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What Ex-Goldmanite Greg Smith Didn’t Say, and Some Guesses as to Why

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Greg Smith’s book on his time at Goldman has generated a hailstorm of criticism, aptly summed up by Jesse:

But the absolute trashing and personal attacks on Greg Smith in the past week that were orchestrated by Goldman and supported, heavily, by the US financial networks got my attention. Generally ad hominem attacks are used by those who consider the facts of the case to be dangerous ground, and wish to do anything that they can to avoid discussing them. So instead they seek to discuss the person bringing them to light…

The rationales in favor of Goldman quickly take on the character of the schoolyard. Everyone does it on Wall Street, and singling out Goldman isn’t fair. And what was Greg Smith expecting? Everyone knows Wall Street is predatory and will do whatever it takes, even abuse their customers and make millions out of it. And if the customers are dumb enough to fall for it, they deserve it. Don’t be a fool like him, be a sophisticate and move along.

What people do not realize is that the fraud cuts so deep and wide that it hard to escape it, even if one has no dealings personally with any of these firms. These Wall Street financiers have their hands in everyone’s pocket through the manipulation of the financial system, the price discovery mechanisms, and the money supply. And if you do not understand this by now, you understand nothing.

Smith’s sin seems to be that he’s an insider from an uber prestigious, connected firm who dared say something bad about his former employer. The “don’t rock the boat” attitude is so deeply ingrained in America that it’s considered reckless to be candid about why you are quitting a job in an exit interview. And it’s not a stretch to call the reaction totalitarian when it’s Wall Street that is on the receiving end of criticism. Look how, despite running again and again to Wall Street’s aid, Obama is an official enemy for a mere “fat cats” remark. Similarly, the industry depicts Elizabeth Warren as a power-mad Commie bank serial killer, when her fault-finding is based on clear eyed analysis of how deceptive and predatory practices hurt consumers.

I’ve not read Smith’s book, but based on the extensive commentary on it, it appears that Smith intended it to serve as an insider caveat emptor for people who need financial product warnings. From Clusterstock:

‘Why I Left Goldmanc Sachs’ isn’t for people who know the Street. It’s not even for anyone who’s read Liar’s Poker (that’s way more advanced). It’s for the millions of people who have no idea what Wall Street is. It’s for the people who only heard about Goldman Sachs or Lehman Brothers in 2008, when it seemed like the world was collapsing under the weight of Wall Street’s complex business.

This isn’t hard to pick up. Smith talks about complicated things like markets and hedge funds in simple terms meant to be understood by someone who’s never heard of a derivative.

And while the negative commentary will likely succeed in killing book sales, that may not matter much, since Smith reached more people than were ever likely to read his work via his 60 Minutes appearance, in which he comes off well:

By contrast, as Pam Martens describes Goldman’s brass knuckles reaction in making extensive disclosures from Smith’s personnel files is unheard of outside litigation. Moreover, she highlights a stunning comment by Edith Cooper, the head of pretentiously-named Human Capital Management in a Bloomberg interview, that “Our interests are 100 percent aligned with our clients.” Bloomberg has since edited that world class whopper out; you can go see that it’s missing from the segment, but Bloomberg failed to scrub the lone comment on the video from four days ago calling out the remark (I’ve taken screenshots for posterity since I assume Bloomberg will complete its Goldman-flattering airbrushing now that I’ve pointed out their lapse).

And some of Goldman’s reactions were telling. Smith charged that the firm changed its recommendations on specific European bank stocks frequently, based on the firm’s position. Goldman’s defense was legalistic: that wasn’t Smith’s area (so gossip doesn’t travel? Please), and the firm didn’t have prop trades on (hello, the customer desks have positions as well).

But let’s get to the more interesting question: why is Smith’s book thin on the sort of salacious detail that the many of his critics clearly wanted him to serve up? There may have been legal concerns. Note that fellow Goldman alum Tetsuya Ishikawa wrote a thinly disguised autobiography in the form of a novel; it’s not hard to tell which of the several firms his main character worked for is meant to be Goldman, and his book is full of the liberal use of drugs, hookers, and very expensive wine as inducements in the sale of drecky CDOs, combined with pretty good primers on the products themselves). But we’ll put that aside and offer some possibilities.

Smith was simply too junior. Ironically, Goldman had this as a defense in its “toolkit” circulated before the Smith book hit the newsstands.

