Random thoughts

菲尔普斯夺得8金以后

Sat, 16 Aug 2008 05:34:09 GMT

from MITBBS

菲尔普斯夺得8金以后：
各国对游泳比赛蛙泳、仰泳、蝶泳、自由泳×100、200、400、800、1500导致金牌过多
感到非常不满，纷纷要求增加自己优势项目的金牌数目。
巴西提出：足球应该分为3人、5人、7人、11人×沙滩、室内、草地。
中国提出：乒乓球应该分为直板、横板、直板双打、直板单打、直板横板混双。
英国提出：马术应该分成黑马马术、白马马术、红马马术、褐马马术、黄马马术、斑
马马术。
肯尼亚提出：长跑应该分为10000米、11000米、12000米、13000米。。。
日本提出：所有男女混合项目应该增加3p、4p、5p、6p、7p。。。群p。。。500p。
泰国提出：除了男子和女子项目外，所有应该加上人妖组。

How to read a PE deal agreement - an educational article from NY Times

Wed, 23 Jan 2008 04:57:16 GMT

How to Read a Private Equity Deal Agreement

January 18, 2008, 7:47 am

Reading merger agreements is like putting together a jigsaw puzzle. For those who like their puzzle a bit more complex, private equity merger agreements are the ones with more pieces. And since it is Friday and we’re all looking for a distraction, what follows is a how to guide for reading private equity agreements for closing risk.

The guide comes from a deal announced earlier this week, the agreed acquisition of Manatron, a provider of tax software for state and local governments, by an affiliate of Thoma Cressey Bravo, the private equity firm.

The deal is a small one, valued at approximately $66 million, but as you will see there is much we can learn from it. So, let’s dive into the merger agreement.

We start by determining what the agreement states about specific performance. In the Manatron deal, the relevant clause in the merger agreement is in Section 8.8:

The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement. …

So far, so good. This clause is the type that you would normally see in a strategic deal and which provides the seller the power to argue forcefully in a court that the buyer should be required to perform its obligations and complete the deal.

However, in a private equity deal what one clause giveth another clause sometimes takes away (this is what caught United Rentals in its deal with Cerberus). So, the next thing to check is the remedies section in the termination clause. This section often contains a limitation on liability that restricts the scope of specific performance. Here, the relevant sections are 7.2(c) & (d):

(c) If (i) the conditions to Closing … have been satisfied … and (ii) Parent fails to close the transactions contemplated herein … the Company may terminate this Agreement … In the event the Company terminates this Agreement pursuant to the preceding sentence, Parent shall promptly … pay the Company the Parent Termination Fee. …
(d) … The amounts payable pursuant to … Section 7.2(c) constitute liquidated damages and not a penalty and shall be the sole monetary remedy in the event that a Company Termination Fee or a Parent Termination Fee, as applicable, is paid in connection with a termination of this Agreement on the bases specified in Section 7.2(b) or Section 7.2(c). …

So, for those who don’t normally read these agreements the above two provisions essentially provide that if all of the conditions to closing the merger are fulfilled and the buyer fails to complete the transaction, Manatron can terminate the agreement and receive a reverse termination fee. Here the fee is a payment in the amount of $2 million.

However, reading these provisions together with the specific performance clause, if Manatron does not want to terminate the agreement it can specifically enforce the buyer’s obligations to close. So, at this juncture, it looks like a tight agreement, one quite favorable to Manatron. It is also an atypical private equity agreement which often have either a pure reverse termination fee with no specific performance or specific performance only of the buyer’s financing commitment letters.

Here’s the catch. The acquirors here are Manatron Intermediate Holdings, Inc. (Parent), and Manatron Merger Sub, Inc. (Merger Sub). According to the merger agreement, Merger Sub is a shell company and there is no evidence that Parent is not also one. This means that neither company has any assets to collect upon other than the par value of their shares, probably no more than $100 at best.

It is for these reasons that a private equity merger agreement must be reviewed with the fund guarantee and the debt and equity commitment letters. The fund guarantee is the private equity fund’s commitment to stand by any reverse termination fee and pay it from their fund. The commitment letters are the agreements by which Parent and Merger Sub secure the funds necessary to consummate the transaction. Without these letters, the merger agreement is largely unenforceable by the seller.

Here, do a search of the Manatron merger agreement. There is no mention of a fund guarantee or an equity commitment letter. The only terms of relevance are in the Parent and Merger Sub representations. In Section 4.5 the two entities represent that:

Parent has delivered to the Company a true and correct copy of the commitment letter, dated January 14, 2008, by and among Wells Fargo Foothill, LLC and Thoma Cressey Bravo, Inc., pursuant to which the lenders party thereto has committed, subject to the terms and conditions set forth therein, to provide or cause to be provided debt financing of up to $40,000,000 in connection with the Merger (the “Debt Financing Letter” and the financing contemplated thereby, the “Debt Financing”).

The section on financing in 5.13 also only mentions only a debt commitment letter. According to the merger agreement, Manatron has 5,110,374 shares and 851,300 options outstanding and the unvested options included in the latter figure are accelerated in the merger. So, just to purchase the outstanding shares alone the buyer requires approximately $61 million (the per share purchase price is $12 per share).

