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Interview with Geraint Anderson

Accent: Can you talk a bit about The Goldman Sachs Group, Inc. ? Geraint: Well, Goldman Sachs will take your life away from you, for ten years or more.
Geraint Anderson is a bestselling author of CityBoy: Beer and loathing on the square mile and previously a columnist for thelondonpaper where he exposed the excesses of invsestment bankers. After traveling through India and Latin-America living as a hippie, his brother got him a job in the city where he planned to gather enough money to afford his hippie lifestyle. He fell victim to the preposterous bonuses which seduced him to stay way longer than he intended. Two highly motivated Accent writers went on the epic journey confronted with lifethreatining dangers to divulge the holy grail of the muddle-headed, eclectic Masters of the Universe and to enlighten the untaught student population. Accent: In our study track, so Business/Economics many people want to go into IB, what do you think about that? Geraint: I think it is a tragedy that because you earn so much money it actually seduces many people who have got skills to be used perhaps in a more worthwhile way. For example, I went to Oxford recently to do a speech and there were these great scientists, brilliant mathematicians and brilliant physicists. And they all want to go into IB. I met the second best physicist in Oxford and he wants to go into Goldman Sachs, IB. And he could be doing something perhaps more useful with his life. But the money is really good; I cannot really tell him not to do it. Accent: Students read in the newspaper that the mean salary at GS is about 400.000$ Geraint: I think in 2007, the average salary was 700.000$ but that is salary plus bonus, which is obviously the bigger part of that. When you hear that it becomes very tempting to involve in such a very lucrative side of business. Goldman Sachs just gets people to work hardest for them, they get the best people and make them work really hard and they put them in a culture that really encourages tense competitiveness between you all. So if you two guys (Cdric and me) went to that GS graduate program you constantly would be gagging your performance against one another and they would be playing you off one another. And you go I have to work because Cedric is working 14 or 15 hours so I must work 16 hours. GS creates this culture with greed and fear, if you work really hard for us in 5 years time you will be earning a million dollars, if you don t work hard for us you lose your job. And I think many people wake up on their 40s birthday and they have worked really hard their whole life, earned lots and lots of money but they suddenly think, I just lost the best years of my life. I saw it in my own eyes. They have promised themselves that they would go into IB for ten years but they are still there 20 years later, thinking I may have the nice big house the Ferrari but I only had four weeks holiday a year for 20 years and I may have got my priorities a little bit wrong. Accent: Can you explain face time ? Geraint: Yes. Your success in an IB depends not just on what you do but what you seem to do. For example if you two worked at GS, and Cedric does some good business but Christian can persuade

his boss that Christian managed to pull it all of. In England we call it stealing thunder. If you can do that when it is bonus time even if he achieved a bit more, and he was quiet and did not necessarily tell everyone how well he had done. Then you steal his thunder. Likewise, in GS you always have two jackets; one to have on the back of your chair and one you actually wear. So when someone comes in at night and sees the jacket on your chair, he will think oh Christian is not here but he will be back soon because his jacket is still here. Accent: So it always about projecting this image of a hard working guy. Geraint: Correct, never project a weakness. And GS particularly is like a cult, when you spoke to people from GS they almost believed in it like someone who believes in the Moonies, or some strange cult they really believe they are the best and they are kind of brainwashed into thinking they are the best that they are working for the best bank and they are therefore lucky to work there. They really are brainwashed. And when you speak to them, it is like talking to someone who has become a member of something peculiar religious cult and their belief is impossible to challenge. Accent: Are people who actively speculate greedy? Warren Buffett for example is portrayed as a good person. Geraint: Buffett invests for the long term, he is seen as an honest guy but of course he has shareholders who want to make money. And the problem is with I suppose all companies is that they have the fiduciary duty to increase their quarterly earnings and they will do anything to do that. There is a great documentary which shows that the requirements of an American company are actually the same as the mentality of a psychopath. It is a single minded duty with no regard which shows no compassion or remorse or guilt and effectively breaking the laws. So companies are obliged by law to act like a psychopath. And just the same way, Warren Buffett has shareholders who want to see their investment grow and they probably do not care if laws are broken or environmental damage is done. Because all they want to do is more and more money. And if you have every quarter that pressure to deliver results and if you are chief executive fail you will lose your job. This pressure is also the reason why so many companies cook their books. This urge to make money for your shareholders often leads to criminal behavior. It often leads to being nasty and naughty and in IB people will trade on inside information, people will spread false rumors and manipulate markets because the rewards are so massive and so upfront and this is the problem with the bonus system. Accent: What can you say about John Paulson shorting the market throughCDS? Geraint: You have got to be careful with this but GS got fined 550 million for being involved in creating financial products with John Paulson that were basically designed to fail. After September 11th I remember everyone shorting shares in airline companies and shorting shares in Insurance companies and going long in shares such as armament companies and that was the simple trade you made. I am afraid money has no emotion; money has no feelings of guilt and feelings of remorse or feelings of sympathy or empathy. It is just how to make more money. The thing that I particularly don t like about shorting shares is when you short financial companies and then you spread rumors that the bank is going to collapse. And then these companies were going bust the next day. These guys were making money by spreading false rumors but they were also contributing to the financial instability that causing problems for the whole world. So I don t think