By e-mail, excerpted from a book in progress, by Michael Thomas, second generation Lehman partner, back in the days when, pound for pound, Lehman had the best investment bankers on the Street:

In no form of human endeavor does history count for as little as in finance. The more I read, however, the more I’m struck by how little top-level insider material there is. Maybe I should make that “how little honest top-level insider material.” There’s a reason for this: Wall Streeters may be exorbitantly well paid for what they do, but ex-Wall Streeters, especially those with first-hand knowledge of the location of the bodies, and super-especially the big hitters who called the shots, who made things happen and denominated their triumphs in nine digits or more, seldom speak for the record – which is how and why they get to keep the money.

If you ask me, what we really need are accounts dictated by the devils in the details, tell-alls that offer Satan’s first-person account of his evil angels’ handiwork. An insider account, for example, of Michael Milken’s Drexel Burnham junk bond daisy chain, preferably by the man himself. Forget it: ain’t going to happen. When Long Term Capital Management (LTCM) went down the tubes (despite its pretentious name, what killed it were short-term problems), John Meriweather didn’t waste time writing the whys and wherefores and certainly not the mea culpas; he didn’t hire a ghostwriter; he went out and raised a new fund, and if this one taps out – one hears not-so-good things about its performance – he’ll doubtless return for a third at-bat. If he had set down a written record of how he pissed away billions, he wouldn’t have a chance in hell of a do-over. But Wall Street is the mother of career reinvention, the working motto of the place is “This time is different” (which old-timers say it never is), so why screw up the possibility of a second or third go-round with a mea culpa or a mea whatever?

The problem is, most Wall Street books written by so-called “insiders” turn out to be by low-level functionaries. The definitive book in this genre, Michael Lewis’ Liar’s Poker, is an account written by a guy who I’m told was perhaps a couple of rungs up from clerk at Salomon Brothers. What we never got was Salomon CEO John Gutfreund’s side of the story. When he got the boot, he kept his mouth shut, took his money and left the firm.

Smith was in an area where the opportunity for ripping off clients was circumscribed, so he wasn’t likely to have real dirt. If you listened to the 60 Minutes video, what Smith says, in essence, is that the best profit opportunity lies in selling a really complex product to a naive client. After seeing Jefferson County, German Landesbanken, and Australian town councils as world famous stuffees, this should comes no surprise. Smith does provide further confirmation in hinting hard that client who are so trusting that they “don’t know how to ask questions” are well represented in Goldman’s top 25 clients (by profits) list.

Ishikawa who was in the middle of precisely that type of rape and pillage activity (for instance, he was on the team that marketed the Abacus CDO that was subject to a $550 million SEC settlement). By contrast, Smith was selling fairly simple derivatives to pretty savvy clients. From Craig Heimark, who has been in the OTC derivatives business from its early days:

The profile and expertise of buyers of equity derivatives (and equity products generally) are quite different from the profile of fixed income. Obviously, the fixed income buyers are more conservative and looking for a safer, more guaranteed investment product. Because of this, their independent skills to evaluate the investment product sold to them are far lower than buyers of equity. In more formal terms, not only is their utility curve different than equity buyers, their expertise to understand complex products is much lower. Recognizing the skill set differential is important – because one of the standard mantras – to which I subscribe, namely transparency – addresses information asymmetry, but not expertise asymmetry.

The fundamental assumption that institutions are sophisticated enough to fend for themselves simply does not work in this age of infinite complexity. So your guess that Greg Smith might have a restricted view of abuses is consistent with my observations, and originates with three factors. One – the equity side has fewer abuses because of the nature of the buying segment. Two – Greg may be using a wholesale definition of what is the responsibility of the seller – i.e does it comply with all rules to be a proper product, versus a consumer view ie is is safe for this customer to consume. Three – many of the customers don’t know they are getting fleeced because of the opaque market structure of OTC derivatives and complex structure products (this is more an excess margin to the financial supplier than and product design issue, but it is a market failure nonetheless, because perfect competition assumes perfect information – and we are VERY far from this in OTC and Structured products)

Wholesale market regulation needs to be completely overhauled as a result of several factors, but the most important is technology. Complex product design is fundamentally related to IT systems capacity. Far too much of the blogosphere focuses on greed. People are just a greedy now as ever, but financial products have gone from something that a person of reasonable intelligence and a college education could understand to something that requires at least a specialist degree in financial design from Wharton or perhaps an advanced physics degree. So financial products have become very sophisticated embodiments of Intellectual Property. In the pharmaceutical industry we have elaborate FDA safeguards to ensure the products produced are fit for consumption. The financial market has yet to adjust is regulatory principles to the current set of technologically sophisticated products.