From their last quarterly earnings report, Manatron only has about $9 million in cash and marketable securities on hand, and the merger agreement requires Manatron to use part of that to pay off its debt prior to closing.

This is all just plain odd. The deal appears to be short at least $15 million. The absence of any mention of an equity commitment letter makes it seem as if there is no equity commitment letter to cover this amount as again would be typical.

This creates two problems. First, the debt commitment letter (which wasn’t disclosed) likely requires an equity infusion as a condition to the lender providing financing. So, if all of the above is true, Manatron’s specific performance right is meaningless because Wells Fargo, the financing bank, can simply refuse to fund if Thoma Cressy refuses to make up the remainder of the required equity funding. Again, though, there appears to be no equity commitment letter to force Thoma Cressy to do so.

The second problem is that if indeed Parent and Merger Sub are true shells, as is typically the case, and there exists no fund guarantee, then the reverse termination fee is a mirage. There are no assets to collect. Thoma Cressy has a costless option on Manatron.

I want to believe in my heart that all of these assumptions are merely that, Manatron simply did not disclose these documents, and the documents will eventually be disclosed in Manatron’s proxy statement. But if they do not exist Manatron has signed a true option to buy the company with no recompense. The board of Manatron has left the company in quite a vulnerable position.

There’s another lesson here. Given the quirks of these agreements, sellers should retain experienced private equity law firms to represent them in these transactions. Manatron’s counsel on this deal, Warner Norcross & Judd, is an excellent Michigan firm, but how many private equity deals have they done recently?

This is the second recently announced deal, Waste Industries being the other, where experienced buyer private equity counsel may have gotten the better of local counsel inexperienced in these types of transactions.

Lesson over.

Coda: The news release for the Manatron deal had the following statement: “The completion of the transaction is not subject to any financing contingency.” Sigh.

–Steven M. Davidoff

it is snowing, it is beautiful

Sat, 19 Jan 2008 21:03:55 GMT

MBTI

Sun, 13 Jan 2008 21:11:28 GMT

When you fill this survey with the first thing that comes to your mind, only one word can describe its accuracy:

AMAZING!!

What a wonderful world! - Happy New Year!

Tue, 01 Jan 2008 05:10:16 GMT

What a Wonderful World
Artist(Band):Louis Armstrong

I see trees of green, red roses too
I see them bloom, for me and you
And I think to myself, what a wonderful world

I see skies of blue, and clouds of white
The bright blessed day, the dark sacred night
And I think to myself, what a wonderful world

The colors of the rainbow, so pretty in the sky
Are also on the faces, of people going by
I see friends shaking hands, sayin' "how do you do?"
They're really sayin' "I love you"

I hear babies cryin', I watch them grow
They'll learn much more, than I'll ever know
And I think to myself, what a wonderful world

Yes I think to myself, what a wonderful world
Oh yeah

Confused by Fed

Sat, 15 Dec 2007 19:19:36 GMT

About two and a half weeks ago, on Nov 28th, I commented one of my blog articles that Fed would cut the rate only by a quarter percent, not half a percent as the market predicted, even though Fed had repeatedly emphasized in public that there was no sign for inflation; however, I thought otherwise, and predicted the inflation sign would showed up before Christmas.

Less than twenty days, all newsprint headlines were something like - the inflation in Nov sharply rose to the highest level in 34 years! I should be happy since everything has happened in the similar way as predicted, but actually I am confused, especially by Fed's comments on no signs of inflation last month. For absolutely sure, I am no smarter than Fed, not even close. I don't have the same level of economy knowledge as those PhDs and big wigs working for Fed, not even close. I cannot access to the level of comprehensive database to evaluate economy trend as those people in Fed do, not even close. I only predicted by instinct. So I am sure that Fed knew everything and knew what was happening and what would happen. But why did not tell the truth? Didn't they know that the US experienced the highest inflation level in Nov while they said, no sign yet? Didn't the newest report on inflation embarrass them and ruin their own credibility? If they just wanted to find some reason to explain for the rate cut, why not choose some other reasons? Instead, they decided to pick a wrong reason that they knew people were going to find out soon. Why did they do that?

Kenneth Griffin and Citadel from New York Times

Fri, 07 Dec 2007 22:30:56 GMT

One interesting comments from this article: "Like most great investors, Mr. Griffin seeks disruptions in normal patterns to make money. "

If I am not far off, does it translate to "Great investors speculate, not construct"?

******

Will a Hedge Fund Become the Next Goldman Sachs?

By JENNY ANDERSON

IN 1988, a very young-looking 19-year-old Harvard student sneaked past the receptionist at the Boston office of Merrill Lynch, found the manager in charge of convertible bonds and struck up a conversation about the technical aspects of valuing those bonds.

A few weeks and some discussions later, the student, Kenneth C. Griffin, asked Terrence J. O’Connor, the convertibles expert, to open an institutional trading account with $100,000 he had collected from his grandmother and his dentist, among others. At the time, the size of the average institutional account was $100 million.

“My boss thought I was crazy,” recalled Mr. O’Connor, who nevertheless persuaded his boss to let him open the account.

That gamble doesn’t look so crazy today.

