Exhibit one:
Background: On September 11, 2008, I lent Joel Novak $14,000. The loan was for three months. That was his idea. As of today, 20 months later, he still owes $3,745.
Joel was one of my closest friends. For years we had lunch regularly. We visited Israel together. He was the investment banker who sold my company, did a brilliant job and made over $3 million for his firm in fees. Muriel, my wonderful assistant, sent Joel this letter suggesting that it was time he close the loan, since collecting it had become such a burden on her and me — what with letters, emails and phone calls.
Joel and his son have fallen on hard times. His son speculated with borrowed money in the stockmarket. Joel bailed him out. Joel’s remaining money is tied up in private equity funds, also called leverage buyout funds, which he can’t sell. He is a talented investment banker, who has seriously mismanaged his own finances.
What gauls me is not the $3,745 he still owes, but his disappearing act. What does it take to pick up the phone, call your old friend (me) and explain the truth?
Joel, are you listening? I still love you, even though you’re acting stupidly.
From Shakespeare’s Hamlet, 1602:
LORD POLONIUS:
Neither a borrower nor a lender be;
For loan oft loses both itself and friend,
And borrowing dulls the edge of husbandry.
The cockroaches keep coming for Goldman Sachs. From today’s Bloomberg.
Goldman Sachs Hands Clients Losses in ‘Top Trades’ (Update1)
May 19 (Bloomberg) — Goldman Sachs Group Inc. racked up trading profits for itself every day last quarter. Clients who followed the firm’s investment advice fared far worse.
Seven of the investment bank’s nine “recommended top trades for 2010” have been money losers for investors who adopted the New York-based firm’s advice, according to data compiled by Bloomberg from a Goldman Sachs research note sent yesterday. Clients who used the tips lost 14 percent buying the Polish zloty versus the Japanese yen, 9.4 percent buying Chinese stocks in Hong Kong and 9.8 percent trading the British pound against the New Zealand dollar.
The struggles for analysts at Goldman Sachs, which is fighting a fraud lawsuit from U.S. regulators who accuse the company of misleading investors in a mortgage-linked security, show the difficulty of predicting market movements as widening budget deficits, a fragile global economic recovery and tighter financial regulations increase volatility. Stock and currency fluctuations rose to the highest in a year this month as Europe pledged about $1 trillion to stop a debt crisis in the region.
“This says that Goldman’s guys are only human,” said Axel Merk, who oversees $500 million as president and chief investment officer of Merk Investments LLC in Palo Alto, California. “No one is always right. There are a lot of cross currents in this market.”
Gia Moron, a spokeswoman for Goldman Sachs, declined to comment.
China’s Bear Market
Goldman Sachs’s trading profits come from capturing bid- offer spreads when its traders act as intermediaries for clients, Gary Cohn, the firm’s president and chief operating officer, said last week in New York. Proprietary trading isn’t a main driver of earnings, he said.
The trade advice for customers is distributed by Goldman Sachs’s global markets economic research group. It tracks the performance of the trades in a daily research note. The time period of the recommendations is 12 months.
The performance this year is a reversal from 2009, when nine of Goldman Sachs’s 11 trading recommendations made money. Investors saw a 22 percent return owning Chinese stocks and a 12 percent gain buying the British pound versus the dollar, according to a Goldman Sachs note on Dec. 1.
Goldman Sachs analysts made eight trade recommendations for this year in December, including telling clients to buy the British pound against the New Zealand dollar. On April 1, Goldman Sachs added a ninth “top” trade, telling clients to buy Chinese stocks listed in Hong Kong and predicting the Hang Seng China Enterprises Index would rise 19 percent to 15,000.
Tough Analysis
Since then, the gauge has slid 9.4 percent to 11,426.18. The Shanghai Composite index has entered a bear market, losing about 21 percent this year. That’s the third biggest decline in the world after Greece and Cyprus. The decline accelerated this month on concern Greece, Spain and Portugal will struggle to finance their budget deficits and dismantle the euro.