Smith doesn’t get, and therefore couldn’t articulate, the implications of Goldman’s cultishness. Just the way fish don’t recognize that they are swimming in water, Smith likely does not appreciate how insular and inward looking Goldman is. The aggressiveness of Goldman’s response isn’t just to protect its external reputation; it’s also because, on some level, people at Goldman really believe their PR. Look at how remarkably thin-skinned Wall Street employees have been in the wake of the crisis, how utterly unwilling the overwhelming majority are to take any responsibility for blowing up the global economy. Goldman, with its exaggerated sense of righteousness, is even less willing to hear even a very watered down version of reality.

It’s been nearly 30 years since I worked at Goldman, but even back then, Goldman was quite explicit about the lengths it went to to build and reinforce its “culture,” and from everything I can tell, it has if anything gotten more extreme since then. For instance, it still puts recruits through far more interviews than other firms do, which helps screen not just for “fit” but also for how badly they want the job (most sane people would lose patience with the process). Goldman then, and I believe still, prefers younger MBAs (as in those with less rather than more work experience) because it likes to “shape” people.

Even though the investment banking industry is famous for requiring that staffers be willing to put in punishing hours, in my era, Goldman was unique on the Street in thinking it was perfectly normal to ask people to reschedule their wedding if it conflicted with a deal timetable. I did a summer at Salomon, and Salomon people didn’t socialize much outside of work, while at Goldman, there was quiet pressure to; junior Goldmanites were encouraged to get their summer “shares” in the same area frequented by other Goldman employees. To give an idea of how insular Goldman was then: of all the married non-secretarial women, the only women who were not married to Goldman men had come to the firm married.

The firm enforced behavior on far more levels than other firms: dress code, communication (both frequency, which was one of the firm’s strengths, but also mode: a sort of PC-ness about giving credit, not being openly political or self-promoting, not denegrating competitors or clients). The firm was dead serious about preferring people who hewed tightly to the Goldman cultural ideal. Guys who drove fast cars, got divorced and were a bit too flashy would not be promoted as quickly as guys who were somewhat less big producers but were complaint Goldman soldiers (yes, I can name exceptions to that pattern, but they were far fewer than you’d see anywhere else on the Street).

The firm was Machiavellian in its organizational design. In investment banking, it had product specialists (corporate finance, meaning stock and bond underwriting, M&A, real estate) and salesmen who covered clients and sold all products to them (Hank Paulson came out of that corporate calling group, called Investment Banking Services). The party line was that this promoted expertise and made sure there was consistent attention to corporate clients and prospects. That no doubt was true, but I doubt this was the operative truth. This structure also circumvented the way big producers normally had leverage over a firm, that if push came to shove, they could leave and take clients with them. If you have one person who has the relationship dependent on other people executing the business, neither group can readily leave with clients. Similarly, in my day (and it has changed since then) people were hired into a department and people very very rarely switched departments; the internal PR was that (again) it was to promote expertise. Again, the operative truth was that Goldman went to great lengths to keep politics to a bare minimum, recognizing how it diverted energy from making money for the firm. Having partners poach on other departments for talent would be enormously divisive, so best to make that an exceptional event.

Goldman people then genuinely believe Goldman was the best place to work; leaving was seen as a fall from grace. I knew very successful individuals who departed after I did, and were 6-10 years into their careers, and each said virtually the same thing, verbatim: that it took them two years to get over the idea that leaving Goldman meant they had taken a big career step down (and objectively, none of them had).

This is a long winded intro, but the critics of Smith’s naivete about Goldman’s conduct don’t get that the failings he saw were a big deal if you’ve identified strongly with the Goldman culture, and the firm works extremely hard to recruit and inculcate people with that end in mind. It appears from Smith’s age and his tenure at the firm that this was his first real job, so he was the perfect sort to be imprinted by Goldman. It’s like having been a loyal Catholic, say 40 years ago, and realizing not only that the church had pedophile priests, but the top leadership was aware of it and refused to do anything about it. Now with hedge and PE funds having knocked Goldman off the apex of financial glamor jobs, and the firm now a sprawling global enterprise, it’s actually remarkable that it has managed to maintain as much of its cultishness, um, cohesiveness as it has.

Goldman’s dedication to clients has fallen in the Blankfein era. Even though Smith doesn’t deliver the goods in his book, his bottom line is correct: Goldman’s internal ethics have declined, and the fall over Smith’s tenure likely is on a steeper trajectory than in its peers.

