Steve Strongin Speaks
A student raises his hand with purpose, itching to ask a question of the night’s guest speaker. “Would you mind explaining how Goldman handled the financial downturn differently than other firms?” His proposition is then met with a straightforward and candid reply ripe with details only an industry veteran of the speaker’s caliber could possibly know.
On the evening of September 16th, even the winds of Locust Walk calmed in anticipation for WPBA’s first guest speaker of the year: Steve Strongin. Mr. Strongin has been an employee for Goldman Sachs for just under fifteen years. He is the current Managing Director of Global Investment Research, having served in this capacity since 2007. His tenure at Goldman began in 1994 when he became Global Head of Commodities. In 2006, he moved from this position to become Chief Operating Officer and Interim Research Head.
The name ‘Goldman Sachs’ is certainly no stranger to the ears of students across the campus of the University of Pennsylvania. The allure of its name likely brought many in the audience to Steinberg-Dietrich Hall Room 1206 that night. But if those individuals expected an information session on the company’s operations or a Goldman sales pitch they were in for a surprise. Comfortable and personable, Mr. Strongin stepped before the crowd to speak of the intimate details of the financial crisis. Mr. Strongin was primarily presenting a series of three papers titled collectively “Effective Regulation,” which explain why the economic meltdown occurred and how the vigor of the global financial system can be restored.
Mr. Strongin asserted that the global market failure occurred because of an excess of foreign capital investments from East Asia and petro-producing nations, both of which were unable to successfully funnel this into investments domestically. Instead, this capital found it’s way overseas, clustering in the developed housing markets of the United States and other industrialized nations. Many reputable firms, taking advantage of this capital and laxer mortgage lending standards to securitize risky assets exchanged on the global market. Such activities were perfectly acceptable so long as housing prices continued to rise. But when they leveled off, problems puffed out of the system like chimney smoke.
In an honest statement to the crowd Mr. Strongin stated, “We at Goldman and other firms did not adequately assess the risk of low-quality mortgages included in the pools backing securities.” This may be the closest admission of guilt you may ever find from someone on Wall Street. But the practices investment banks were only part of the problem. Mr. Strongin also discussed the lack of oversight from regulators whose purpose it is to monitor the sale of securities and business reporting (many firms had securities listed as assets on one side of the balance sheet).
After explaining the interworking of the problem, Mr. Strongin sought to outline a series of recommendations for repairing the financial system. He makes a call for domestic regulatory agencies across the world to control risk in their borders. Capital flows through borders, and because international consolidation is a difficult, and probably undesirable goal, local entities must take charge. Mr. Strongin believes that good regulation ultimately leads to desirable qualities in the marketplace, such as transparency. Principle-based regulation rather than rules-based regulation is also argued to attract commercial activity, leading to capital market viability necessary for economic growth as well as minimizing risk. Only time will see if any of Mr. Strongin’s suggestions are implemented in the rebuilding process.
Related posts:
Leave a Reply
You must be logged in to post a comment.
Subscribe to the Calendar