shorting on its own is evil but if you combine it with spreading false rumors then it becomes a really nasty thing to do.

Accent: But there is a Chinese wall in IB, right? Geraint: Insider trading was really bad ten years ago, it was just the Corporate Finance department told banks like GS and MS particularly, your supposedly subjective analysts will be positive on this company because we want to get corporate work , we want to do some M&A work or issue some equity or whatever. And that got to a stage where none of my clients, buy side analysts, hedge fund manager would believe GS or MS, they just knew that they weren t being objective analysts, but they would quite simply promoting the interests of the bank. In terms of insider trading, I am afraid to say that without doubt the so-called Chinese walls do not work at many banks. For example, I covered UK utilities, the five companies that last got taken over, their stock price rose about 10% and then suddenly the company had to announce that yes, we have to admit we are in talks that may or may not lead to an offer which is simply the company acknowledging the share price has gone up massively people have bought lots of shares someone has found out that they are about to be taken over. The former head of the financial services agency, John Tylor said that insider trading is right and that acquisitions are preceded by enormous stock buying and suspicious share price movements. People who want to make money need to have an edge and insider trading is seen as a victimless crime without being caught. And I think in Japan Insider trading is not even illegal but I may be wrong. The idea is why should it be, it is just that the market will work it out. The market is self correcting. Accent: How do you value companies? Geraint: A DCF for example if you change the cost of capital or the growth. If you and I have the same company for example Barclays Bank and you change your growth rate by 1 % up or cost of capital by 1% down then considering the terminal value you will see that a sell will turn into a buy. Just as simple as that, and that is why it is a bit stupid. However, if you get lots of similar companies and you do very close analysis and you use similar assumptions for example on the growth rates, then you can see anomalies between the different companies. I think the key to success is looking at the anomalies when you are using similar assumptions but then you also have so many nebulous things like management which are very difficult to measure. But I am afraid so much of what dictates markets movements are unpredictable. So I think lots of people don t understand interest rates and what effect they have on markets. And interest rates are so difficult to predict, if you go to ten different companies you get ten different interest rates estimates, likewise the oil price which is decided by about 20 Arabic guys. Economists have predicted ten out of the last three recessions. Accent: What do you think about this issue with women having a career? Geraint: There are very few women in finance. I would say that 80% front office staff is men. But the simple fact is that it is a job that attracts men, making lots and lots of money, you get a Ferrari. And probably there is some institutional sexism, in the sense that women have this awful habit of going off in their thirties and having children. And of course in IB you will lose touch with the market and you will lose touch with your clients. So to bosses a woman is a less good bet because she will inevitably go off in her thirties. The banks are doing a DCF on the women and on the men

