I ducked out of the Atlantic Economy Summit to see Lauren Lyster of RT TV. We talked about the hot story of the day, the New York Times op-ed by departing Goldman executive director Greg Smith that decried what he saw as a deterioration in the firm’s values over his 12 year career.
Earth to Greg: the old days were not quite as rosy as you suggest, but it is true that Goldman once cared about the value of its franchise, and that constrained its behavior. So it was “long term greedy,” eager to grab any profit opportunity but concerned about its reputation. I knew someone who was senior in what Goldman called human capital management, and even though, in classic old Goldman style, he was loath to say anything bad about anyone, he was clearly disgusted of Lloyd Blankfein and the crew that took over leadership after Hank Paulson, John Thain and John Thornton departed. Before the firm before had gone to some lengths to preserve its culture and was thoughtful about how to operate the firm. One head of a well respected investment bank told me in the mid 1990s: “It isn’t that Goldman has better people. All the top firms have good people. It’s that they make the effort to manage themselves better than anyone else.” That apparently went out the window when Blankfein came in. My contact said all his cohort cared about was how much money they could make in the current year.
Felix Salmon has a sanctimonious post about the Smith op-ed, criticizing the ex-Goldman staffer for hurting his co-workers. Felix’s post was so removed from reality that I was left wondering whether Felix was positioning himself to get a Wall Street lobbying job.
Would it ever have occurred to Felix to critciize a Countrywide staffer in 2006 who had quit and told all about its unsavory sales practices for damaging the people he left behind? His logic appears to be that because Smith worked in classier-looking environment which fetishizes teamwork, he is expected to adhere to a code of omerta. And we need to do a reality check: if the SEC’s Abacus case, Senator Carl Levin’s investigation of other Goldman CDOs, such as the famously “one shitty deal” Timberwolf, and Matt Taibbi’s vampire squid label haven’t put customers off Goldman, it’s doubtful an additional bit of evidence of the bank’s’ predatory instincts will deter them.
Felix also contends that Goldman’s equity derivatives customers were sophisticated. Again, that’s amusing. To my knowledge, Felix has never worked for or closely with a derivatives trading operation (I have). Smith’s charge, that customers are often easily fleeced, is hardly news. Why does he think he has a better grip on the acumen of Goldman’s clients than the people who deal with them day in, day out?
On to our take of the Smith op-ed and the stress tests: