Here's something sent in by one of our readers.
So it seems Goldman was not immune to the whiz kid malaise that hit the derivatives market in the last 15 to 20 years.
From a useful tool to assist clients hedge risk, derivatives quickly morphed into essentially becoming 'the product' itself. And as they became 'the product', technology took over and the rocket scientists, physics and math grads became the new Masters of the Universe.
All would have been well, of course, had common sense prevailed. But traditional bankers, financiers, economists, and eventually risk managers too, were kicked off the trading floors to make way for black box technology. The technocrats took over, but unfortunately technology alone doesn't have either a subjective sense of the markets, or any 'feeling' for things like integrity.
The techies who took over derivative products, like Goldman's Tourre, seemingly had little idea as to the fundamentals, but were crackerjack at the technology and, of course, intoxicated by the money. The problem with science / technology, however, is that we often become blinkered that 'it can be done'. Nobody asks the question - 'Should it be done' ?
Management, of course, should have been the brake and the conscience to the traders and techies, but where were they ? Unfortunately, in the move to become 'younger' and more 'cutting edge', traditional management has often been pushed out and replaced by, you guessed it, rising whiz kids.
Of course by the time we got to 2000, even the original whiz kids were being pushed out by ever more out-of-touch technologically proficient rocket scientists. And even the regulators fell for this trend as well. The FSA seems increasingly populated by non-markets people, principally accountants and whizzy bean counters, when what it really needs is bankers with grey hair and common sense who understand how banks and markets operate.