Has Your Frog Been Cooked? From Long-Term Greed to Short-Term Greed. Goldman Sachs Cautionary Tale for College Presidents et al.

The Goldman Sachs "revelations" this week offer a vivid lesson that may not seem immediately relevant to higher education. However, the Goldman story demonstrates a painful sequence experienced by many colleges, for many decades: the institutional equivalent of discovering that you ARE the frog that is being cooked in the slowly heating waters. 


I hope that college presidents, boards, and others who influence major decisions for colleges and universities will consider this cautionary tale of Wall Street mission creep. If you are unfamiliar with this pseudo-controversy, see the brief excerpts below from "At Goldman, short-term greed vs. long-term greed," Posted by Ezra Klein at 03:42 PM ET, 03/15/2012, published in Washington Post p. A9 March 16, 2012.

Many colleges and universities have recently been pressed to launch new online programs in response to financial exigency and changing applicant demographics. For decades, many colleges and universities under financial pressure and changing applicant demographics have launched new programs or divisions - often more career-oriented than the core curriculum or longstanding programs. After a few years, especially when such programs succeed and effectively subsidize the operations of the entire institution, those who have been responsible for the new divisions begin to influence decisions that affect the the more traditional components and, eventually, the institutional mission. Many may feel that it would be hypocritical or ungrateful to object to some of these small steps in a new direction. 

However, the impact of these steps can accumulate so gradually that even the oldest of the "old guard" don't notice until the changes have become irreversible. The frog has been cooked. The institution has a new mission.

So please be careful and test the waters before you urge your own institution to jump in. Or check the temperature often enough that you can still jump out before it is too late.


Excerpts below are from   "At Goldman, short-term greed vs. long-term greed," Posted by Ezra Klein at 03:42 PM ET, 03/15/2012, published in Washington Post p. A9 March 16, 2012. 

..."But the response of many of Goldman's defenders confirmed the very trend Smith was lamenting: A change from long-term greed, which aligned Goldman's interests with those of its clients and arguably with those of the broader market, to short-term greed, which is not quite so benign for your clients or for the broader market."

"...'Take it in its historical sweep for a moment,' says William Cohan, author of 'Money and Power: How Goldman Sachs Came to Rule the World,' (and also a Bloomberg View contributor). 'For most of the last century, Wall Street -- no one knew what it was. It was a bunch of undercapitalized private partnerships. And the way it made money was taking companies public, raising debt for them, raising equity for them, advising them on merger and acquisition deals, and advising them on how to manage their money. There was very little trading. Very little risk for them. That was the business.'
"In that business, Cohan says, the profits came from long relationships with firms. You wanted IBM as your client for 100 years. Goldman might have been out to make money, but the particular type of greed was, in the words of former Goldman Sachs director Gus Levy, 'long-term greed.' And long-term greed meant treating your clients right."Today, most of Goldman's profits come from the trading side -- which is also, incidentally, where Smith worked. 'If you need IBM to be your client forever, you don't call them a muppet,' says Cohan. 'If it's some guy on the other side of a quick trade? You don't need him forever.'..."But it also exposes Goldman to vastly more risk and very different incentives... And much of the trading side's work has nothing to do with helping clients at all.
..." the ethos of the trading side is infecting the advisory side.
..."But the response of many of Goldman's defenders confirmed the very trend Smith was lamenting: A change from long-term greed, which aligned Goldman's interests with those of its clients and arguably with those of the broader market, to short-term greed, which is not quite so benign for your clients or for the broader market."

IMAGE selected by Steve Gilbert 20120316
Photo of "Frog of Liberty.. Wikipedia: If a frog is placed in boiling water, it will jump out, but if it is placed in cold water that is slowly heated, it will not perceive the danger and will be cooked to death..
http://www.flickr.com/photos/donkeyhotey/4635404703/

CC credits:
Frog adapted from joeltelling's photostream
Pan adapted from Stewart's photostream