I’d have dinner a few times a year with a senior Goldman officer in a staff function that put him in front of the of the Executive Committee and department heads on a regular basis. He was extremely circumspect about his day-to-day activities. However, he found it pretty much impossible not to convey to me how the firm was changing, and how disturbing he found it to be. While he did not think much of Hank Paulson, he did regard the co-presidents under him, John Thain and John Thornton as both concerned with preserving Goldman’s culture and franchise (Thornton had been particularly opposed to going public for that reason) and were long-term oriented. By contrast, he was distressed by and contemptuous of Blankfein and the new leadership, who largely came out of the commodities/trading side of the firm (the view from the old Goldman that commodities was lower class and less ethical than the more highly regulated securities markets was strong in my day and was confirmed by the negative reactions internally by non-partners to Goldman’s acquisition of J. Aron. I was the most junior staffer on that deal). My dinner buddy made it clear he thought the new management team was less able, less thoughtful, concerned only about as much money as possible now, and didn’t care much about what impact that might have long term.

Confirmation of the change in the firm under Blankfein comes from former Goldman co-chairman John Whitehead’s unusually direct criticism of Goldman’s bonus policies in 2007. Similarly, I’ve been told that the Weinberg family (Sydney Weinberg played a huge role in Goldman’s rise to pre-eminence; his son John was co-chairman with Whitehead) is distraught over the disclosures made over firm practices in recent years.

Goldman has such a strongly developed internal culture that even a change at the top would take a while to percolate through, and Smith appears to have seen the impact.

Finally, critics don’t recognize a hidden upside to Smith’s dramatic exit. If you leave Goldman, the assumption is you are some sort of loser and perhaps on the verge of being fired. Yet in Goldman’s efforts to trash Smith, the worst they had on his was his bonus ask was way too high given the firm’s overall results; one managing director even told him that he needed to be patient, it had taken him a long time to become managing director and Smith needed to keep the faith. So Goldman officially confirmed that while Smith was not on the fast track, he was still a contender, which is a lot more than most places will say when someone slams the door on their way out.

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46 comments

    1. readerOfTeaLeaves

      I ‘second’ the comment.
      Fascinating.

      I’m about 1/3 of the way through William Cohan’s “Money and Power: How Goldman Sachs Came to Rule the World” and the early history of Marcus (?) Goldman, an immigrant collecting chits of paper and then storing them throughout the day inside of his hatband, is an extraordinary work of modern history (mid-1800s on). Apart from being a good history read, the book gives a nice sense of some of the dynamism of mid-1800s New York, of immigrants creating entirely new sources of wealth. But Goldman was implicated in cycle after cycle of boom-bust, and their perfidy goes back a long, long way. (Weinberg was an extraordinary person, and one wonders what he’d think of Blankfein. I doubt he’d be enamored…)

      The more Goldman throws a hissy fit about Greg Smith, the more it becomes clear that the firm (and the industry) cannot tolerate questions about the legitimacy of the way it makes money. Which raises the obvious question: not why? What is it they don’t want us all to see?

      No questions can be raised about the new implications of the IT-driven mega-trades. No questions can be asked about the aggressive, trader-driven culture. I can only assume that those inside Goldman are the last to realize that their attempted smears of Greg Smith only make them look like a pack of overpaid, whiny, spoiled brats.

      The point made in this post about the IT implications of what’s happened in finance, which I roughly translate as ‘traders made reckless on IT-driven mega-steriods’, needs far more discussion and attention IMVHO.

      I particularly loved this bit:

      Wholesale market regulation needs to be completely overhauled as a result of several factors, but the most important is technology. Complex product design is fundamentally related to IT systems capacity. Far too much of the blogosphere focuses on greed. People are just a greedy now as ever, but financial products have gone from something that a person of reasonable intelligence and a college education could understand to something that requires at least a specialist degree in financial design from Wharton or perhaps an advanced physics degree. So financial products have become very sophisticated embodiments of Intellectual Property. [my bold]

      No amount of whinging on about Greg Smith alters this facet of reality.
      Goldman has had control of complex information systems, and those system are not working well enough for enough people. If Goldman wants to blame Greg Smith for stating what is obvious to many of us, so be it. (They would be prudent to read more history, but I digress…)

      But sooner or later, more people are going to question a system in which buyers require degrees in physics and engineering simply to be able to protect the investments of a retirement fund.
      Greg Smith is simply pointing to that fairly obvious fact.

