Interview with Goldman Sachs Manager Dibelius 'Some Aspects of Our Industry Seem Greedy'

The investment bank Goldman Sachs is back in the black. SPIEGEL spoke with the chief executive of its German operation about finance industry greed, the morals of banking and who should be blamed for the global financial meltdown.

SPIEGEL: Mr. Dibelius, bankers worldwide have behaved shamelessly and irresponsibly in recent months. Do you feel complicit?

Dibelius: Yes, and I also want to face up to the debate. In retrospect, some aspects of our industry seem greedy, self-centered and unrealistic, as if the industry had no concern whatsoever for the society around it. And I admit that we did not manage, on the whole, to cope with the expectations society has of us -- as individuals, as institutions and as an industry. Some decisions were made in the euphoria of booming markets. Hindsight is always 20-20. For that reason, it also makes sense that some of these decisions are now being sharply criticized.

SPIEGEL: Perhaps greed is part of the genetic code of bankers.

Dibelius: If greed is hereditary, then that applies to everyone, not just bankers.

SPIEGEL: What prompted so many to keep upping the ante, if not greed?

Dibelius: It is generally difficult for people to think in terms of discontinuity, that is, to expect the occasional losses. Second, when business is going well, no one pays attention to skeptics. We have seen this with other speculative bubbles, and it would be wrong to believe that they could be ruled out completely in the future.

SPIEGEL: In the past, bankers were the ones with the longer time frames.

Dibelius: I agree. In the past, failure was more of an individual phenomenon, but now it's a collective thing. In the past, economies and the flow of information and capital were not as globally interconnected as they are today. There was the occasional serious conflagration, but it always remained local. On the other hand, globalization translated into enormous benefits for the welfare of the entire world. This is often ignored in the public debate. Germany, in particular, has benefited immensely. However, all players must learn to cope with the new nature of risks.

SPIEGEL: Is there criminal energy in your industry?

Dibelius: No, but there are individual cases like that of Bernie Madoff, which were able to thrive on fertile ground. As long as everyone was doing well, no one paid close attention. And I admit that the isolated cases have been breathtaking.

SPIEGEL: It was a snowball system. And the best gamblers were those who got out just in time to avoid the collapse.

Dibelius: That happens to be the way markets work. Nobody rings a little bell before a market downturn. You always have to make risk-based decisions. The only problem, more recently, was that many people didn't even know where the risks were and what they looked like.

SPIEGEL: There are also moral issues involved. While governments had to spend billions to rescue institutions, financial professionals from AIG to Dresdner Bank were still insisting on the payment of their bonuses.

Dibelius: Again, not all bankers have acted the same in this respect. Many are dealing with the issue of bonuses in a very responsible way. However, I do understand the sense of public outrage. Personally, I have always accepted the fact that I have to accept certain losses during difficult times.

SPIEGEL: Georg Funke, the former CEO of Hypo Real Estate, which received billions in bailout funds, plans to sue for outstanding compensation…

Dibelius: …I take an ambivalent view of that. On the one hand, we live in a country governed by the rule of law, where such claims can and must be settled in the courts. On the other hand, the individual must also demonstrate that he accepted a certain degree of responsibility, even if he feels that he is personally blameless. To put it crudely: If you fly with the crows, you get shot with the crows. What needs to develop now is "collective humility!"

SPIEGEL: We find it hard to believe that some banks, yours included, are back to booking billions in profits, while the rest of the world is spinning in such a massive economic crisis.

Dibelius: Goldman Sachs is not some kind of anomaly. However, our risk management was always respectable. That's why our need for write-offs may not be as high today as one would expect for a bank of our size.

SPIEGEL: Many in your industry seem to believe that the government should stand in for their massive losses, while they should collect the profits.

Dibelius: We cannot have losses being socialized and profits being privatized, and I wouldn't think that anyone would seriously defend such a model. "Systemically relevant" may be the ugliest phrase of the year, but the fact remains that the international community cannot avoid rescuing individual institutions, unless it wants to put everything in jeopardy.

SPIEGEL: In October, the US government bailed out Goldman Sachs to the tune of $10 billion (€7.6 billion)...

