We Speak on RT TV About Goldman’s Predatory Culture and the Latest Stress Tests

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:

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    1. skippy

      Ditto on the pins, swoon ~~~~

      That said… the very fact that so many… can not or will not… adjudicate as Yves does…. is a huge tell… that’s how fooked up it all is!

      Skippy… user friendly crew has done you well lady, its a game they play, the others. Best visual, time allowance and piece this format has allowed to date. We need more of it!

    2. brian t

      I don’t know whether that glass table is supposed to symbolise journalistic transparency, or something, but you could justify it as showing that there’s a whole person under the talking head ..!

    3. Aquifer

      Frankly, I think Yves would be better served with a pantsuit -less attention to the vicarious gams and more to the verbal gems ….

      Like the haircut, though …

  1. YankeeFrank

    Felix is a friggin’ euro-twerp extraordinaire. He’s making the laughable argument that we shouldn’t ever do anything that causes someone to lose a job, no matter how heinous the profession– its the old GDP argument — “don’t do anything to reduce GDP!!” … So we should all smoke cigarettes because it increases GDP to buy stuff, and when we all get cancer just think of what the healthcare expense will add to GDP! And heaven forbid we foster an environment where corrupt and destructive businesses are shut down — the temporary hit to GDP will be terrible!

    We live in an age where “clever” has trumped “wise”. People like Felix Salmon think way too hard, and wind up not just missing the forest but the trees as well, lost in contemplation of the texture of various bark samples.

    1. hermanas

      “People like Felix Salmon think way too hard,….” I recall Ted Williams saying, “If you don’t think too good, you shouldn’t think too much.”

    2. Tim

      “We live in an age where “clever” has trumped “wise”.”

      That one’s goin’ in the toolbox.


  2. Anonymous Jones

    I’m not sure what goes through the heads of those who defend (or at least are not concerned with) Goldman and its ilk.

    It is really, really difficult to generate millions of dollars a year per executive. You have to feed that beast daily in order to grind out that much revenue and profit every year. You can’t just depend on hard work or “talent” (ha, ha). It just doesn’t work that way. There’s no genuine evidence that these people are smarter than a whole host of would-be competitors. The only way to maintain a franchise like this is through duplicitous, anti-competitive practices, and if you can keep out the competitors and continually defraud your own customers who have little recourse or alternatives in the process, why not? It is laughable to suggest that these bankers have a natural talent monopoly like, say, a LeBron James. They make hundreds of times what normal people make because they game the system, from buying the politicians to defrauding their own customers. This is hardly subject to reasonable debate.

  3. psychohistorian

    I am most of the way through Web of Debt and then watching your interview (nicely done) makes me want to say it seems foolish to think we can legislate morality for Wall Street.

    I agree with the take away from Web of Debt, take away private money and everything will improve for the public. How can we best make this happen?

    Yves….there was a 1 second screen shot of your buddy Lloyd behind your head during the interview, close to when you were saying how “humanistic” he is in running Goldman.

  4. vlade

    One reason I hear from people who still hire GS is “yes, we know we’re going to get scr*w*d, a lot. But if they are on the other side of the deal, we’re going to get it even more”.

    Similar to preventively hiring a lawyer whose tactics you despise but would hate it even more to be used against you.

    That said, I’m not entirely sure what the margin of difference is…

  5. ralphbon

    Mr. Smith expresses no regrets about concocting and extracting notional value out of the shriveled remnants of our productive economy. How could he? His specialty was derivatives! To him, Goldman lost its moral compass only by neglecting to concoct and extract notional value from the shriveled remnants of our productive economy ON BEHALF OF CLIENTS.

    1. proximity1

      I’m pleased that someone pointed this out.

      Raping and pillaging, done by very well-dressed, prestigiously-educated and well-spoken mandarins is still raping and pillaging.

      Good for you.

    2. F. Beard

      Is that General Jack “T” Ripper?

      But yeah good point. Ya can’t cheat an honest man, it is said.

      But hey, we are nearly all immersed in a crooked system. And that is potentially our salvation once we realize we are ALL (with very few exceptions) in the same boat.