      The fact that Goldman has its collective knickers in a bunch over this is actually fairly entertaining.

      1. T West

        I saw CNBC Monday morning and Gary Tuckman was responding to a David Faber question about Greg Smith’s book and Tuckman held up his hand to indicate “the loser” gesture, and proceeded to, agressively undermine Smith’s credibility. His rant was so vitriolic that one immediately sensed an alternative motive. Why would a credible journalist (how some would indentify CNBC), bash the SOFT indictment of a commonly vilified player? Why would you do that?

        The unfortunate reality is, as touched on in the Moyer’s interview Taibbi and Freeland, the Plutocrats WILL NOT SELF EXAMINE, and they will not go quietly into the night. We are going to have to wake up and TAKE their power away from them (because they will not give it up).

        I have been fortunate to succeed beyond the class of my father. I have known many masters of the financial/business universe (guys with more than $100mil.). The core commonality of all, in my experience, they can NEVER get enough….money, power…..it is NEVER enough. Certainly, their innate greed is an economic driver. But we need a mechanism to foster balance. There now, is none, particularly thanks to Citizens United. Unfortunately….we are going to have to get agressive.

        1. LeonovaBalletRusse

          “Faber, Faber, Faber, Faber” – wedded to BritImperial Thrown and City “Crown”.

          Even the publisher of that great bond salesman, T.S. Eliot, who published poetry on the side and thereafter as his “professional output” was Faber & Faber.

          The surname/DNA “Faber” means “BritishImperial Shill” in perpetuity.

          “Faber” fabricates for .01%DNA “Royal” Reich profit, every which way.

          The Insider Profiteers of the British Empire, with its UK front, is NO friend of We the People of the United States of America. Au contraire.

        2. Jesse

          Your recounting of that episode brings to mind Erin Burnett’s snearing contempt for the OWS protesters.

      2. LeonovaBalletRusse

        IT, esp. HFT, is equivalent to “Atomic Knowledge” in the hands of Dr. Strangelove. Technology CAN be used for good or ill, but it WILL always be used for ill by the .01%DNA and their servile .99% Agents. It seems that the egos of “Physicists” make them ready co-conspirators with the Finance Masters of the Universe who need the “talent” of the “Destroyers of Worlds.”

        Alpha Males of Finance capture Alpha Males of Technology by flattery, and history shows that this always is a Lethal Romance.

        The “space race” in Finance must CEASE. NO NUKES! by any name. We’ve already experienced Financial Hiroshima and Nagasaki. Get QUANTS OUT of Finance by Law. NO MORE Psycopaths with dirty fingers in the Real Economy.

  1. MacCruiskeen

    “And it’s not a stretch to call the reaction totalitarian”

    Yes, it is. It is of course, like a cult or a mafia family that whacks a former insider for being a rat, but totalitarian governments are rarely as monolithic on the inside as they appear on the outside, and are frequently subject to factional infighting, and use semi-randomized terror among the undeserving as a means of control. That doesn’t appear to be what’s going on here. Though if Goldman captures Smith, sends him to reeducation camp, and forces him to denounce his own crimes, then you might be on to something.

    1. Yves Smith Post author

      Did you somehow miss that the banks think they can and apparently are succeeding in bullying the head of the US government? This is “l’etat, c’est moi” bankster version.

  2. Nick

    Goldman Sachs “bankers” (HA!) wear the Scarlett Letter of finance.

    Thinking otherwise only puts flashing lights on it.

    1. jake chase

      Anyone who does care need only read Frank Portnoy’s book FIASCO, which describes the ‘culture’ of a major firm, I believe it was MS. The book is now ten or fifteen years old and nobody who has read it can have had any illusions about what the game was and how Wall Street was playing.

      I don’t think anything has changed in the past fifty years, except the size of the thefts. Wall Street sells clients fantasies about the rosy future and keeps the present for the partners. All the blather about merit and quality and respectability and competence and brilliance is just a cover. Nobody swallows it except the people who use it to justify their own participation.

      1. Ms G

        @ Jake Chase.

        You wrote: “Wall Street sells clients fantasies about the rosy future and keeps the present for the partners.”

        Sums it up nicely. And casts an interesting perspective on the “investing for the long term” drek that sold millions of working Americans on putting their hard earned cash into the black holes that “deferred compensation products” (401Ks et al) have turned out to be (for the working Americans, of course).