Mr. Griffin is the chief executive of Citadel Investment Group, one of the most powerful and fastest-growing companies in the hedge fund business, with more than $13.5 billion of capital. One of its two flagship funds, Citadel Kensington, had an average annual rate of return of 20.34 percent from 1998 through 2006 — making it among the best-performing funds over time. Success, however, has forced Citadel to face the fact that it straddles two different worlds: the freewheeling world of hedge funds and the intensely scrutinized world of grown-up financial service companies with pesky shareholders and layers of conflicts of interest.

Kenneth C. Griffin, chief executive of the Citadel Investment Group in Chicago.
It is a challenge faced by other big alternative investment companies, like the Blackstone Group, which recently filed plans for a public offering.

If Goldman Sachs is sometimes accused of being a hedge fund masked as an investment bank, Citadel has elements of an investment bank disguised as a hedge fund, minus the investment bankers.

Besides trading for itself, Citadel has a stock loan department and has become one of the largest options market makers in the industry.

It runs two reinsurance companies and recently disclosed that it would provide administration services to other hedge funds, a lucrative business that is usually offered for hedge funds, and not by them.

In December, a Citadel unit raised $500 million in debt, a groundbreaking move for a hedge fund that further enhances its independence from Wall Street.

Mr. Griffin has “institutionalized much of his business along the lines of an investment bank,” said Richard S. Fuld Jr., the chairman and chief executive of Lehman Brothers, which does extensive business with Citadel. “He’s certainly involved in some of the same activities that a hedge fund is, but he’s built more than that. He also acts as a broker-dealer and creates liquidity for investors. We have found many good ways to work together.”

At 38, Mr. Griffin is straight from hedge fund central casting, with a lanky six-foot frame, steely blue eyes and an affection for Ferraris and modern art. (He recently paid $80 million for Jasper Johns’s “False Start.”) Born in Daytona Beach, Fla., he lived in Texas and Wisconsin as a child, and returned to Boca Raton for middle school and high school. His father was a project manager for General Electric.

His wife is Anne Dias, a multilingual Harvard Business School graduate who runs Aragon Global Management, a smaller, value- focused hedge fund. Their wedding took place in the gardens of Versailles. The couple recently donated $19 million to the Art Institute of Chicago, where part of the Renzo Piano-designed addition will be named the Kenneth and Anne Griffin Court.

Mr. Griffin has said that he and his wife enjoyed one of their first dates at the museum. “For us, our relationship with this great, encyclopedic museum can be described as ‘love at first sight,’ ” he said.

Art and love aside, Mr. Griffin has not made his fortune with charm and grace. Interviews with more than a dozen people who have invested with or worked beside or for Mr. Griffin paint a similar picture: arrogant, unapologetic and extremely smart.

“Is Ken the nicest boss in the world?” asked Mark W. Yusko, a former chief investment officer at the University of North Carolina’s endowment fund, and now the president of Morgan Creek Capital Management, an investment advisory firm. “He won’t win that award. But he’s a great guy to work for because if you buy into the philosophy and the process and the system, you will be part of a great organization.”

Like most great investors, Mr. Griffin seeks disruptions in normal patterns to make money. When Enron collapsed, he sent a team around the country to interview hundreds of energy traders, meteorologists and quantitative researchers. He hired seven to start an energy trading business.

When Amaranth, the $9.5 billion hedge fund, blew up on bad natural-gas bets last summer, Citadel teamed up with J.P. Morgan to buy the book of energy trades. Citadel made a killing on the transaction, investors say. Now, as the market for subprime mortgages has imploded, Citadel has been on a shopping spree, acquiring assets and a portfolio of loans from ResMae, a bankrupt mortgage originator; and bought a 4.5 percent stake in Accredited Home Lenders, a troubled mortgage company.

“When everyone is running away, he is adjusting his portfolio and buying more,” said Mr. Yusko, a longtime investor.

Mr. Griffin declined to comment for this article.

His beginnings are the stuff of hedge fund legend. Mr. Griffin started trading options as a Harvard freshman. To get price feeds, he had a satellite dish installed on the side of Cabot House dormitory.

While it is widely thought that Mr. Griffin did not graduate from Harvard, he in fact did, a year early with an economics degree.

Frank Meyer, then the head of Glenwood Investment Corporation, an alternative investment group in Chicago, met Mr. Griffin, was impressed and gave him $1 million to trade. Mr. Griffin, just old enough to drink legally, produced returns of 70 percent trading convertible bonds. In November 1990, he opened Citadel with $4.6 million. After three blowout years, the convertible bond market crashed, his returns cratered and investors pulled out a lot of their money. At an unusually young age, Mr. Griffin learned an important lesson: Liquidity — access to money to be able to make trades — is critical, and in times of distress, is often unavailable.

During the 1990s, Mr. Griffin instituted strict lockups, meaning that his investors had to trust him with their money for longer periods. The last lockups were put in place less than a month before Long-Term Capital Management melted down in 1998, causing the Federal Reserve to organize a Wall Street bailout of the hedge fund. That year, the other Citadel flagship fund, Citadel Wellington, had a return of more than 30 percent, partly because Mr. Griffin had the capital to play in a confused market.

