I finished the book on the Goldman Sachs partnership and am greatly impressed with the company. The tone of the book is a little over the top, gilding the lily as it were, but the point is that it is an extremely tightly run business. More power to them. If I have concerns about anything, it is about their understanding of toxic assets such as derivative credit swaps which undermined many of their competitors. Would it not be prudent for the banks to prevent such assets from reaching the market in the first place? In a turn around, I noticed in an article in the NY Times today that homeowners are walking away from houses that are valued at less than what they paid. The banks are crying foul. Don’t they do the same thing with bad assets or is the public supposed to step in and pick up the tab?

The South Sea Bubble was Britain’s first major business scandal. Set up in 1711 with an exclusive charter to develop trade with the South Seas (South America), the company actually made very little in its first years of business. However, to promote the company, shares were given to politicians and people who could “talk up” the riches of the South Seas. These people sold their shares back to the company for huge profits at no risk. It was a pre-Ponzi scheme. By late 1720 when the bubble had burst and the shares were selling for one tenth their value from the high, there was a major scandal and Robert Walpole was enlisted as England’s first prime minister to re-establish confidence in the  government.

Clearly, the removal of restrictions on banks such as the Glass-Steagall Act, has created the term “too big to fail”. Goldman Sachs clearly saw the dangers in the market and acted to protect themselves. I applaud their savvy, but why were these derivative credit swaps allowed to exist in the first place. Aren’t there economic models that will show just how dangerous they can be? How did Goldman Sachs know and no one else? I have to say that the antiques market has a fair number of items in it that are passed off as real which are either fakes, re-makes, improvements, etc., basically not kosher original antiques. When I wrote for “Art & Auction”, I used to point out anomalies in descriptions and attributions, in essence trying to warn people that the market was more complicated than the auction houses were making it seem. Little good it did. I guess Goldman Sachs understands that as well.

The banks have been raked over the coals this week by Congress, a pointless exercise from my point of view. When the proscriptions to prevent economic catastrophe are eviscerated, why should anyone be surprised when those people that know how to take advantage of the situation take that advantage? If you want to get angry, get angry that they want to prevent reform, not that they knew how to take advantage of a wide open situation. That is their job.

Essentially, there is an ethical problem in a great many service businesses. Who are the businesses serving? In the auction world, they say they serve both the buyer and the seller. Who is kidding whom? What about insurance companies who are allegedly, fearful of huge settlements against doctors, who are actually controlling the costs of health care through their policies serving doctors and hospitals? Clear conflicts of interest. There are endless examples in endless industries of such conflicts.

This is the nature of the capitalist system and it can and will survive if there is a strong moral core to those people who understand the conflict of interest and because there are laws to prevent people from taking advantage of the system. Those laws are, unfortunately, necessary because the single most difficult challenge to the moral core is called short term profit. This is the dangerous side to our system and it needs to be addressed. Those bankers could be quite useful people after all.

The NY Times had an article yesterday where the author said the photo of the bankers in front of the Congressional Committee reminded him of the tobacco executives in front of their Congressional Committee fifteen or so years ago. The similarity was in that their right hands were raised and they were wearing suits, but that is where it stopped. This rage against the bankers is absurd. The rage should be pointed at the politicians who so blithely eviscerated government regulations that might have prevented the financial debacle in the first place.The tobacco executives, furthermore, were lying about their product. They said that they did not believe that it was unsafe. Hmmmm…..,

These bankers are extremely smart. I could think of a whole bunch of ways to use their intelligence. For example, I might suggest that anyone earning a bonus of over ten million dollars be enrolled in a program that aid our public schools, not necessarily from a teaching perspective (although good teachers should get bonuses) but from buses to playgrounds to buildings to lunch and health programs. Our educational system is our life blood and if it fails, and it seems to be as very few people seem incapable of naming our first president, this country doesn’t have a chance. These bankers and businessmen would be given generous tax credits for both time and money they lavished on a school system, but I would make it hard on them and give them the worst performing schools in the nation. It might just make a big difference.


Christopher Mason’s book, “The Art of the Steal”, is about the collusion of Sotheby’s and Christie’s in the 1990’s. I recently read the first half of the book while staying with a friend, the second half to be finished on my next visit. I am familiar with all the names in the book, if not the people themselves and it is a little bit like hearing an oldie on the radio.

Mason orders the facts of the book very well. He omits a few things that I can remember such as Sotheby’s huge loan to Alan Bond to enable his purchase of Van Gogh’s, “Irises”. This is minor as he does go into guarantees, however, the bete noire of dealers who lose out to the auction galleries when bidding on private collections.

The collusion is both bold and inept. It was clear that if the Feds were going to come after them that they would have the houses in an open and shut case, and it was. I am far less interested in this than I am in what makes me a dealer, however, which is passion for me field of the English decorative arts, specifically furniture. Their collusion just demonstrates to me how tricky it is to make a profit off art.

That the auction houses are agents for both the buyer and seller is a conflict of interest. That they don’t have to purchase what they are selling lets them off the hook when things are bad and yet they reap fortunes from inaccurate estimations based on “expertise”. They get to have it every which way and yet they still needed to collude. That is what is fascinating.

I think the business people at auction houses trade on the passion of their experts. I think they force the experts hands and I think it unconscionable. That these experts don’t, as a rule, own the sort of things they sell, makes it even stranger to me that any buyer would take them seriously. Buying things teaches you the fine points of furniture (or art) better than any book or museum.

Auction houses are important to the market, but the latitude they have in the market is stunning and it is amazing to me that so few people recognize this. Alas, I have clients that won’t buy at auction because they know that they would never know if what they purchased was a pig in a poke or a great piece of furniture. And they are right.


My son gave me a book about his employer, Goldman Sachs, that details the history of that noted firm. “The Partnership” is by Charles D. Ellis and is seven hundred pages of anecdotes of the sort that my father, an executive recruiter and the man for whom the term “head hunter” was coined, used to tell me. I have a sense of nostalgia about what I am reading and I am certain he would have known many of the people mentioned in the book.

Business was different in 18th century England. There were certainly innovators who figured out how to make money (Boulton, Watt and Wedgewood to name a few) but England was not a meritocracy. Lower class people could not make a fortune no matter how hard they worked although, assuredly, some did, they just weren’t noticed. Bill collecting for successful entrepreneurs such as Thomas Chippendale, was onerous, people often not paying for a year or more. Nevertheless, the entrepreneurial spirit was lit at this time and very quickly came to a flame in America.

Goldman Sachs has reaped some very bad publicity of recent, but I would say that whatever they do is extremely representative of who and what the United States as a nation is. This country knows how to work hard and when we work well we can outstrip anyone. Just think of the moon landing. Because of our abilities and our far ranging interests, the U.S. has been a major world economic driver for the last 60 years and that has angered a great many people across the world. Western society may be profligate and need reform, but at least it has the mechanisms in place to do so. Goldman Sachs, if their history is accurate, has figured this out and made a strength of that ability.