      2. EmilianoZ

        If I remember correctly, in “Fiasco”, Partnoy categorizes the people buying derivatives in 2 categories:

        1)The orphans and widows:
        These are unsophisticated investors who have their faces “ripped off”.

        2)The gamblers:
        These know what they are doing. But they might work at mutual fund where there are strict rules against gambling. Derivatives are designed to skirt those rules and allow the gambler to gamble. In this category, Partnoy gives the example of some Japanese money managers who want to game their balance sheet at the time of their annual review. They buy some derivatives that give the illusion of rapid gains but will blow up later. Later meaning when the buyers have left the ship.

        I don’t think Partnoy provides any figures about what percentage of the derivative business goes to categories 1 and 2. It probably doesn’t matter since the gamblers are likely to gamble other people’s money (money from widows and orphans).

      3. Lyle

        I agree with the recommendation of F.I.A.S.C.O. That and Smiths book tell me that wall street types have at best the ethics of used car salespersons, such as the father in Breaking Away. In fact it might be an insult to say that their ethics are as good as that of used car salespersons.Both businesses are ones with asymmetrical knowledge, where the seller knows more than the buyer.
        As was remarked on Street Signs today it is this behavior that has driven the retail investor away.

  3. PQS

    I saw the interview on “60 Minutes”.

    What made me laugh out loud was when Smith complained that one of his clients at a big deal told him “I don’t trust Goldman, but Goldman is the biggest bank out there, and I don’t have a lot of options” He seemed genuinely hurt that this customer didn’t trust him and viewed him as a potential ripoff artist.

    HA. The naivete is astounding. Don’t these people know that this is the world they’ve created? Nobody trusts anybody, and it is due in large part to predatory capitalism and their constant, endless abuse of trust that has led us here. In my business, construction, that is SOP. Nobody trusts the contractor and everybody – especially, I would say, large corporate clients – assumes we are in the business of ripping them off. It never occurs to them that we want to have repeat customers and a loyal customer base. Probably because that isn’t how they do business.

    1. Yves Smith Post author

      As I indicated above, Goldman works hard to inculcate this naivete. I heard in the 2000s that Goldman made a big point of designating people who embodied its values (meaning this “we put our clients’ interest first” and other Firm Principles BS) as “culture carriers” and it was VERY clear that “culture carriers” were a good thing to be when bonus and promotion time came around.

    1. steelhead23

      Mr. Frank’s breathless support for JPM is flat-out ludicrous. It is a civil suit which means Jamie won’t be going to jail. Second, Mr. Frank is a legislator. If he doesn’t like the law, he could/should change it. As the ranking Dem on the Financial Services Committee, he knows just how to get this done. What a pathetic tool.

  4. Cheyenne

    Thanks, Yves, for sharing your perspective. This post paints a terrific interior picture of Goldman that goes a long way in explaining how a firm that acts like a psychopath in the eyes of regular people seems normal (or even holy) to insiders. The recruitment of workers who are at once extremely ambitious and malleable, together with the social insularity encouraged on top of long hours, is quite telling.

  5. briansays

    they aren’t paying them those high salaries and bonuses on wall street and in biglaw for that matter that bear no relationship to your skills but more often academic pedigree which suggests the inflated ego willing to think so

    they are buying your silence and any semblance of a moral code

  6. JTFaraday

    “Putting legality aside (something Wall Street does regularly), releasing personnel files when there is not even a court case involved sends a message to all other employees and potential employees of Goldman Sachs that the firm has no respect for an employee’s privacy. Add that to the long list of other things Goldman has no respect for and they’re making Smith’s case for him.”

    Well, that was easy that was easy.

  7. craazyman

    Somehow it just seems so apropos, all the way around:

    And I don’t want the world to see me
    ‘Cause I don’t think that they’d understand
    When everything’s made to be broken
    I just want you to know who I am

    And you can’t fight the tears that ain’t coming
    Or the moment of truth in your lies
    When everything feels like the movies
    Yeah you bleed just to know you’re alive

    Goo Goo Dolls “Iris”

  8. Susan the other

    I get the feeling that it was very easy for Mr. Smith to have his op ed published by the NYT. That (Portnoy) it and the book didn’t harm GS much in the end because the allegations don’t hit very hard; that there really isn’t a serious betrayal GS of the banking profession. That (Cooper) makes a very strategic point about the ineptitude of the clients, who weren’t really unsophisticated, that they were desperate for returns and we are led to assume that GS was trying to accomodate clients but also protect its own interests. Rock and a hard place capitalism. That Smith didn’t become sufficiently disillusioned with his job until he went to London and witnessed how cynical those guys are/were. But Smith never says that even London knew the writing was on the wall in 2011. And that makes me seriously consider that Smith is engaging in preemptive damage control for GS. Clearly GS wants to be an ethical organization. And clearly Smith is like a man on a mission. He seems genuinely sad about the whole thing. Ready to sacrifice himself. He kind of reminded me of Chris Hedges, who gives me the willies too. Or just makes me vaguely ill,.