The Chinese stock recommendation was made by a group led by Dominic Wilson, a senior Goldman Sachs economist in New York. Wilson cited inexpensive valuations and “robust” economic growth. He also said investors have already factored in the risk of higher interest rates in China.
Wilson wasn’t available to comment because he was out of the office traveling, according to an e-mail.
Exit Calls
“Emerging markets appear superior to the developed world, but the market isn’t trading that relationship,” said Eric Fine, who manages Van Eck Associates Corp.’s G-175 Strategies emerging-market hedge fund. “It may be that some assets are mispriced, but if the market starts to discount the end point of the game, such as the collapse of the euro, it’s not that mispriced.”
Analysts at Goldman Sachs recommended investors exit two trades in February, one involving interest-rate swap rates in the U.K. and another advising clients to buy credit-default swaps in Spain and sell similar contracts in Ireland. The first trade had a potential loss of 24 basis points and the other had a return of 2.9 percent, according to figures issued in the appendix of the research note in February.
Owning currencies that are tied to growth is the only remaining trade that has increased in value this year, according to Goldman Sachs. The Goldman Sachs FX Growth Index has climbed 3.4 percent since the firm made the recommendation in December.
Betting on Markets
Goldman Sachs makes more money from trading than any other Wall Street firm. In the first quarter, the bank’s $7.39 billion in revenue from trading fixed-income, currencies and commodities dwarfed the $5.52 billion made by its closest rival, Charlotte, North Carolina-based Bank of America Corp. In equities, Goldman Sachs’s $2.35 billion in revenue was about 50 percent higher than its nearest competitor.
Cohn told investors at a May 11 conference in New York that the firm lost money on only 11 days in the last 12 months. He said that uncanny streak of success refutes suspicions that the bank depends on proprietary bets with its own money.
“It is implausible that a proprietary-driven business model could be right 96 percent of the time,” Cohn said. Instead, he said the “simple answer” is that the firm makes money by capturing bid-offer spreads when acting as an intermediary for client trades.
Goldman Sachs executives have grappled before with questions about whether they’re better at making money for the firm than for their clients, according to an internal e-mail dated Sept. 26, 2007, that was released by a U.S. Senate subcommittee last month.
U.S. Lawsuit
The e-mail to Chief Executive Officer Lloyd Blankfein from Peter Kraus, who was then co-head of the company’s investment- management division, explains that individual investors, unlike institutional clients, occasionally make “comments like ur good at making money for urself but not us.”
The U.S. Securities and Exchange Commission filed a lawsuit against Goldman on April 16 accusing the company of misleading investors in a mortgage-linked asset. Goldman denies those allegations and said it will fight the charges.
Where would you be?
IF – YOU HAD ALL THE MONEY YOUR HEART DESIRES?
IF – YOU HAD NO WORRIES?
IF – YOU CAME HOME AND THE FINEST MEAL IS AWAITING YOU?
IF – YOUR BATHWATER HAD BEEN RUN?
IF – YOU HAD THE PERFECT KIDS?
IF – YOUR PARTNER WAS AWAITING YOU, WITH OPEN ARMS AND KISSES?
SO, WHERE WOULD YOU BE?
HELLOOoooOOO!!!!!!!!!
YOU’D BE IN THE WRONG HOUSE!
Harry Newton remains engrossed in the second edition of Nassim Taleb’s The Black Swan. So far, there’s one overriding lesson (I’m not kidding): Don’t borrow. When the Black Swan event comes (see yesterday’s column), borrowers suffer the worst, often losing their entire net worth.
Harry,
There is nothing wrong with what you have done.
All those who have issues with your post, they are ready to complain against you; however, they can't reason to the fact that your friend refuses to acknowledge to you. At what point, the person determines enough to tolerate this type of behavior?
Kudo to you.