After the financial crises of 1998, Mr. Griffin accelerated a process already under way: cutting Wall Street out at every possible turn. That meant securing sources of money through lockups, thinking about how to tap the public markets and starting businesses like stock lending.

Mr. Griffin’s funds grew as he posted big-number returns: Citadel Wellington had a gain of more than 45 percent in 1999 and about 53 percent in 2000.

By 2006, reflecting both the explosive growth of hedge funds over all as well as its own mediocre returns in 2005, Citadel was the 11th-largest fund with $12 billion. Forbes listed Mr. Griffin as the 204th-richest American in 2006, with $1.7 billion.

Success has not come without blips. Rush Simonson, a mentor and friend, sued Mr. Griffin in 2006, accusing him of stealing a business plan the two had put together. He later dropped his suit. Mr. Simonson’s lawyer, Edward A. Wallace, declined to comment. Citadel helped finance a group of investors, including the Republican lobbyist Jack Abramoff, in the purchase of SunCruz Casinos, a fleet of gambling boats.

Mr. Griffin has not been involved in the day-to-day trading for years; instead, he manages the more than 1,000 employees of Citadel. But he does get involved with decisions in each of the firm’s seven businesses. For example, in 2005, when the convertible arbitrage world was tanking, he came down to the desk and took over.

As assets continue to flood the industry, and as Citadel continues to grow, returns will be harder to come by. Mr. Griffin conceded that point in a 2005 interview with the Harvard College Investment Magazine.

“I don’t think any industry has attracted as much capital over such a short period of time throughout history,” he told the magazine. “With that much capital flowing into the business, it is reasonable to conclude that the prospect for better than market returns going forward is bleak.”

Of course, he aims to be the exception.

“He’s just as intense today as he was 20 years ago,” said Mr. O’Connor, now a managing director at Merrill Lynch. “He still wants to be the best.

he probably should start to donate more to charities

Fri, 07 Dec 2007 22:04:04 GMT

http://youtube.com/watch?v=N8RsFwsODzE

Why are we Chinese yellow?

Fri, 07 Dec 2007 20:57:12 GMT

A very interesting article from today's FT caught my eyes: we Chinese were not yellow, at least in the majority part of the human history.

A columnist, Phillip Stephens, found an interesting fact in his study. For a very long period of history, because Europeans admired the Chinese culture and civilization, they were blinded by the difference in the hue of our skins. Thus, the skin color of Chinese were never mentioned as yellow in any document or book before mid-18th centuries. Only until 1740, a Swedish guy named Linnaeus started color-coding people, and brought up the ideas of white Europeans, red American indians, yellow Asians, and black Africans. Along with it was their racial superiority.

Mr. Linnaeus probably was not the first person that brought this concept, like most of the history antidotes, he was likely a well known person who publicly adopted then "newly existed" concept. Looking into history book, we can easily link this particular timing with the prelude of industrial revolution in Europe. The exploding production power and enormous amount of new wealth probably inflated the Europeans self-consciousness. Consequentially, skin colors started to matter. Therein, skin tones had not been an issue until only less than three hundred years ago. The real problem of colors actually laid in the superiority created by wealth and industrial power behind the colors since 18th century. Precisely, it was an issue of wealth. Racial subjects, like tension and self-segregation, are still popular topics in nowadays newsprints, even decades after Dr King's movement. Why does this still remain as a major concern in modern society? It is not hard to draw some implications from Mr Stephens's study: it was the imbalance of wealth that created the racial issues, and still this imbalance of the wealth keeps the issue alive.

a fun article to read from NYTimes - The Dictatorship of Talent

Wed, 05 Dec 2007 23:14:58 GMT

The Dictatorship of Talent

By DAVID BROOKS

Published: December 4, 2007

Shanghai

David Brooks

Let’s say you were born in China. You’re an only child. You have two parents and four grandparents doting on you. Sometimes they even call you a spoiled little emperor.

They instill in you the legacy of Confucianism, especially the values of hierarchy and hard work. They send you off to school. You learn that it takes phenomenal feats of memorization to learn the Chinese characters. You become shaped by China’s intense human capital policies.

You quickly understand what a visitor understands after dozens of conversations: that today’s China is a society obsessed with talent, and that the Chinese ruling elite recruits talent the way the N.B.A. does — rigorously, ruthless, in a completely elitist manner.

As you rise in school, you see that to get into an elite university, you need to ace the exams given at the end of your senior year. Chinese students have been taking exams like this for more than 1,000 years.

The exams don’t reward all mental skills. They reward the ability to work hard and memorize things. Your adolescence is oriented around those exams — the cram seminars, the hours of preparation.

Roughly nine million students take the tests each year. The top 1 percent will go to the elite universities. Some of the others will go to second-tier schools, at best. These unfortunates will find that, while their career prospects aren’t permanently foreclosed, the odds of great success are diminished. Suicide rates at these schools are high, as students come to feel they have failed their parents.

But you succeed. You ace the exams and get into Peking University. You treat your professors like gods and know that if you earn good grades you can join the Communist Party. Westerners think the Communist Party still has something to do with political ideology. You know there is no political philosophy in China except prosperity. The Communist Party is basically a gigantic Skull and Bones. It is one of the social networks its members use to build wealth together.