Dibelius: ...which we were more or less forced to accept. Exceptions were not allowed, because the goal was to restore confidence among banks within the overall market. But this was certainly a measure that prevented further destabilization.

SPIEGEL: Come on! Goldman Sachs insured massive assets for ailing AIG. Your investment bank would surely have collapsed without government assistance.

Dibelius: It would be arrogant to claim that we would have survived without it. As an individual company, we would have had sufficient reserves. However, when a tsunami strikes, even a champion swimmer like Michael Phelps is going to drown.

SPIEGEL: How can it be fair for banks to be rescued with billions in taxpayer money while millions of people are losing their jobs?

Dibelius: The industry to which you -- rightfully so, at least initially -- are assigning the lion's share of the blame for the crisis is currently experiencing the greatest job losses: the financial sector. But even without the crisis-related escalation in the industry, an economic downturn would have happened sooner or later. Economic developments have always been cyclical, although the financial crisis aggravates the situation dramatically.

SPIEGEL: We definitely hold the banks responsible for the current downturn. The auto industry and other sectors are merely paying for it.

Dibelius: I don't completely agree. Fundamentally speaking, we were also dealing with a policy of cheap money...

SPIEGEL: ...which the banks were only too happy to take advantage of, if not abuse...

Dibelius: ...but it wasn't of their making. Cheap money was also politically desirable. Initially, after the terrorist attacks of Sept. 11, 2001, the government wanted to jump-start the economy. However, another political objective was to ensure that as many Americans as possible could afford to buy a house. In that regard, it was a desirable and admirable policy, and it was successful for a long time.

SPIEGEL: In other words, the politicians in Washington are to blame for everything?

Dibelius: As with every major problem, there is not just one guilty party here. In light of the policy of low interest rates and the resulting reduction in risk premiums, the financial industry and its set of tools grew more quickly than the regulatory framework and its effectiveness.

SPIEGEL: How many jobs did your own bank have to eliminate?

Dibelius: We are talking about roughly 15 percent worldwide, throughout the entire company. At the height of the boom, we had about 33,000 employees. Today there are about 28,000.

SPIEGEL: Henry Paulson left his position as CEO owning about $500 million worth of Goldman Sachs stock. Last year, during his tenure as US treasury secretary, he allowed his old investment bank competitor, Lehman Brothers, to go bankrupt. Does he also bear some of the responsibility?

Dibelius: All of these conspiracy theories are as exciting as they are wrong. The worst of them even go so far as to claim that Goldman Sachs was ultimately behind the entire crisis. Paulson truly doesn't fit the mold of the Hollywood cliché of an investment banker. Anyone who knows him is aware that he is very committed to environmental protection and conservation, that he invested early on in reforestation projects and spent a large share of his fortune...

SPIEGEL: Sure, but if Paulson had rescued Lehman, the world economy would be in different shape today.

'The Current Crisis Is Too Big to Be an Anomaly'

Dibelius: No one could predict the impact of that decision. And even if the dynamics had been recognized and avoided in time, the bubble would probably have burst somewhere else, where the consequences would have been far more devastating. Until late summer, many still believed that it was nothing but a Wall Street problem. But the risks were already becoming apparent on many balance sheets, including those of German companies.

SPIEGEL: Well, that's certainly a twist: the Lehman bankruptcy as a beneficial catharsis.

Dibelius: This bankruptcy was a painful wakeup call...

SPIEGEL: ...for which we should thank Paulson? That's ridiculous!

Dibelius: I'm saying that Lehman made the problems clear to everyone all at once. But governments still had the opportunity to react, because the global dimension of the banking crisis had suddenly entered the public consciousness.

SPIEGEL: On paper, the once mythical investment bank Goldman Sachs is now just an ordinary commercial bank. How does that affect your work?

Dibelius: So far, little has changed when it comes to our business model. There are two reasons for this. First, why should we revise our strategy during a crisis phase, in the face of so many long-term uncertainties?

SPIEGEL: For one, because the US government is now demanding more transparency.

Dibelius: It now has many more options to monitor things. Second, we believe that the future outlook for our business is excellent. We too are not fail-safe, but we have been relatively successful since 1869. In general, however, it is true that the days of perpetual 25-percent after-tax returns in the financial industry are over.