Accent: What is the situation involving investment banks consulting the Greek government? Geraint: Goldman Sachs showed the Greek government how to hide their deficits in order for Greece to receive the EURO. There is a system in place that makes people rich and they do not want to change the status quo and they seem to be just unaware of how unpopular they are. Partly I blame people because they are not angry enough! I wrote my book as a warning how money and greed can change someone and of course 80% of the emails I get are from students saying: I read your book and I realize it is a warning but could you help me get a job in the city?, which is quietly amusing to me. Accent: Jim Chanos, a prominent short seller who predicted the Enron disaster says that China is Dubai times 1000 and that on the Chinese coast there are huge real estate bubbles, what is your take on this? Geraint: If you are in the middle of the speculation you very rarely realize but in 2003 I said the property market has to explode any minute and I was wrong until 2006. There is a great line form the film Wall Street: Wall Street is lifted with the grays of people who are right too early. I am afraid it is all about timing. So the hardest thing to do is to get the timing right. Accent: You always hear that these Hedge Funds managers have charities, but sometimes you really ask yourself if they are doing it for the people s good or only for publicity? Geraint: You know what, I think its just some guilt thing you have. It is really hard to try to disentangle what your motives are and in some extend I don t care . If someone like George Soros is giving away ten million dollars and his motives are a bit funny. But I don t bother these because he is doing good. You can always be cynical and say the only reason anyone gives to charity is because they have some sort of middle class guild. Accent: Do you also believe in transparency, right now we have this wave of social networks and wikileaks. Do you think it is good or is there too much privacy? Geraint: Yeah, you have to be careful with facebook. When Goldman Sachs sees you on your facebook page with two girls drinking tequila, they say ok, we are not sure if want to have this guy. Accent: But you can set your privacy seetings in a way that they cannot see your pictures or can they? Geraint: Yes I am sure that you can set your facebook settings so that they can t see your pictures. But they are very clever and have the ability to get on facebook and see you smoking a joint with a couple of prostitutes in the Bahamas. Just be careful. I think that Malcolm Gladwell wrote an article three months ago, just before everything started kicking in (Egypt, Lybia), saying that an idea that social networks might have some role in creating in social movements is all nonsense and it is not gonna work and then suddenly these things happen a month later. Accent: What is your opinion on the media and what role does it play on investment decisions? Geraint: We used to use journalists in two ways. If got a stock idea, you talk to your journalist contacts after you talked to your clients. They would then spreading the idea that you have got around. Also of course, if a stock goes up or down and you got it correct, you make sure your

journalist friends spread that around so that you look clever after the event. There is a famous expression in the finance world which says: What is the difference between a financial journalist and a financial analyst? and the answer is about 300 000 . Accent: The noble prize winner Paul Krugman said after the credit crisis that the best thing for the world would be another bubble. Isn t that ridiculous? Geraint: This is what caused the world problem, cheap credit, so what to do to solve it? Give cheap credit. It is basically like giving a heroin addict more heroin. Accent: Why do you think don t people go on the street anymore to fight for sth? Are they happy? Geraint: I think it is partly the alternative of being discretited. If you look at serious change, like communism or socialism, these ideas have all been discretited, so people don t see any reason. I think this is partly due to people who just want to make money and that the system works for most people. It does if most people got a decent house and that they can eat whatever they want. There is an expression by a british revolutionary which says: You cannot agitate a men with a full stomach. You need to have real poverty to try and get through major change. Accent: What do you think about the increased student fees in the UK and the high tuition fees elsewhere in the world? Geraint: I think that I have been very lucky not to endulge any of this. I am not sure if I would take that bet, that I say I come out of University with 30000 in debt and try to work it off. I would rather prefer to travel through India for half a year and have an enjoyable life instead of being trapped by a very specific financial trash. I feel very sorry for these students because this is rather unfortunate. Accent: What is your opinion of travelling? Geraint: I think it is very good for your character. But to land a job in IB it does not help since it is such a competitive market today. That when there is a choice between two people and onewent off to India and the other did an internship at for example Commerzbank, the guy who did the internship will be chosen even if he spent his time preparing coffee. The question is to what extent you want to spend twenty years in IB instead of enjoying life. Life is tragic because when you are young you have a lot of time but no money and when you are old then you do not have time. The situation that is ideal is to have time and money. I turned 35 three years ago. One of my favorite quotes of bob Dylan is The definition of success is to be able to do what you want from the moment you wake up until the moment you go sleep . And someone working at GS, in my opinion is not successful unless they really enjoy their work which I find hard to believe, they are being obliged to do something they don t want to do for large portions of the day. And probably neglecting the joy of life, which may be travelling, dancing, sex, drinking and things like this. And so I will never envy those guys who I left behind in the city who are now earning many hundreds of thousands of pounds. For 48 weeks in a year you are not free, you are not doing what you enjoy. This isn t a life that you will look back on and say this was a success. There is an English expression: No one on their death bed wished they had spent longer in the office .

Accent: One last question. You said your brother got you into investment banking, is he still in the business? Geraint: No, funny thing, he left and became a priest. He is now working for god not Mammon. So Iam sorry, he can t get you a job. You know, it is actually really funny. My father was a left wing labor politician, my mother a very religious woman and I was a hippie with long hair, traveling through india and smoking dope. And by mistake they let me into banking because of my brother who was much more normal and straight. I felt it to be a very difficult situation because it went against all my principles but they were making me very rich as well. I got seduced and within five years I was earning 300.000 a year.

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