Exodus of Top Bankers Bad News for the Taxpayer

Last week wasn’t a good one for Goldman Sachs — or for the taxpayer. Byron Trott, vice-chairman of the bank and long-time confidante of Warren Buffett, announced last Tuesday he was leaving to start a merchant-banking fund that will invest in and advise companies controlled by families or entrepreneurs, according to Bloomberg.

Later that day, Bloomberg went on to report that Mark Carhart and Raymond Iwanowski, co-heads of Goldman’s quantitative-investment group and Global Alpha hedge fund, quit the firm.

“Nobody’s having fun at these banks if they’ve taken a nickel of government capital,” one senior recruiter told the newswire.

Indeed, those departures are no isolated incident in the land of government-backed big banking. The announcement of the departures came just a week after David Rosenberg, chief North America economist at Bank of America-Merrill Lynch Securities, said he would be heading back to his hometown of Toronto to work for the more scaled-down Gluskin Sheff & Associates.

The message couldn’t be clearer: no seasoned investment banker worth their salt wants to work for the government if they can help it. Unfortunately for the taxpayer, who now shares in the prosperity of Goldman Sachs and Bank of America via the recent bailout packages, the bankers who packed their bags and jumped ship last week are arguably some of the most seasoned professionals the industry has to offer.

Much of the reason that Goldman Sachs was able to entice the Sage of Omaha out of a $5 billion investment last September — and thus limit the amount of taxpayer money it needed — arguably came down to Trott’s close ties with Berkshire Hathaway chief Buffett. Most agree too that Goldman Sachs was the most responsible in the industry when handling mortgage-backed securities. That skill that can surely be attributed in some part to the bank’s second in command.

At former Merrill Lynch, Rosenberg was no trigger-happy bull-market cheerleader, either. He was one of the first Wall Street analysts to point out the potentially harmful effects of subprime mortgages. Even now that equity prices are rising again, he chortles: “Enjoy the sucker’s rally.”

The departure of big-name bankers echoes events at Oppenheimer a year ago, when Meredith Whitney, the analyst who pointed out the perils of investing in Citigroup before anyone else, announced she would leave to begin her own firm. This month the Toronto-based Oppenheimer announced that it would be relocating its headquarters to the United States in an attempt to gain access to the plethora of financial lifelines being thrown to United States-based firms.

The exodus suggests that there is far too much bureaucratic oversight going on at the big banks right now. Silly schemes such as 90 percent taxation for higher-paid employees at government-aided firms ought to be quickly put to rest. Otherwise banks will continue to lose the very employees they need to steer them through this crisis, and enable taxpayers to get a quick and handsome return on investment.

Instead, we’ll be left with a range of new privately-owned financial houses staffed with the best finance has to offer — which the taxpayer reaps no reward from.