  6. Susan the other

    Yves was in-depth-good on GS as usual. And Lauren is sharp. How nice. The upcoming interview on the mortgage settlement will be as good. I stayed till the end on this one to see the segment on Bernanke. They (not Yves) pretty much trashed him as not even rational about the economy, that he is such an ideologue he believes that keeping ZIRP will bring the economy back. No one brought up the fact that the US is so in debt that if interest rates blip up it will impoverish us beyond recovery. That’s how critical low interest rates are. And no one ever makes the point that the Fed controls the level unemployment, keeps it high, to control inflation so that it can then keep the financial system propped up and still impose zero interest rates without trashing the dollar too fast or too far. What a Catch-22.

    1. Lambert Strether

      The Fed keeps unemployment high to keep people desperate for work. That way the oligarchs make a ton of money from the race to the bottom on wages and working conditions. Also, of course, sadism and sociopathy.

  7. Hugh

    Gordon Smith said nothing that we haven’t been saying here for years. Indeed he goes far less far in that he alleges only bad behavior, not criminality.

    But because he said what he said in a major media outlet and he comes from Goldman, his views are given much greater salience.

    I have no problem with Salman questioning Smith’s motives. I do as well. But Salman’s post is still an idiot piece because he makes it almost all about Smith and not Goldman. Yes, Smith might be a disgruntled employee, but Salman is portraying Goldman’s activities as good clean fun, maybe a little excessive at times, but it’s the business you know, yadda, yadda, yadda. The problem with this view is that it ignores that Goldman was the leading investment bank when the investment banks took the US economy over the cliff back in 2008. That’s a glaring oversight by Salman.

    As for the argument that Smith’s op-ed might hurt his co-workers, that is beyond disingenuous. It’s rather like a pirate writing an op-ed criticizing some aspects of the pirating profession and then being criticized in turn for “hurting” his fellow pirates.

    What I see in Salman’s piece is what I see in most economic writing nowadays, a jumble of ideas informed by no overview or understanding of the larger picture. The result is often policy prescriptions to fix a broken system predicated on the notion that the system isn’t broken or, as here, comprehensible only by ignoring the most important financial events in the last 80 years.

  8. craazyman

    I guess it was naive of me to think I could make a quick $2 million on waaay out of the money Squid puts, thinking it might get hacked into shreads like a pinata with machetes.

    I dunnot what’ll put a stake in those guys. Probably almost nothing. If you avoid sentimentality, it’s easy to see why clients just don’t care.

    As long as they’re getting theirs. So what if the Squid dings them, and even laughs at them, and even calls them names. It’s just a bunch of kids, really, pulling the levers in the machine. They could almost be dogs barking at you.

    It’s like Lord of the Flies. But it’s like that everywhere, almost. So what do you do? You get yours. Period. However you can. If you get it from the Squid, whatever.

    It’s just like that. Except for every once in a while when somebody looks in the mirror and pukes. But mostly people dont look in the mirror. Or puke when they do. Mostly they just wonder what they’re looking at. hahahahah.

  9. Tim

    Gordon Smith’s experiences seem highly probably.

    Goldmanites are dissing on him in the Reuters article because he apparently was an underperformer…
    Like the car salesman that’s an underperformer because he wouldn’t tell a fib? Character witnesses have stepped forward and said he always stuck to his principles, so the dots connect. I’m inclined to believe him, even moreso in light of recent public history on GOldman Yves referenced.

    And it isn’t without precedent. There are plenty of people I’ve read books, articles, blogs from over the past 5 years that left wall street because it required them to be snakeoil salesmen.

    Rule number one in “personal financial planning”: Be you’re own broker.
    Rule number two: never break rule number one.

  10. EmilianoZ

    Great interview. Yves is so comfortable with the camera now it’s hard to believe it’s the same person who did the BNN interviews.

    1. Lambert Strether

      Very true. RT covering finance reminds me a lot of Al Jazeera covering Tahrir Square — bright good young journalists at the top of their game, covering the story of a lifetime. You can see how exhilarating it is, and it must be a fun environment to step into (no matter the carnal, bloody, an unnatural events being covered).

      Unlike the hideousness the passes for “news” in the studios of our famously free press.

    2. Yves Smith Post author

      Thanks but I’d probably look the same if I were back on BNN. It’s the setting: remote camera, so no other people, and even though there is remote visual feed (as in I could look at the hosts if I wanted to), you get that shifty eyed look which is bad on TV. And the lighting and camera angles are weird too.