You are truly a golden child, because you succeed in university as well. You have a number of opportunities. You could get a job at an American multinational, learn capitalist skills and then come back and become an entrepreneur. But you decide to enter government service, which is less risky and gives you chances to get rich (under the table) and serve the nation.

In one sense, your choice doesn’t matter. Whether you are in business or government, you will be members of the same corpocracy. In the West, there are tensions between government and business elites. In China, these elites are part of the same social web, cooperating for mutual enrichment.

Your life is governed by the rules of the corpocracy. Teamwork is highly valued. There are no real ideological rivalries, but different social networks compete for power and wealth. And the system does reward talent. The wonderfully named Organization Department selects people who have proven their administrative competence. You work hard. You help administer provinces. You serve as an executive at state-owned enterprises in steel and communications. You rise quickly.

When you talk to Americans, you find that they have all these weird notions about Chinese communism. You try to tell them that China isn’t a communist country anymore. It’s got a different system: meritocratic paternalism. You joke: Imagine the Ivy League taking over the shell of the Communist Party and deciding not to change the name. Imagine the Harvard Alumni Association with an army.

This is a government of talents, you tell your American friends. It rules society the way a wise father rules the family. There is some consultation with citizens, but mostly members of the guardian class decide for themselves what will serve the greater good.

The meritocratic corpocracy absorbs rival power bases. Once it seemed that economic growth would create an independent middle class, but now it is clear that the affluent parts of society have been assimilated into the state/enterprise establishment. Once there were students lobbying for democracy, but now they are content with economic freedom and opportunity.

The corpocracy doesn’t stand still. Its members are quick to admit China’s weaknesses and quick to embrace modernizing reforms (so long as the reforms never challenge the political order).

Most of all, you believe, educated paternalism has delivered the goods. China is booming. Hundreds of millions rise out of poverty. There are malls in Shanghai richer than any American counterpart. Office towers shoot up, and the Audis clog the roads.

You feel pride in what the corpocracy has achieved and now expect it to lead China’s next stage of modernization — the transition from a manufacturing economy to a service economy. But in the back of your mind you wonder: Perhaps it’s simply impossible for a top-down memorization-based elite to organize a flexible, innovative information economy, no matter how brilliant its members are.

That’s a thought you don’t like to dwell on in the middle of the night.

what moves stock market now?

Wed, 28 Nov 2007 18:01:54 GMT

Up more than 260 points this morning?! the stock market is getting crazy. it doesn't make any sense to me. do they cheer for Citi getting new investment? or, the seemingly good start for this holiday shopping season? give me a break. Citi's deal doesn't look good to me at all. it tells only one thing - the only thing underscored in this deal: Citi is desperate in cash. how about the holiday sales, does it look good? i cannot tell. but the fact is most major retailers lowered their forecasts for this quarter.

meanwhile, there is another headline news on today's front page that didn't even make a dent in the market: home sales hit new low, prices drop. what matters most for the stability of the US economy now? oil price? not really. debt market dried up? not really. it is the housing market. again, housing market, home price! if the home price doesn't come back, the economy will be in real trouble later next year. how could the market cheer while the economy looks even more gloomy?

home prices down and stock market up on the same page, it doesn't make sense to me. so, now i'd say: great, let's short the market.

What matters, what not - WSJ

Thu, 22 Nov 2007 01:13:54 GMT

What matters:

Persistence
Attention to detail
Efficiency
Analytical skills
Setting high standards

Not matters so much:

Strong oral communication
Teamwork
Flexibility/adaptability
Enthusiasm
Listening skills

Goldman Sachs Rakes in Profit in Credit Crisis from today's NY Times

Mon, 19 Nov 2007 05:21:03 GMT

liked to read WSJ before, but it seems that NY Times does a darn good job to feed my curiosities these days. here is another article, and part of it sheds more light on how GS better cultivates its talent pool

********

November 19, 2007
Goldman Sachs Rakes in Profit in Credit Crisis

By JENNY ANDERSON and LANDON THOMAS Jr.
For more than three months, as turmoil in the credit market has swept wildly through Wall Street, one mighty investment bank after another has been brought to its knees, leveled by multibillion-dollar blows to their bottom lines.

And then there is Goldman Sachs.

Rarely on Wall Street, where money travels in herds, has one firm gotten it so right when nearly everyone else was getting it so wrong. So far, three banking chief executives have been forced to resign after the debacle, and the pay for nearly all the survivors is expected to be cut deeply.

But for Goldman’s chief executive, Lloyd C. Blankfein, this is turning out to be a very good year. He will surely earn more than the $54.3 million he made last year. If he gets a 20 percent raise — in line with the growth of Goldman’s compensation pool — he will take home at least $65 million. Some expect his pay, which is directly tied to the firm’s performance, to climb as high as $75 million.

Goldman’s good fortune cannot be explained by luck alone. Late last year, as the markets roared along, David A. Viniar, Goldman’s chief financial officer, called a “mortgage risk” meeting in his meticulous 30th-floor office in Lower Manhattan.

