The mystique of Goldman Sachs
washingtonpost.com
washingtonpost.com
http://www.businessinsider.com/goldman-sachs-has-more-engine...
However that is a vast mis-understanding of what a lot of the brain power at an investment bank goes towards. It isn't just equities it is fixed-income and economics as well.
But beyond that it isn't just about valuation. It is everything from working on how to actually clear transactions, building dark pools and similar platforms, research and building very real tech on blockchain, building security and infrastructure tooling.
Goldman literally invented a programming language (although it is showing it's age at this point). They make very robust Open Source contributions: https://github.com/goldmansachs/gs-collections (just an example).
Regardless of if what they do is immoral or silly or both, they are building interesting stuff and solving hard problems.
A better organization to direct a dig like that at would someone like Bridgewater, they really are just trying to value equites, and fixed-income.
For a company of their size and wealth, their open source contributions are paltry. A handy way to deal with arrays in Java? Wow, that's game changing...
Is it more or less disgusting to you to spend brainpower on banner ads, or social media exchange of cat memes, or something? I'm honestly curious.
But when a group of wealthy elite make it their mission goal to vacuum up money from everyone below, that's disgusting. The executive team at GS decided that they wanted to hire programmers to handle investing, instead of hiring programmers to handle nobler tasks.
At least when Google develops banner ads, they are providing value to the millions of people who need to advertise. When GS develops a better trading algorithm, you can count the number of people on one hand who benefit.
It's easy to come out with a trendy anti-investment banking stance and claim that it's not noble. Meanwhile we also have genius developers working on CandyCrush and finding ways to get grandma to make in-app purchases for their own little business vacuum.
I actually find GS (or anybody really) developing a better trading algorithm to be much more of a benefit to humanity than annoying banner ads that I have to download software to block. Capital speculation, valuing companies, buying companies, mergers and acquisitions, etc... are all things that benefit the entire country and allow us to have free enterprise and for billionaires to fund crazy fun endeavors on the hope of receiving more money.
there's this demonization of wall street and financial institutions as if it's a brain drain to make money. what does that make the millions of ad tech and food delivery startups then?
its the backbone of the economy. no companies can be formed and no biz's can do transactions without the banks working well. the more efficient and sophisticated they can be, the better off everyone else is.
ultimately, much of the money on sand hill road is coming from LPs who made it in finance
FB - It's disgusting to me that that much brainpower was/is dedicated to sharing photos.
Twitter - It's disgusting to me that that much brainpower was/is dedicated to sharing single comments.
etc. etc. etc.
The reality is that we live in an world with inefficiencies. If there are large enough inefficiencies in the value of assets that people can get computers to find them and eliminate them, that is likely a good thing. Just like we live in a world where sharing information used to be really hard, but many 'pointless' companies have made communication incredibly easy.
It is better to not judge what you don't fully understand.
The markets are an incredibly important part of the economy and this technology does not only simply value a company.
Having a well-priced, liquid stock market is obviously important. Mises even set it as his threshold for socialism - a country that has an independent stock market is not socialist.
But that's not the same as appreciating the current state of stock trading. Sinking millions into millisecond improvements does not improve pricing. Identifying large trades and running pump-and-dump just before they clear doesn't improve liquidity. Running years-long fraud to get early leaks of Fed decisions helps no one.
A lot of what happens in high speed trading today is actually harmful to the market as a pricing and liquidity tool. Insider leaks from the Fed weaken market confidence for everyone. Flash crashes are a new horror born entirely of algorithmic trading. The list goes on.
I think it's entirely reasonable to appreciate free markets, even libertarian economic policies, and still consider the start of trading today alarming and detrimental to the economy.
I'm fully prepared to argue we don't have that, though. Traders are throwing many millions of dollars at projects without even a pretense of improving market accuracy, or adding meaningful liquidity.
Algorithmic trading hasn't been especially good for accuracy - we suddenly have flash crashes with markets dropping 30% and recovering, based on no change in fundamentals. High speed trading hasn't been much good for it - paying to move your trading servers slightly closer to a T1 backbone doesn't improve liquidity meaningfully, or accuracy at all. And we already have serious, systematic fraud: was the money Goldman Sachs spent buying insider leaks from the Fed really good for the industry?
I take your point, and I don't begrudge finance its enormous economic role. But suggesting that the industry's growth in the last ~decade is about improving accuracy seems pretty questionable.
Finance companies overwhelmingly make money by more accurately allocating capital whether that's channeling investment, arbitrage, executing a trade before the other guy, whatever. In every case that's money that went to a better place to do more economic work faster. It's what finance companies are for.