      1. LucyLulu

        Honestly, I don’t see what you’re pointing out. I thought the interview looked as professionally done as any on MSM. And I agree that you act right at home on camera. Of course, you know your subject matter backwards, forwards, and sideways, and can talk about it in an articulate and coherent way, every bit the expert in the field that you are……… but then that’s old news to your loyal fans here at NC.

        Will you still remember us when you become a star?

  11. Brett

    I didn’t think Felix’s post was that far off the mark. He has a point — it remains to be seen whether this guy is legit or self-serving. If goes out and starts his own firm and presents himself as the “good guy” then the entire op-ed was nothing more than a big advertisement. If he devotes his life to exposing corruption on Wall Street, or fighting it, then we’ll know he was legit.

    But curiously, his op-ed didn’t have any specific examples. Goldman calls clients “muppets” – that is about as specific as he got. No names like Abacus or any other specific deals that he knows Goldman created to screw over clients. Why is that, exactly?

    Secondly, he worked with Goldman through the worst of the housing bubble, when they were literally screwing over clients left and right. He then cashed his salary and bonuses checks all through that shit storm. Now when the most profitable days of Goldman are gone (and they clearly are), now he has the courage to speak out, as Felix points out, after the bonus checks have been cleared.

    How does it take 12 years, working at the greediest of greedy banks, to realize that they are greedy? Is there some other motive? I think those are legitimate questions, and I wasn’t that impressed with him just telling the world what everyone already knows.

    How about an in depth piece or book, exposing case by case what goes on there and what Greg Smith saw? I know more about what Goldman did reading The Greatest Trade Ever or the Financial Crisis Inquiry Report than I do from Greg Smith’s vague op-ed.

    1. Yves Smith Post author

      1. I’ve written op eds for the New York Times. You have a very tight space budget and you get heavily edited and they are big on fact checking, so even if he had named names, they might have been edited out. Plus their is a liability issue: if he had discussed anything Goldman deemed to be confidential, they might try suing him into the ground. I’d say this was a great way to start, and he may not have the appetite for any more limelight. But books are a huge pain and Zuckerman (author of The Greatest Trade) is a professional reporter, for Chrissakes. You are demanding that Smith do something where he may be completely lacking in appetite and ability.

      2. From everything I’ve heard, the culture of the firm took a big step down when Blankfein took over

      3. He has just made himself permanently unemployable in the industry. That should be enough proof of his sincerity. Go look at the track record of whistleblowers. Most pay a very high price, and have very little to show for it.

      It’s awfully easy for you to make an armchair demand that he continue crusading for you. What exactly have YOU done? The world is full of corruption these days. Are YOU crusading on any issues that affect you directly? I am pretty confident not.

      4. You have NO idea how cultish Goldman is. I was there only two years, and it was hard getting their brainwashing out of my system. The industry generally and Goldman in particular has gotten MUCH more narcissistic and cultish since I worked there.

      1. Brett

        I’m just saying I have an open mind that could swing one way or the other. I hope he is what he says he is, but just something about the op-ed stinks. I don’t know why I’m naturally distrustful of the guy, but I am. Perhaps irrationally…

        I agree I’m not doing anything, other than trying to educate myself on what is going on. At times it seems hopeless given the bank friendly president (and Geithner) and how they run the show. There have been way too many victories for the banks over the past 6 months (Bank of America’s stock price is almost like a barometer for if the banks are getting with murder or not).

        But the thing I do know is that the problems of the system are still there. They did NOTHING to change the incentives or fix the system where a housing bubble/financial crisis are now impossibilities. The future will repeat itself, so I’m trying to prepare myself mentally to know what is going on in high finance. And hopefully I can do something to fight against the system in the future when I’m not holding a normal 8-5 job to pay down debt.

        But take no offense Yves to my meandering on this guy, what you do is amazing. I’m continually amazed with how you chart each day what is going on with the mortgage mess, the court battle, and all the arcane detail that makes people’s head spin.

        1. JTFaraday

          Well, ordinarily, one would like to see him working with the justice department–not writing Op-Eds for the NY Times. But these are not ordinary times. If he wanted to work with the justice department, would the justice department work with him? (Teh Treasury Boyz from Goldman Sachs are probably shooting hoops with Obama right now).