At that point, the holdings of Goldman’s mortgage desk were down somewhat, but the notoriously nervous Mr. Viniar was worried about bigger problems. After reviewing the full portfolio with other executives, his message was clear: the bank should reduce its stockpile of mortgages and mortgage-related securities and buy expensive insurance as protection against further losses, a person briefed on the meeting said.

With its mix of swagger and contrary thinking, it was just the kind of bet that has long defined Goldman’s hard-nosed, go-it-alone style.

Most of the firm’s competitors, meanwhile, with the exception of the more specialized Lehman Brothers, appeared to barrel headlong into the mortgage markets. They kept packaging and trading complex securities for high fees without protecting themselves against the positions they were buying.

Even Goldman, which saw the problems coming, continued to package risky mortgages to sell to investors. Some of those investors took losses on those securities, while Goldman’s hedges were profitable.

When the credit markets seized up in late July, Goldman was in the enviable position of having offloaded the toxic products that Merrill Lynch, Citigroup, UBS, Bear Stearns and Morgan Stanley, among others, had kept buying.

“If you look at their profitability through a period of intense credit and mortgage market turmoil,” said Guy Moszkowski, an analyst at Merrill Lynch who covers the investment banks, “you’d have to give them an A-plus.”

This contrast in performance has been hard for competitors to swallow. The bank that seems to have a hand in so many deals and products and regions made more money in the boom and, at least so far, has managed to keep making money through the bust.

In turn, Goldman’s stock has significantly outperformed its peers. At the end of last week it was up about 13 percent for the year, compared with a drop of almost 14 percent for the XBD, the broker-dealer index that includes the leading Wall Street banks. Merrill Lynch, Bear Stearns and Citigroup are down almost 40 percent this year.

Goldman’s secret sauce, say executives, analysts and historians, is high-octane business acumen, tempered with paranoia and institutionally encouraged — though not always observed — humility.

“There is no mystery, or secret handshake,” said Stephen Friedman, a former co-chairman and now a Goldman director. “We did a lot of work to build a culture here in the 1980s, and now people are playing on the balls of their feet. We just have a damn good talent pool.”

That pool has allowed Goldman to extend its reach across Wall Street and beyond.

Last week, John A. Thain, a former Goldman co-president, accepted the top position at Merrill Lynch, while a fellow Goldman alumnus, Duncan L. Niederauer, took Mr. Thain’s job running the New York Stock Exchange. Another fellow veteran trader, Daniel Och, took his $30 billion hedge fund public.

Meanwhile, two Goldman managing directors helped bring Alex Rodriguez back to the Yankees, a deal that could enhance the value of Goldman’s 40 percent stake in the YES cable network — which it is trying to sell — while also pleasing Yankee fans. The symmetry was perfect: like the Yankees, Goldman, more than any other bank on Wall Street, is both hated and revered.

Robert E. Rubin, a former Goldman head, is the new chairman of Citigroup. In Washington, another former chief, Henry M. Paulson Jr., is the Treasury secretary, having been recruited by Joshua B. Bolten, the White House chief of staff and yet another former Goldman executive.

The heads of the Canadian and Italian central banks are Goldman alumni. The World Bank president, Robert B. Zoellick, is another. Jon S. Corzine, once a co-chairman, is the governor of New Jersey. And in academia, Robert S. Kaplan, a former vice chairman, has just been picked as the interim head of Harvard University’s $35 billion endowment.

Since going public in 1999, Goldman has been the No. 1 mergers and acquisitions adviser, globally and in the United States, with two exceptions: in 2005 it came in second in the United States rankings, and in 2000 it lost the top spot globally. In both instances, Morgan Stanley took the lead, according to Dealogic.

Goldman, of course, has made its share of mistakes. It took among the most serious write-downs in the third quarter on loans that were made to private equity firms, totaling $1.5 billion. The firm runs one of the largest hedge fund operations in the world, but its flagship funds — funds whose investors include marquee Goldman clients and employees — have had two years of abysmal performance. Clients are expected to redeem billions of dollars of capital at the end 2007.

But Goldman’s absence from the mortgage debacle and the strong performance of its other businesses made up for the write-down associated with the loans. The firm reported $2.85 billion in profit in the third quarter, up 79 percent. Mr. Moszkowski estimates that investment and commercial banks in the United States have taken $50 billion in write-downs related to mortgages, with more coming; Mr. Blankfein said at a conference last week that he expected to take none.

Goldman’s business is built on taking risks, both for itself and its clients. In recent years, Goldman has established the largest private equity and real estate fund complexes in the world. That has led to natural tensions with private equity clients who sometimes complain, but never publicly, about Goldman’s common insistence to team up with them for a piece of the deal.

“Goldman has done the best job of any firm in the U.S. or world competing with their clients but doing business with them,” said one client who asked not to be named because he does business with the firm. “They’ve managed to get their clients to live with it.”

Still, this bottom-line approach has turned off some Goldman veterans and clients. They see the firm’s desire to advise, finance and invest — a so-called triple play — as antithetical to Goldman’s stated No. 1 business principle of putting clients first.

And there is little question that its success in trading, investment banking and servicing hedge funds — many of the traders come right from Goldman — allows the firm a bird’s-eye view on trends and capital flows in the market.