SPIEGEL: The great thing about investment bankers like you is that they can turn a profit everywhere. First you arranged the merger of Daimler and Chrysler, and in the end Goldman Sachs helped break apart the two companies.

Dibelius: On balance, I doubt that we made that much on those deals. Besides, it's obvious that I would have preferred to see the merger succeed. Of course, we always try to make the best of a given situation for our clients.

SPIEGEL: And then there was the merger of Karstadt and Quelle to form Arcandor -- a true spectacle for your bank. And what was the purpose of that? Now the company is on the brink of bankruptcy once again.

Dibelius: I will not comment on clients. However, we don't have the master plan for the German economy locked away in some closet. You have a false impression of our role. We are a service provider. When we are called on, we try to help. Our role is often overestimated. Our clients are the ones making the decisions.

SPIEGEL: Perhaps the banking world would be different today if you hadn't built yourself up as such an archaically organized, macho business.

Dibelius: Now that's really below the belt! In case you haven't noticed, we bankers also live in an enlightened world and help to promote complex processes in a rational way.

SPIEGEL: Is Wall Street's rotten image that unjustified?

Dibelius: Yes, absolutely, especially when I consider that our company isn't the only one that promotes women and is involved in social causes beyond the scope of our actual business processes.

SPIEGEL: We have no problem with that. But the picture was long dominated by testosterone-driven Ferrari owners.

Dibelius: You've apparently spent too much time browsing through Tom Wolfe's "Bonfire of the Vanities."

SPIEGEL: "American Psycho" offered an especially horrific literary portrayal of the Wall Street investment banker.

Dibelius: And Konrad Kujau was part of the German media business. Nevertheless, I would beware of characterizing his forged Hitler diaries as somehow representative of your industry.

SPIEGEL: Is the current economic crisis merely an anomaly or evidence of a systemic problem?

Dibelius: It is simply too big to be an anomaly. A number of adverse developments coincided in an unfortunate way. But, for the first time, the international community has demonstrated the will to solve problems collectively.

SPIEGEL: Some cultural critics predict an end to capitalism.

Dibelius: A typical reflex. They were saying the same thing about the Internet bubble: that total hysteria would lead to a deep depression. And what happened? Good business models like eBay and Google survived everything and are now contributing in a positive way to economic development. In the same vein, I hope that the current crisis will ultimately help to improve our system, that of a market economy, of course, because everything else was reduced to absurdity throughout history. Freedom and responsibility must be the guiding principles.

SPIEGEL: In France, angry employees have recently started taking their managers hostage. In the UK and the United States, bankers have received death threats. The real question revolves around when this sort of economic crisis becomes politically dangerous.

Dibelius: We must all be careful not to allow the development of an isolated elite, otherwise dramatic tensions could develop in our society.

SPIEGEL: In the United States, an intensive search for the guilty is just now getting underway, complete with hearings and lawsuits. Why has it been so unusually quiet in Germany until now?

Dibelius: First of all, the US public is far more in tune with what happens on the capital markets than in Germany.

SPIEGEL: You mean because millions of Americans are watching their stock-based pensions go up in smoke.

Dibelius: Exactly. Public outrage in the United States over what happens in the financial industry is far more closely connected to politics and the judiciary. Besides, the Americans have a tendency to go to extremes. In one breath, they roll out the red carpet for the economy, and then you see senior executives being escorted out of their mansions in handcuffs. We saw similar things happen in the wake of the Enron and WorldCom scandals.

SPIEGEL: That explains the situation in the United States, but not in Germany.

Dibelius: Here in Germany, unemployment is the most important barometer of the public mood. What do you think the reaction would look like if we had five million unemployed? But the unemployment rate is an indicator that lags behind the financial markets. In the end, we could see the executives who are forced to announce layoffs being pilloried rather than those who caused the crisis in the first place. But if anything can change the political dynamics in Germany, it will be that magic number: five million unemployed.

SPIEGEL: Thank you very much for taking the time to speak with us.

Interview conducted by Wolfgang Reuter and Thomas Tuma Translated from the German by Christopher Sultan
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