  9. Thorstein

    I’ve got one nit to pick:

    “[Ishikawa's] book is full of the liberal use of drugs, hookers, and very expensive wine as inducements in the sale of drecky CDOs, combined with pretty good primers on the products themselves).”

    True, but iirc the part of Ishikawa’s narrative where he recounts imbibing drugs, hookers, etc. to sell drecky CDOs occurred while employed by ABN, which was before he joined Goldman.

    1. Yves Smith Post author

      1. Go look at the Levin background materials (on the Goldman investigation). Ishikawa’s name is there aplenty. He was in the middle of a lot of the bad deals that Levin fingered.

      2. My dim recollection of the book is that by the time he got to Goldman, he was tiring of the business, complaining how he had gotten fat as a result of all the rich food and the travel. Other people in the CDO business have told me that hookers and drugs were important sales tools in getting lower rated CDO tranches (the real dreck) placed. You think he was hired from ABN, expected to be productive, and was going to put himself at a huge disadvantage by NOT using those tools when they were a market norm?

      1. LeonovaBalletRusse

        “You think he was hired from ABN, expected to be productive, and was going to put himself at a huge disadvantage by NOT using those tools when they were a market norm?”

        Yves, this perfectly captures the inevitable outcome of the “crimenogenic environment” of the Long Con by any means, by any name, leaving us “ECONNED.”

    2. LeonovaBalletRusse

      “True, but iirc the part of Ishikawa’s narrative where he recounts imbibing drugs, hookers, etc. to sell drecky CDOs occurred while employed by ABN, which was before he joined Goldman.”

      “The race to the bottom” by any and every means, as “counterparty” customers reached the “event horizon.”

      1. LeonovaBalletRusse

        The “event horizon” of the global toilet bowl being flushed by TopFatCats in the Company.

  10. Siggy

    Yves,

    Insightful piece, but then, you had to be a part of it to understand. GS was the last major IB to go public save for BBH who I believe remain a partnership.

    The insularity of GS derives from joint & several liability. It’s a process of inbreeding and the process is the seed bed of disease. Having seen Mr Smith on 60 Minutes I don’t feel he’s partner material. Kept his mouth shut might have got a million a year; otherwise GS is better off without him. Haven’t read his book the hype has been sufficient to tell me that there isn’t anything worthwhile there.

    Damaging to GS, indeed. So, who’s he mad at? And, did he quit or was he jettisoned?

    1. Yves Smith Post author

      You can’t tell his level of technical expertise or how clients felt about him from an interview, particularly when he’s a TV newbie (go look at my media appearances and you’ll see it took 4-5 appearances before I got the hang of it). I knew people in my day who later became partner (and the hiring standards were more stringent, Goldman hired only from the top 10% of MBA classes, vs. top 20-30% now) who were similarly careful, understated, and earnest (I can think of one individual in particular who made partner who was dull as dishwater but technically able).

      Goldman clearly went through his entire history to savage him. If there had been any expense account irregularities or negative comments in his personnel file, in particular, that he’d been told or was seen as being no longer on the MD track, that would have been made public to present his departure as sour grapes. The only goods they had on him was his bonus overreach and in my day, that was normal for VPs, to ask for more than you thought you’d get. And the comments were also clear that his degree of overreach was wrong given where firm earnings were, rather than that he was a weak performer. In my day, the saying was “Better to do a C job in an A year than an A job in a C year.” That saying might no longer be current.

      1. LeonovaBalletRusse

        Yves, “Big Swinging Dicks” brook no contradiction. They are spoiled brats cubed, inside the “Snakes in Suits.” We really must address the impact of this “Killer Class” on the “restofus.”

        “The don’t care about us, so why should we care about them?” (NeuroSage)

  11. curlydan

    “The “don’t rock the boat” attitude is so deeply ingrained in America”

    It’s deeply ingrained in many countries. In a memorable scene near the end of the movie “The Girl with the Dragan Tattoo”, the killer points out that the investigator could have gotten away but he was too polite and accepted and invitation into the killer’s house–a person will be polite even when it could even mean his death.