Numerous Goldman investment bankers, former and current, voice the view that Mr. Blankfein’s approach — using Goldman’s investment banking business to develop principal investment opportunities for the firm — creates a brand intended to feed Goldman’s profits rather than relationships. But this harking back to the firm’s golden days as a pure advisory firm does not find much sympathy at Goldman these days.

“I have little patience for these people who talk of the last days of Camelot,” Mr. Friedman said. “Principal investing has been an important and useful business. If you want to be relevant you have to anticipate where the world is going.”

Mr. Blankfein, at the conference last week, echoed that sentiment. “While the integration of our investment banking operations with our merchant bank was somewhat controversial at the time, we felt these businesses were mutually reinforcing,” he said.

Money soothes a lot of concerns, of course, and Goldman has had plenty to spread around. Through the third quarter, Goldman’s $16.9 billion compensation pool — the money it sets aside to pay its employees — was significantly bigger than the entire $11.4 billion market capitalization of Bear Stearns.

Goldman executives and analysts assign much of their success to smart people and a relatively flat hierarchy that encourages executives to challenge one another. As a result, good ideas can get to the top.

But the differentiator that has become clearest recently is the firm’s ability to manage its risks, a tricky task for any bank. Checks and balances must be in place to turn off a business spigot even as it is still making a lot of money for a lot of people. In a world where power gravitates to the rainmakers, that means only management can empower the party crashers.

At Goldman, the controller’s office — the group responsible for valuing the firm’s huge positions — has 1,100 people, including 20 Ph.D.’s. If there is a dispute, the controller is always deemed right unless the trading desk can make a convincing case for an alternate valuation. The bank says risk managers swap jobs with traders and bankers over a career and can be paid the same multimillion-dollar salaries as investment bankers.

“The risk controllers are taken very seriously,” Mr. Moszkowski said. “They have a level of authority and power that is, on balance, equivalent to the people running the cash registers. It’s not as clear that that happens everywhere.”

For all its success on Wall Street, it is Goldman’s global reach and political heft that inspire a mix of envy and admiration. In the race for president, Goldman Sachs executives are the top contributors to Barack Obama and Mitt Romney, and the second highest contributor to Hillary Rodham Clinton. Mr. Blankfein has held a fund-raiser for Mrs. Clinton in his apartment and has come out publicly in her favor.

Another member of Goldman’s influential diaspora is Philip D. Murphy, a retired executive who is the chief fund-raiser for the Democratic National Committee.

All of which has made Goldman a favorite of conspiracy theorists, columnists and bloggers who see the firm as a Wall Street version of the Trilateral Commission.

One particular obsession is President Bush’s working group on the markets, an informal committee led by Mr. Paulson that includes Ben S. Bernanke, the chairman of the Federal Reserve; Christopher Cox, the chairman of the Securities and Exchange Commission; and Walter Lukken, the acting chairman of the Commodity Futures Trading Commission.

The group meets about once a quarter — privately, with no minutes taken — to ensure that government agencies are briefed on market conditions and issues. The group is currently examining the extent to which the packaging and distribution of mortgage loans contributed to the crisis. It also recently completed a study recommending that hedge funds not be subject to further regulation; the group’s fund committee was led by Eric Mindich, a former Goldman trader who now runs a successful hedge fund.

There is no evidence that the conduct of the group is anything but above board. But to some, the group’s existence adds more color to the view that Goldman is indeed everywhere — much as J. P. Morgan was in the early years of the 20th century.

“Goldman Sachs has as much influence now that the old J. P. Morgan had between 1895 and 1930,” said Charles R. Geisst, a Wall Street historian at Manhattan College. “But, like Morgan, they could be victimized by their own success.”

Mr. Blankfein of Goldman seems aware of all this. When asked at a conference how he hoped to take advantage of his competitors’ weakened position, he said Goldman was focused on making fewer mistakes. But he wryly observed that the firm would surely take it on the chin at some point, too.

“Everybody,” he said, “gets their turn.”

My PhD thesis kills labtops!!!

Sat, 17 Nov 2007 18:46:56 GMT

Within two weeks, two labptops, one IBM and one Toshiba, died while I was writing my thesis. Somehow, it seems that this thesis does kill laptops. Now I am using a third one, and hopefully it will survive till I finish my defense. Keep my figures crossed.

Why Goldman alumni again?

Thu, 15 Nov 2007 21:25:06 GMT

Interesting coincident, when I heard that Thain was chosen to run Merrill yesterday, I brought up this question on mitbbs.com:

"Just read the news that Thain was chosen to run Merrill. It is amazing to see Goldman's alumni take one after another top positions at big banks these days, and now their network influences both Wall St and US government. Would anybody please explain why this happens? What did Goldman do right that helps generate so many leaders for US financial system? What kind of training, exposure, or opportunities Goldman provides them to prepare them for future success even after their times in Goldman, or what kind of characters or principles Goldman "implant" into them to drive them for future success? they must have done something right"

And today, NY Times is also discussing the same question. and I think this article reveals some enlightening insides.

Goldman’s Shadow Extends Far Past Wall St.