I'm surprised that there are so many thin skinned readers here. I've been a reader of Harry's blog since he started it.I always enjoy the personal stories of his daily dealings with both professionals and friends. He tells it like it is. Suggestions for Harry to not embarrass poor Joel have missed the point. He and Muriel tried many times to contact Joel to no avail. He shouldn't have to go through so much trouble. If Joel were in fact a 'friend', then he would have contacted Harry. The fact that he did not says he is not a true friend. The fact that he may have fallen on tough times is no excuse to go into hiding. All you anonymous readers and noname readers who can't even use a real name are making excuses for the person who did wrong.
What is wrong with our society when every time someone does something wrong, it is not the wrong doer who gets hell, but instead it is the person who 'outs' the wrong doer. This is a crazy world gone upside down mad.
it's quite upsetting to read all this. I've been visiting this page almost daily. I'm not comfortable doing it anymore. Sorry.
Harry, maybe you need to take a break. Your blog is now more about toys (right column) and Joel Novaks than investing advice.
P.S. by the way, Corsair is not the best ssd drive. Check the RMA rate with local pc shops. Linksys signal booster is a cheapo too.
Sorry for being straightforward.
They're not “toys.” They're tools — check the heading. Corsair is not the best SSD drive. But it is the best for the money. And the difference in speed between it and number one is miniscule. The Linksys signal booster is $25, less than a dinner for one. And it works well.
Harry, I have read your blog for a couple of years now and enjoy what you have to say every day. I believe your sage advice has helped me in my financial understanding. I think your bold move of posting this is brilliant and for one applaud the courage it took for you to hit the submit button when it came time to publish your blog. No one here was involved in your loan and to attack you is a cowardly move. It seems your intentions were genuine and all you ask for is a little dialogue in return. Don't be bullied by the negative comments, they are probably all people who owe someone money anyway!
Thank you.
Harry,
Can I borrow some money?
Thanks.
P.S. Seriously, you should just sell the note to collections and get over it.
No. No more lending. I really don't want to turn the note over to collections. I want Joel Novak, my friend, to call me and explain what's going on.
Muriel- in your lifetime I am sure you did something that got someone angry – perhaps a friend or perhaps family. You may have been wrong or your actions may have been misinterpreted. Either way I am sure you would not appreciate the person you angered going viral- going global and airing your dirty laundry to the world. That is the point here and there is absolutely no excuse for what your boss did. You make it worse by defending him and telling us what a generous man he is. People have arguments, disagreements, and sometimes they dont pay back loans. To broadcast it over a website/blog that is meant for investment advise and insights is inappropriate and unforgivable. You are best just droping it or better yet you and Harry ought to apoligize to his friend and your readers for all of this. To defend Harry and add insult to injury by calling Joel a rude and pompus man is low and cruel. You think in embarrassing a man that has fallen on hard times and tried to help out his son Harry was “too kind”? Shame on you and Harry! done with this blog. On the top of your website it states IN SEARCH OF THE PERFECT INVESTMENT- what a joke and waste of time.
Muriel- stop making excuses for your boss. What he did is reprehensible. Regardless of how genorous and rich Harry is he embarrassed and humiliated a ” closest friend”. While doing so he showed his true colors. Money is clearly more important to him than friendship. Harry acknowledges that friendship and also points out his friend and son have “fallen on hard times”. So if he is a closest friend that has fallen on hard times what does it say about Harry (and you who defends him) that he would embarrass Joel Novak because he is angry that he has not returned calls and mail? Let me remind you when you put something on the World Wide Web – the internet it stays there forever!!! Is the $3745 that important to a rich fellow like Harry that he would do such a horrible thing?
Oh please – I am not making excuses for Harry. He could use some help in picking friends though. In my opinion Joel is a rude and pompous man and Harry was too kind to him.
