I don't usually pick up a news story right off the wire and run with it, but I will make an exception today. For a long time now I've wondered why some honest insider didn't blow the whistle on Goldman Sachs. There had to be such a person, right? Well, there is one. Or there was one, because he just very publically resigned from the Giant Vampire Squid.
He did not go gently into that good night, for he thought it fitting to castigate and humiliate the bank on his way out the door. His name is Greg Smith and his story Why I Am Leaving Goldman Sachs appeared in today's New York Times. Here are some choice excerpts.
TODAY is my last day at Goldman Sachs. After almost 12 years at the firm — first as a summer intern while at Stanford, then in New York for 10 years, and now in London — I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity. And I can honestly say that the environment now is as toxic and destructive as I have ever seen it.
To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money. Goldman Sachs is one of the world’s largest and most important investment banks and it is too integral to global finance to continue to act this way. The firm has veered so far from the place I joined right out of college that I can no longer in good conscience say that I identify with what it stands for...
Over the course of my career I have had the privilege of advising two of the largest hedge funds on the planet, five of the largest asset managers in the United States, and three of the most prominent sovereign wealth funds in the Middle East and Asia. My clients have a total asset base of more than a trillion dollars. I have always taken a lot of pride in advising my clients to do what I believe is right for them, even if it means less money for the firm. This view is becoming increasingly unpopular at Goldman Sachs. Another sign that it was time to leave.
How did we get here? The firm changed the way it thought about leadership. Leadership used to be about ideas, setting an example and doing the right thing. Today, if you make enough money for the firm (and are not currently an ax murderer) you will be promoted into a position of influence.
What are three quick ways to become a leader?
a) Execute on the firm’s “axes,” which is Goldman-speak for persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit.
b) “Hunt Elephants.” In English: get your clients — some of whom are sophisticated, and some of whom aren’t — to trade whatever will bring the biggest profit to Goldman. Call me old-fashioned, but I don’t like selling my clients a product that is wrong for them.
c) Find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym...
Today, many of these leaders display a Goldman Sachs culture quotient of exactly zero percent. I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients. It’s purely about how we can make the most possible money off of them. If you were an alien from Mars and sat in on one of these meetings, you would believe that a client’s success or progress was not part of the thought process at all.
It makes me ill how callously people talk about ripping their clients off. Over the last 12 months I have seen five different managing directors refer to their own clients as “muppets,” sometimes over internal e-mail.
Even after the S.E.C., Fabulous Fab, Abacus, God’s work, Carl Levin, Vampire Squids? No humility? I mean, come on. Integrity? It is eroding. I don’t know of any illegal behavior, but will people push the envelope and pitch lucrative and complicated products to clients even if they are not the simplest investments or the ones most directly aligned with the client’s goals? Absolutely. Every day, in fact...
I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients. It’s purely about how we can make the most possible money off of them. If you were an alien from Mars and sat in on one of these meetings, you would believe that a client’s success or progress was not part of the thought process at all.
It astounds me how little senior management gets a basic truth: If clients don’t trust you they will eventually stop doing business with you. It doesn’t matter how smart you are.
The Times' Dealbook blog added an exquisite detail.
Several media outlets wondered about what the letter would mean for Goldman's reputation, which has taken a hit since the financial crisis. Mr. Smith's letter came just one day after Goldman officially hired a new public relations chief, Richard Siewert Jr., known as Jake, a former counselor to Treasury Secretary Timothy F. Geithner.
This story presents a unique opportunity to apply cutting sarcasm on an industrial scale, and I'm sure many bloggers will do just that. But I'm going to take the "high road" today. This story speaks for itself. I really don't have much to add.
I would like to believe this will be the straw that finally breaks the camel's back, but I doubt it will be. I have written that Goldman Sachs shouldn't exist, and of course that's right—it shouldn't exist. In a world which has retained any sense of balance and fair play, we wouldn't have the Giant Vampire Squid to kick around anymore. You know, like Richard Nixon.
That's way to much to hope for in 2012, but congratulations to Greg Smith. Way to go!
Bonus Video — from the Daily Ticker's Goldman Banker Quits In Disgust, Blasts Firm For “Ripping Off” Clients