Yes there's the occasional dodgy deal or rip off, but to read your post you'd think that is the only thing financial companies ever do. In reality trillions of dollars spent on research, technology, infrastructure, business growth and jobs got there via financing. Better financing means more and better quality of all of those things.
The quote being a single analyst calling up a trading desk for a market rate, sometimes getting a reply, sometimes not, if getting a rate often from not the stated markets contact, and if not getting any response just inputting the rate from the day before. Organisation setting LIBOR was doing no wrong, those playing it were, but those depending on it diverting any accountability to a black box of interest rates which was clearly not a black box. Absconding selves of responsibility.
Markets are indeed allocations of capital. But only when markets dont' get wound up in local optimals. As LIBOR. And bring havoc to everyone.
Why, the same as all other hi-tech companies -- remove the human from the chain, replace them by the computers, automate processes.
Will we still be able to speak about "greedy bankers" once it is all computers everywhere trading?
Most developers (workers in general) at worst are merely pointless. I think you could easily make the argument that working in banking (/oil/marketing/think tanks/...) is actively harmful and that the smarter you are, the more damage you can do.
There is no iron law that says that just because you turn up on time, work hard and internalize your organization's goals, that the world wouldn't be a better place if you had just stayed in bed.
The question is if it is more immoral than working on something like a self-driving car, that is going to yank jobs out from under a huge chunk of the population. I really don't know what the answer is.
s/stock trading/advertising.
You know what's a real waste of brainpower? 3.5 million truck drivers. People driving cabs. Fast food workers. We can, and should, train more software developers. It's the one job that might be useful in 30 years. At the very least, people will hopefully have enough education to move to another field.
I've known journalists, biologists, programmers, middle managers, government employees, and many white collar jobs to scoff at or look down on other jobs. In some conversations I have reminded these same people that the filthy guy in line they are making fun of might be pulling more than twice their salary, and often may still be university educated or have needed to go through some rigorous training. I am not sure what makes some people think they are above certain jobs or better than other people.
The Obama administration sentiment that everyone needs to go to college has done no favors helping certain classes of jobs. White collar jobs or being a celebrity, athlete, or famous in some other way is seen as success, while anything else regardless of quality of life, salary, long-term prospects, independence, and so on is seen as failure, second-class, or even undesirable. I respect anyone who works hard, and especially those that do things that I can't do. I need these people to survive or at least have a better quality first-world life, therefore I always make sure to treat them well. It helps when you come from a culture that considers it rude to not at least offer to feed your plumber or make a coffee.
Most of these jobs are neither especially easy nor the path to great riches. But there's a lot of demand in many places for skilled trades people and the pay isn't bad. I'll also say that the day Google can replace a plumber working on my 200 year old house with a robot is the day I'll really be convinced that AI works.
The AI comparison is a really good one, I like that. I'm in part a trained statistician, at least from the University level. I have gotten into machine learning more recently given my stats background and my previous game development background. This was discussed by other people in other articles, but I sometimes shake my head when the word "intelligence" is used to explain what amounts to applying some basic (or even advanced) stats to an input to produce some hopefully decent output.
Having seen the number of ways that supposedly awesome AIs can easily be confused, I am far from convinced. I don't think we are in danger of being replaced by robots when we can't even secure a web server, email, or now it seems, toasters. If the robots do take over, I know there will be so much sloppy code that we can either hack/backdoor them and shut them down after many long nights in a bunker typing away, or we can wait for them to just crash/segfault/whatever because I trust the creators to write bug-free AI as much as I trust a Lion to go vegetarian. On the flip-side, that all should also make it easy for someone to trigger them all to become self-aware or start the next great cylon purge. I'm ready and don't care about my plans next week anyway.
If there is a prevalent sentiment that too many companies are starting up in the valley with nonsensical business models, how can we say with the straight eye that more programmers are needed to be shifted to create even more companies.
Most financial and economic theory seems to indicate that even moving all the Goldman employees to some other company will just result in other companies taking its place.
If we put in place rules to prevent another Goldman forming, another company will find a loophole at some point or even be far worse. I'm certainly not justifying their existence, actions, or anything else. Rather, I am pointing out that the market will just swallow brain power and redistribute it some other way that isn't ostensibly any different or "better."
If there is a problem that needs to be solved, it is not redistributing tech people from Goldman somewhere else, but rather fixing whatever societal, financial, economic, legal, and political conditions among other factors created the perceived evil entity swallowing the universe. If we chastise the tech people for working there or the situation itself, we should also instruct all the other people there to stop wasting their brains and apply them somewhere else.
I'm not privy to the internals though so I'm just guessing. Would be interested if anyone has actual data.
This is not to cast a shade on Google, but more to get some insight about how the brainpower may actually be spent.
