How does Goldman do it?
There are three possible explanations says John Gapper in the FT: skill, luck or edge.
The official spin is, of course, skill. And, as flagged up by John Plender on Wednesday, a highly developed team culture, with emphasis on voicing doubts honestly.
The collective approach was in evidence when David Viniar, Goldman’s chief financial officer, gathered a group of trading heads and risk controllers at the end of last year to discuss whether the bank was over-exposed to the weak US housing market. After everyone had talked over the bank’s overall trading positions, its leaders astutely decided to hedge its mortgage book.
Luck always play a role. Goldman has been bruised before, during the short-term rate rises of 1994 or in the 1998 Russian debt crisis for example, and the fact that it has done well this time is no guarantee of future infallibility.
Then there’s edge. “No institution makes itself popular by doing better than others and financiers and observers talk darkly in private about its way of doing business,” says Gapper. Hence Stein-gate.
Gapper doesn’t believe that Goldman broke insider trading laws:
The real question is whether Goldman bends Wall Street’s rules in its favour. There is plenty of evidence that the bank does this and that it gains an edge from it.
Goldman has always been most aggressive in combining its businesses of advisory, securities and investment. And has managed it because it is too powerful to ignore. One day, bets Gapper, this balancing act will blow up in its face.
Goldman’s skill, luck and edge have combined this year to produce its great escape. The three will not always align so well.