          Regardless, my mouth did drop when I read this:

          “”Mr. Smith resigned in an e-mail message to his bosses at 6:40 a.m. London time, laying out concerns that Goldman’s culture had gone haywire, putting its own interests ahead of its clients.

          What the e-mail didn’t say was that about 15 minutes later, an Op-Ed article he had written detailing his criticisms was to be published in The New York Times. “It makes me ill how callously people still talk about ripping off clients,” he wrote in the Op-Ed article. The Op-Ed landed “like a bomb,” inside Goldman, said one executive who spoke on the condition of anonymity.”


          He effectively resigned through the Times. That is a little unusual.

        2. LucyLulu

          I posted on this elsewhere about my sister having worked with GS in the past doing mergers and acquisitions at a major law firm, and having a similar take. Here’s another story. Now she does international finance deals, hydroelectric plants in third world countries and such. I took her out for her birthday last April. She told she had recently met with two bankers from a large int’l bank on a deal. Because she knew they were both former GS guys, she was curious why they would have chosen to have taken what had to have been a serious cut in pay to change jobs a couple years earlier . They said that no amount of money was worth being able to sleep at night. They could no longer stand having to go out every day and sell the crap to their clients that they were being told they had to sell.

          There is no way to know if Smith had ulterior motives for writing the op-ed, possibly he did. But there’s no doubt that what he wrote was the truth. Honestly, I got the same treatment from my new broker at SmithBarney/Morgan Stanley (old one retired) in the 2000’s until I ultimately fired them. I was utterly appalled. They lost, as in misplaced, six figures of my money, seriously. And when I tried to call the office manager to problem solve, couldn’t even get a return call. (Was eventually found 10 days later.) My family had a significant sum with them, not an amount that you’d think they would want to blow off. I had been with them since my original portfolio of 1000 shares of ATT in 1980. (BTW, I love my new broker! And he works hard to make me money, and does a hell of a job, which is probably why he has made partner before 40. There are still some good guys out there.)

        3. aletheia33

          you will be able to do something to fight against the system when you stop believing that holding an 8-5 job, or any of life’s other usual difficult work, is what is preventing you from doing something.
          what is preventing you is only what is in your mind.
          this has been tested and proven by many very burdened people.
          one can start very small. just hanging out and having some discussion with some like-minded people on the weekend might be a place to start.
          from one who has been there.
          once you do start doing something, you’ll be surprised how good it can feel and rewarding it can be to just belong to the community of those who have chosen to act. they are good company that lifts the heart. you will find it far easier, in this way, to do something than you might have thought beforehand.

    2. different clue

      Perhaps he worked there long enough to build his pile of “fuck-you” money so that he could leave and say “fuck-you” in due course?

  12. craazyman

    Truly, it seems to me Goldman is a special case of a general phenomenon. This is all absurdly obvious….And not just a Wall Street phenomenon. A culture wide phenomenon, across much of the Western world. The apotheosis of individual liberty, the ripping from the group soul a hypertrophic individuation of self and endowing it (no pun intended) with an apocraphyl potency and legitimacy, empowered by its innate Id energy, that far transcends any limit of created by a clear-minded Gnostic perception of boundary. Money is just a metaphor for instinct and self-assertion without limit is the teleology, or maybe the geology or ornithology. One of them anyway.

  13. Richard B

    So, the Mayor of NYC (Michael Bloomberg) goes to Goldman Sachs in a “show of solidarity”? WTF?? Why’s the Mayor of NYC getting involved at all? Cuz he’s THAT Bloomberg. The bankers have infiltrated every layer of government. Be afraid, be very afraid.

    1. LucyLulu

      That’s an easy question to answer. Bloomberg is a member of the 0.01% that is extracting wealth from the 99.99%.

  14. Hugo Stiglitz

    Outstanding! I wish Yves were on media with a larger more widespread audience. I don’t expect CNBC or Fox News will be calling her anytime soon.

  15. robert r locke

    Look,it is not Goldman Sachs, Bain Capital, or some other “rogue” firm, although they are involved in it;it is not capitalism, which is a wonderful source of growth and prosperity, but it IS systemic, parasitical investor capitalism, as layed out in my Management from Hell: How Financial Investor Logic Hijacked Firm Governance (Boostzone, 2012) and Confronting Managerialism: How The Business Elite and Their Schools Threw Our Lives Out of Balance (Zedbooks, 2011)

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