Firstly, Goldman can't correctly value a company - no one so far can. The best Goldman can do is use their position of power to effectively tell the market what the value is, but they can do that practically by creating magic numbers from the sky. Indeed, go and do an old school valuation on many companies and you'll get vastly different results. I have a degree in Finance along with various computer and math degrees. One of the big takeaways is that financial valuations are entirely subjective just like stats studies are, so it is the justification, evidence, techniques, and so on that matter. Your job is to convince someone, and Goldman exploits its position as a large player by doing just that.
If Goldman could actually set prices or guess them exactly to the millisecond, they would never have any losing bets and they could manipulate the market 100% to their will. One could say that in this sense, you are right as they do indeed manipulate things to some degree. They are so large that their actions influence the rest of the market and their failures and successes change the market, ironically screwing themselves up quite often.
Many principles though say that valuing a company is hard to impossible (just ask Black and Scholes). Random Walk and some of the associated studies like throwing darts at the financial pages (darts beat top Wall Street investors more than 50% of the time usually) demonstrates that there are elements we do not understand in terms of valuations and predictions, and that moreover people don't act rationally depending on your point of view. Given this reality, trying to build better models is a very interesting and wide open computing topic.
Another important factor is that valuations and other financial market indicators change over time. That means your models both need to account for time and be extremely fast at reacting to changes. In computing, this touches a lot of interesting topics from performance to network architecture to low-level protocols to CPU caching to distributed computing to machine learning and on and on. Outside academia, there are few companies that are focused and yet touch so many different computing topics and actually apply them to their business in production.
Personally, I would never work for a company like Goldman. My moralistic view point has cost me at times financially but I am OK with that given my internal priorities. For some people, it's all about money. Goldman might be evil to many like me, but many popular tech companies aren't much better if you take off the geek glasses.
It is not a popular sentiment around here, but I wouldn't necessarily put people at a lot of popular SV companies like Facebook, LinkedIn, Google, Uber, and so on above the Goldman people or on some higher pedestal/plane of existence. Surely some are doing interesting or altruistic things even, but most are just grinding out the day trying to keep the business afloat or make it rich.
Many of these companies on some level are still tightly tied to people like Goldman, have similar motivations, and arguably a lot of the work they are doing is intellectually less stimulating, valuable, academic, and challenging. Moreover, a lot of the "work" and "tech" that these SV companies think they are inventing has already been around the financial sector (or even tech sector itself, not to mention academia) a long time and exists in better, faster, more powerful forms with the caveats usually of being expensive or exclusive to a single company. Not many people realize what tech people at a company like Goldman are doing, and the people that work there often are bound by legal agreements not to share. That makes companies like Goldman very adversarial, anti-open source, and anti-employee. To that end, I think they are pretty disgusting, but I've experienced nearly as bad working at game companies and tech giants.
Very few companies are doing anything worthwhile with brainpower. Even academia where brainpower should be tantamount has often become more about stats like amount of papers published, grant money, or other financial results rather the brainpower. As a whole, computer science is a field that constantly reinvents wheels poorly, wastes tremendous amounts of brainpower, and is far from altruistic or progressive at times. We could say that about almost any field, so take it for what it is and remember that most of us (a select few make a smaller scale difference) aren't saving the world, even when that literally might be the company "mission." Most of us are wasting our brainpower most of the time and it's up to us to do better; working for a company is almost never the answer for maximizing your brain.
yup. which is why the next decades will be about bringing back time to humans instead of forcing them to monetize every hour they can to pay bills
It's become quite popular to whine about the career choices others make ("we need to _make_ more X become programmers). I think our industry as a whole would benefit from a heaping helping of "mind your own business".
"The first thing you need to know about Goldman Sachs is that it's everywhere. The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money. In fact, the history of the recent financial crisis, which doubles as a history of the rapid decline and fall of the suddenly swindled dry American empire, reads like a Who's Who of Goldman Sachs graduates."
They're always incredibly nosey about what your firm is up to, what your opinion on the market is, what you're thinking in general.
All other brokers are happy to just eat an expensive meal and be pals.
GS guys act like they've all been personally told to get some useful information from the client.
I've noticed the difference when a guy moves away from GS, they stop being so focused on getting info.
First of all, that's non-sequitur. Second, why is it evil to short the housing market?
Washington Post really knows how to cater to its readership...
People don't understand the basic concept that in order to buy something, someone needs to sell something...which is going short.
http://www.investopedia.com/university/shortselling/shortsel...
Thanks, but no thanks.
This is in the FAQ: https://news.ycombinator.com/newsfaq.html and (suitably, for a FAQ) has been discussed countless times, e.g. https://news.ycombinator.com/item?id=10178989.