Hi, this is Muriel, Harry's assistant – I know if Joel had called Harry and said “Harry, I am having serious money problems and I will not be able to pay you back for however long,” Harry would have replied “don't worry about it – what else can I do to help you” but it has been his lack of any calls and his general rudness about this whole matter that is really bothering. Harry is one of the most generous people that I know. I think Harry was hoping that by posting this on his website, it would make Joel angry enough to make a call and then they could have some kind of dialog.
I understand the lesson. Don't loan friends money. Gift them it or don't. In my opinion, you should leave him a message that you don't want the 4 K back and his friendship means more than that. If he doesn't have the money, he doesn't have the money. Its obviously embarrassing for him. He was trying to bail out his son. How can you resist a son asking for serious help. If he didn't pay you back, I'm sure he hasn't paid a lot of people back. He probably lost more than one good friendship over it too. If he was a true friend, call him and let him know that you are there for him. He could probably use the support right now… Harry, you are the smartest guy I know and look forward to you column everyday. I know you will look past being hurt and try to contact him or at least leave him a message…
Totally agree. And still, I'd remove the column about him….. and all of these comments on the page. It's not ethical. In fact, I'd cancel the webhosting for this domain. Just kidding….
I'll try to contact Joel again. But, trust me, Muriel and I have been trying like crazy to contact him in every possible way. The certified letter was final desperation.
If I were you I'd just remove everything about your friend together with the scan of the letter.
Harry, you need to learn a little compassion. If your daughter or son didn't pay you back for this piddley amount would you post to the world your 'hurt' by their inability to pay you back?. I'm sorry but I don't get your feeling hurt when your richer than 99% of the usa.. Sorry but this makes you look like a Ass..
There is a saying – give your friend $20 and if he's gone, he was worth it. 🙂
Your buddy Joel was worth $3,745.
If I were you, I wouldn't write such stuff in public. It's not appropriate. Just me two cents…
You're undoubtedly right about it not been appropriate. I will admit, however, that I thought the envelope was “good art.” A powerful way to make a point.
I'm confused Harry. Did your friend pay you back all but $3,745 or is that the interest on it? Either way, having made many loans of money, boarding, appliances, etc to friends and family over the years I can tell you they should never be looked at as financial transactions. It's a leap of faith and hopefully goodwill somewhere down the line when you need it. They're also a great way to avoid seeing someone as you're finding out with Joel.
I really like Joel. I want to retain him as a friend. His behavior has been irresponsible. I would not be in the predicament and he wouldn't be avoiding me if this weren't going on. Hence the lesson: Never lend your friends money. It was a mistake. I can happily forget the money, but not the friendship.
The $3745 is capital still outstanding. Your reasoning make sense.
Harry,
Is $3745 worth your intergrity? What did you gain? Did you loose anything? I was surprised by your comments. No, disappointed. No need for you to comment. Try Stephen Covey.
I feel I have been taken advantage of by an old and dear friend. I am hurt. There's a lesson here for all of us.
You are hurt because you have been taken advantage of?? So are you asking for our sympathy? You regularly and frequently let your readers know about your wealth and business prowess. You tell us how you sold your buiness and about your other investments. Clearly you are a man of means and financial resources. Is the $3745 worth the embarrassment of your friend so you can point out “the lesson to us all”? How much money do you need Harry? Live and let live. If you did make a mistake lending a friend in need some money then keep it to yourself. You dont need to show us the certified letter you sent. Exteremely poor taste!
Shame Shame Harry – using your blog to embarass, humilate and call out a “friend”. You still love him??? Is that how you treat a friend that has gone through hard times and whom you claim to love? Boy- I would hate to see how you treat somebody that is not a friend that you dont love? Perhaps you will be sharing your thoughts about Lindsey Lohan and American Idol contestants. Stick to the Wall St and Market commentary!
I was hurt. I am hurt. I got taken advantage of by an old friend. There's a moral here for all of us.
No borrowing? But Harry, haven't you heard? It's “different” this time…..ha!
It's no longer “different.” Worse, there is less and less time between financial crises.