By Pam Martens and Russ Martens: September 12, 2017
Last month, Reuters reported that Goldman Sachs was planning “to begin” using personality tests to assist it in hiring personnel “in its banking, trading and finance and risk divisions.”
It’s highly unlikely that Goldman Sachs is just beginning to use personality tests since other major firms on Wall Street have been using them for at least three decades – and not in a good way.
The Reuters article was penned by Olivia Oran, who also wrote in June of 2016 that major Wall Street firms such as Goldman Sachs, Morgan Stanley, Citigroup and UBS were “exploring the use of artificial intelligence software to judge applicants on traits – such as teamwork, curiosity and grit.” The article further noted that one of the goals of the artificial intelligence software is to “avoid the expense of problem hires and turnover…”
All of the firms mentioned have experienced employees that, in their view, were “problem hires.” The public, however, has viewed those same employees as public interest-motivated whistleblowers.
In 2012, Goldman Sachs Vice President Greg Smith stunned the firm by submitting his resignation via an OpEd in the New York Times, charging the firm with a corrupt environment: “It makes me ill how callously people talk about ripping their clients off. Over the last 12 months I have seen five different managing directors refer to their own clients as ‘muppets,’ sometimes over internal e-mail,” Smith said. He called the environment at Goldman “as toxic and destructive as I have ever seen it.”
It takes a lot of guts to resign from Goldman Sachs via the New York Times. But there has been lots of gutsy whistleblowing by brilliant recruits with pristine resumes. Richard Bowen was a former Citigroup Senior Vice President who repeatedly alerted his superiors in writing that potential mortgage fraud was taking place in his division. At one point, Bowen emailed a detailed description of the problem to top senior management, including Robert Rubin, the former U.S. Treasury Secretary and then Chairman of the Executive Committee at Citigroup. Bowen’s reward for elevating serious ethical issues up the chain of command was to be relieved of most of his duties and told not to come to the office. Bowen testified before the Financial Crisis Inquiry Commission in 2010. In 2011, Bowen made the ultimate gutsy move: he revealed the sordid details on the CBS program 60 Minutes.
Morgan Stanley had its hiring epiphany moment with Frank Partnoy’s 1997 bestseller, F.I.A.S.C.O. – Blood in the Water on Wall Street. Partnoy had worked at the firm as a derivatives structurer. Obviously, the firm did not foresee his potential to write a bestselling book exposing its predatory underbelly. Partnoy wrote:
“…my ingenious bosses became feral multimillionaires: half geek, half wolf. When they weren’t performing complex computer calculations, they were screaming about how they were going to ‘rip someone’s face off’ or ‘blow someone up.’ Outside of work, they honed their killer instincts at private skeet-shooting clubs, on safaris and dove hunts in Africa and South America, and at the most important and appropriately named competitive event at Morgan Stanley: the Fixed Income Annual Sporting Clays Outing, F.I.A.S.C.O. for short. This annual skeet-shooting tournament set the mood for the firm’s barbarous approach to its clients’ increasing derivatives losses. After April 1994, when these losses began to increase, John Mack’s [President of Morgan Stanley] instructions were clear: ‘There’s blood in the water. Let’s go kill someone.’ ”
Nomi Prins is another of those “problem hires.” A highly respected former Managing Director at Goldman Sachs who is now a prolific author, Prins penned the 2004 book Other People’s Money: The Corporate Mugging of America. Prins wrote:
“When I left Wall Street, at the height of a wave of scandals uncovering scores of massively destructive deceptions, my choice was based on a very personal sense of right and wrong…So, when people who didn’t know me very well asked me why I left the banking industry after a fifteen-year climb up the corporate ladder, I answered, ‘Goldman Sachs.’
“For it was not until I reached the inner sanctum of this autocratic and hypocritical organization – one too conceited to have its name or logo visible from the sidewalk of its 85 Broad Street headquarters [now relocated to 200 West Street] that I realized I had to get out…The fact that my decision coincided with corporate malfeasance of epic proportions made me realize that it was far more important to use my knowledge to be part of the solution than to continue being part of the problem.”
The quintessential problem hire, of course, is Michael Lewis – the brilliant author who has singlehandedly spawned multiple Senate investigations into stock market rigging; dropped his market rigging bombshell on 60 Minutes, and sold his book The Big Short to Hollywood so that tens of millions of Americans could finally understand how Wall Street’s greed and corruption imploded the U.S. housing market and collapsed the financial system in 2008.
It’s tough to say if even artificial intelligence could have predicted to a major Wall Street firm that Michael Lewis had this rebellious quality. Lewis holds a degree in economics from the London School of Economics. He got his start on the trading floor of Salomon Brothers as a bond salesman. Lewis turned that experience into the bestselling classic “Liar’s Poker,” in which he exposed the crass and vulgar antics of the trading floor.
We know from first-hand experience that personality tests have been used by Wall Street’s biggest firms for decades. Susan Antilla chronicled one such test given by Merrill Lynch in her book, Tales from the Boom-Boom Room. (Details of that test were also documented in a Federal lawsuit against Merrill Lynch.) Antilla explained that Helen O’Bannon, who had “graduated with honors from Wellesley and had an M.A. in economics from Stanford,” had been asked to take a personality test at Merrill Lynch in the 1970s. One question on the test asked:
“Which quality in a woman do you consider most important? 1) beauty 2) intelligence 3) dependency 4) independence or 5) affectionateness?”
It turns out that if the applicant answered “intelligence” or “independence,” no points were given while an answer of “dependency” or “affectionateness” scored two points. One point was given for beauty. O’Bannon had answered “intelligence.” She was denied a broker training spot at Merrill Lynch.
There are solid reasons to be suspicious about exactly what type of candidates Wall Street is attempting to filter out and filter in. On November 20, 2014 the Senate’s Permanent Subcommittee on Investigations released a 396-page report and 8-inch stack of exhibits. Among the exhibits was a resume submitted to JPMorgan Chase by a young, recent graduate of George Washington University Law School.
This young man attempted to stand out from his law grad peers who were also applying for jobs at JPMorgan by announcing prominently on his resume that during his job in power procurement at Southern California Edison, he had “identified a flaw in the market mechanism Bid Cost Recovery that is causing the CAISO [the California grid operator] to misallocate millions of dollars.” The young job applicant went on to note that he had “showed how units in reliability areas can increase profits by 400%.”
The applicant was making it clear that he felt he had the ability to exploit electricity markets in California and that would make him a valuable job candidate at JPMorgan Chase. He was apparently right. Part of the same exhibit 76 is a JPMorgan email from the person who would become this young man’s boss, Francis Dunleavy, advising: “Please get him in ASAP.”
Within three months of JPMorgan hiring the new law grad in July 2010, he was actively engaged in developing manipulative bidding strategies for JPMorgan in California electric markets. A few months later, the plan was deployed. By fall of the same year, JPMorgan was estimating that the strategy “could produce profits of between $1.5 and $2 billion through 2018.”
Three years later, on July 30, 2013, the gambit was exposed in a scathing report by the Federal Energy Regulatory Commission (FERC), which included the names of JPMorgan personnel who were involved. JPMorgan, which had company-wide profits of $18 billion in 2013, was let off the hook by the Federal Energy Regulatory Commission for $410 million in penalties and disgorgement. No one went to jail.