tea Party movement:

Sorkin: Folks on Wall Street believe that the popular perception, all of that “hate,” is in part a result of the way Obama has portrayed the Street. If you were to ask the people on the top of the institutions on Wall Street, the general perception is that President Obama is not just reflecting the mood of the country, but helping project that mood on to the country. [Goldman CEO Lloyd Blankfein’s] “God’s work” line is a great example. People on the Street say, “I know Lloyd Blankfein, and I know he was being sarcastic.” But the rest of the world rolls back their eyes and throws up their arms. Wall Street sees it from inside the clubhouse, and they don’t really appreciate that view from the outside.

On whether Wall Street sees its own culpability:

Sorkin: There were so many fathers of this crisis that there is a sense that there is so much blame to go around that there’s no individual to really string up. It’s easy to point at regulators, ratings agencies and politicians, at interest rates, monetary policy, fiscal policy. This gives people on Wall Street an out, it gives them a way to say, “It wasn’t just me.” It’s easy to take the blame across the board, it’s very hard being singled out. There is one group that gets no blame, which is Congress and the politicians. Many folks feel that the largest blame is on Congress, on the people in Washington that created rules that allowed much of this to go on legally, and that no one’s focused on them.

On whether Wall Street feels responsible for the lobbying efforts that led to that deregulation in the first place:

Sorkin: There’s not a lot of talk about that.

On the causes of the crisis, and role of regulation:

Sorkin: The question is whether this is a crisis driven by malfeasance or a crisis created by horrible mistakes. Malfeasance and mistakes are two different things. Enron was a fraud. Was Lehman Brothers one big massive fraud? I’m not so sure.



aiCIO Editorial Staff

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