From left, Goldman Sachs alumni: Treasury Secretary Henry M. Paulson Jr.; Robert E. Rubin of Citigroup; Gov. Jon Corzine of New Jersey; and Joshua B. Bolten, White House chief of staff.

MICHAEL J. de la MERCED

Published: November 15, 2007

As John A. Thain prepares to take the reins of Merrill Lynch, he is only the latest example of a tradition borne out across Wall Street, in Washington and around the world. He is a Goldman Sachs alumnus who has reached the top elsewhere.

For decades, one investment bank in Lower Manhattan has churned out a golden list of corporate executives and statesmen, wealthy financiers and nonprofit managers.

In many ways, Goldman Sachs is seen as the financial world’s equivalent of General Electric, the corporate powerhouse, or McKinsey & Company, the management consulting firm. It is a training ground — and finishing school —from which other companies, along with quite a few governments, have frequently plucked their own top leaders.

And it has seeded some of the most successful private investment funds, many of them extending Goldman’s shadow from Greenwich, Conn., to London and beyond.

Goldman claims among its alumni Henry M. Paulson Jr., the current Treasury secretary; Robert E. Rubin, a Treasury secretary under President Bill Clinton and now Citigroup’s chairman; and Mario Draghi, the Bank of Italy’s governor. Jon S. Corzine, New Jersey’s governor, led Goldman for several years. Joshua B. Bolten, the current White House chief of staff, is a Goldman alum.

Mr. Thain, who left Goldman as president and chief operating officer to take over the troubled New York Stock Exchange and now Merrill, falls squarely in that tradition.

To insiders, all this is a result of Goldman’s elite culture, a sense of close-knit partnership that has endured despite the firm’s decision in 1999 to turn itself into a publicly owned corporation. To detractors, the firm is alternately a cult or a secretive fraternity like Skull and Bones at Yale, one focused on profits and power.

The bottom line on Goldman is that it is stocked with bright people who practically mint money. Even as the implosion of the subprime mortgage market forced many of its rivals to take multibillion-dollar write-downs this summer, to cite just the most recent example, Goldman reported a 79 percent increase in profit.

“It’s a partnership culture that truly ruthlessly weeds out people,” said Brad Hintz, a research analyst at Sanford C. Bernstein who has worked for two Goldman rivals, Morgan Stanley and Lehman Brothers. “It’s the most elite group.”

Goldman is a perennial leader in the lucrative practice of advising on mergers and acquisitions. Its few recent mistakes, including troubles at several internal hedge funds, are subsumed by its eye-popping financial results.

That same pursuit of excellence — and money — is woven into the firm’s genetic code, outsiders and insiders alike say. Becoming a partner there is a more trying process than at other firms, including 9 to 12 years of evaluations known as 360-degree reviews and competition against an array of the best and the brightest, not just from the Ivy League and top business schools but diamonds in the rough from state universities as well.

Unlike its peers, Goldman has not suffered from disruptive events that altered its core culture. Even after going public, it has retained a partnership-like structure, and it has not undergone any transformative mergers like the union of Morgan Stanley and Dean Witter Reynolds. It has never been subsumed by a larger conglomerate, diluting its importance and reducing its top executives to middle managers.

Nor has it had a leader like E. Stanley O’Neal, Mr. Thain’s predecessor at Merrill, who actively worked to change that firm’s “Mother Merrill” image.

Goldman Sachs’ record is not unblemished. Its role in advising the New York Stock Exchange and Archipelago in their merger drew accusations of a conflict of interest. The firm’s own acquisition of Spear, Leeds & Kellogg, a market maker, for $7.4 billion was seen as a costly mistake.

Goldman is also known for its insularity. Roy C. Smith, a professor of finance at the Stern School of Business at New York University and a former Goldman executive, noted that relatively few employees defect to rivals. Those who do take positions at other firms, like Mr. Thain and Mr. Rubin, usually stop over at neutral ground first.

The firm also has a tradition in which partners are encouraged to leave at a relatively young age after making more than enough money to live well for the rest of their lives. There is another way of looking at it. Many of Goldman’s most successful traders and executives are still in their prime when they depart, unquestionably wealthy and undoubtedly self-assured. If they do not reach the top of the firm, one question is left, What’s next?

“The idea is that there’s a certain amount of turnover at the top,” Mr. Smith said. “There has always been a ready chain of people behind them.”

Goldman can afford to lose some of its best people because it fosters a deep managerial bench and gives a heavy emphasis to personal coaching. Those among its ranks anointed as future leaders attend special seminars. Even those who leave the firm to run less managerial businesses — hedge fund executives like Edward S. Lampert, Eric Mindich and Daniel Och — were instilled with the notion that success comes from building a team.

After Bear, it is Merrill's fault this time

Mon, 29 Oct 2007 12:47:49 GMT

Merrill will not be the only casualty of its own failure in risk control this time, its bad bets will stir up a new round of re-rating and re-pricing in debt market and bring another round of sleepless nights for more bankers on the Street. when today's news said the markets reached new high and cheered the bad time of credit market was over, I'd say, give it at least another quarter, or even by this time next year, we can really tell who are survivors and how severe the damages are. btw, have to say, kkr showed a good sense of timing this time.

骋骋加油！

Mon, 24 Sep 2007 15:14:12 GMT