Friday, March 16, 2012

Goldman needs Privacy

At one point this week, the headline was:

Roiled by op-ed, Goldman loses $2.15 bn m-cap

Goldman didn't get where it was by being a public company. It was a partnership for the first 130 years before going public only 13 years ago. Those have been a pretty awful 13 years for the firm.

The latest round of headline-generators and talking head fodder would have never happened if Goldman were still private. The dude wouldn't have even had the motivation to publish the op-ed. The Times wouldn't have cared to print it. Nobody outside the firm would care to read it.

Instead, over the course of a few hours of stock trading, value was "destroyed" to the tune of ... well, more money than 99.999% of the world's population will see in their lifetimes. Actually, add a few more 9's after the decimal. Billions. With a "B." As in Buffett-sized.

Or was it? If a whiny Dear John to a former employer full of news (which, as Forbes pointed out, everybody already knew) can destroy billions of bucks, then maybe that value didn't really exist to begin with. Stepping back from the greater fool theory, perhaps GS should be valued based on the discounted cash flows it can generate. Novel concept, eh? Maybe I should write a book and teach at Wharton.

Then again, maybe my book should take a different approach. Perhaps Goldman should never have become GS in the first place. Perhaps a financial firm with ridiculous leverage ratios, a wacky capital structure, a penchant for mercenary dealings (AIG collateral call ring a bell?)  needs a small, concentrated, captive based of owners rather than a whole "street" of busybodies to answer to.

The only way Goldman's stock has impressed is in its volatility. It hasn't even doubled over the past 10 years. Hardly a good investment. The management has never been able to find an acceptable balance between staff incentives and shareholder value. Perhaps no such balance can exist for more than a few microseconds. Perhaps GS is an unstable element with a short halflife. Maybe they're in a constant state of containing the meltdown, hoping it wont Fukushima on them tomorrow ... or the next day. Perhaps this is distracting them from their "day jobs" of making deals with and on behalf of clients.

Nice adventure, guys, but it's time to take your marbles and go home. Cash in the chips and go private.

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