    At least there are a few people out there who are willing to rock the boat, even when they’re not hungry/starving/etc.

  12. Fraud Guy- Also

    Smith may have saved the real meat of his brief against Goldman for the literal brief he may be filing in an SEC whistleblower complaint. The possibility of getting 10-30 percent (the statutory limits) of the SEC’s recovery against Goldman may be enought to make him pull his punches publicly, for now.

    Just a possibility.

  13. craazyman

    Mr. Thomas seems a bit supercilious to me. I know he was a big dude back in the day, but if the Big Monkeys could read and write, they wouldn’t have likely gotten themselves in hot water in the first place. Even clerks usually figure out the light at the end of the tunnel is a freight train, not heaven. Somebody should have listened to them, but that’s expecting too much from the Monkeys. hahahah. :()

    1. Yves Smith Post author

      Huh? In the 60s and 70s, most investment banking partners and staffers, particularly at the white shoe firms had been liberal arts majors at Ivy League schools and were quite literate and well spoken. You only needed to know how to add, subtract, multiply, and divide, and be numerate and detail oriented enough to do spreadsheets by hand. The fact that computers were not in use on the banking side (I did all my work by hand, PCs were just coming on the scene as I left in 1983) meant it was impractical to do much mathematical analysis and most of the advice was experience and judgment based.

      1. craazyman

        that’s right. that was before they all became Monkeys. I remember the ticker tape machine! I remmber doing earnings models on green accounting paper. i remember the typing pool. The CEO of my first employer married the head of the typing pool, it was his 2nd wife, she was pretty hot if you like Rubenesque women with big tits. There weren’t Monkeys in the business back then. Then it all happend like Ionescu’s Rhinoceros. Yours truly,

        D. Tremens, former NFL, GED
        Bardo Realm Hotel, Penthouse suite
        Magonia

  14. LeonovaBalletRusse

    “Goldman’s brass knuckles” — ["Tools" of thugs, criminal gangs.]

    The money quote from Michael Thomas:

    “If you ask me, what we really need are accounts dictated by the devils in the details, tell-alls that offer Satan’s first-person account of his evil angels’ handiwork. An insider account, for example, of Michael Milken’s Drexel Burnham junk bond daisy chain, preferably by the man himself. Forget it: ain’t going to happen.” — [Because of "omerta" among organized criminals.]

    Greg Smith has served larger humanity. Even though he was not in the inner sanctum of organized crime of “finance,” how long will he live now? Will he succumb to “cancer” like Aaron Russo? or radiation poisining? We the People are enmeshed in the global crisis of warring organized crime rivals (“Royalty” and their Agents in every murderous, insatiable “Elite”) for “ALL” of the wealth on the Earth, below the Earth, above the Earth.

    “McMAFIA: A Journey Through the Global Criminal Underworld” by Misha Glenny is the model of every “Elite” Master Class.

  15. Conscience of a Conservative

    Smith accused Goldman of what everyone already believed and provided little concrete proof(as far as I can tell) to support it. I doubt anyone would seriously call Smith a liar, but it’s a legitimate question to consider his motive.

    In the context of “shitty cdo’s” this hardly merits a yawn.

  16. Matt

    With the opacity and other piracy going on, derivatives including interest rate swaps are inherently fiducialy irresponsible.
    There ought to be a law that public and non profit entities not buy or sell derivatives. The revolving door between the street and the big government pension plans explains why when people work for the tax payers, they are dumb and fleeced, until they go to work for GS and friends and get rich.

  17. Brenda B Bottoms

    Your comments regarding you time at GS and how the functioned is a carbon copy of my experiences at IBM at approximately the
    same time. Amazing how the top firms all work the same, eh?

  18. Stan Musical

    I just clicked on the video, and it starts with an ad of course, since the ad-free ship on the web has sailed for good–the ad is for GOLDMAN SACHS! And how great a company it is, of course.

    Amazing.

    1. Stan Musical

      And since I submitted that comment before actually watching the video, I had to click it again and watch another, similar ad for GOLDMAN SACHS!

      Anderson Cooper gives his intro, and then I’m told “more in a minute” and then–another ad for GOLDMAN SACHS!

      I’ll be damned if I’m going to be subject to 15 MORE seconds of propaganda for these lizards, so that ended this morning’s viewing.

      It’s the this-that-and-the-other capture by GS played out in real time. You can’t escape.

      Depressing.

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