Concerning Greg Smith’s very public repudiation of his employment at Goldman Sachs, Matt Taibbi (no surprise) is a big fan:
… The resignation will have an effect on Goldman’s business. The firm’s share price opened this morning at 124.52; it’s down to 120.72 as of this writing (it dropped two percent while I was writing this blog), and it will probably dive further. Why? Because you can stack all the exposés on Goldman you want by degenerates like me and the McClatchy group, and you can even have a Senate subcommittee call for your executives to be tried for perjury, but that doesn’t necessarily move the Street.
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But when one of the firm’s own partners is saying out loud that his company liked to “rip the eyeballs out” of “muppets” like you, then you start to wonder if maybe this firm is the best choice for managing your money. Hence we see headlines this morning like this item from Forbes.com: “Greg Smith Quits, Should Clients Fire Goldman Sachs?”
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This always had to be the endgame for reforming Wall Street. It was never going to happen by having the government sweep through and impose a wave of draconian new regulations, although a more vigorous enforcement of existing laws might have helped. Nor could the Occupy protests or even a monster wave of civil lawsuits hope to really change the screw-your-clients, screw-everybody, grab-what-you-can culture of the modern financial services industry.
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Real change was always going to have to come from within Wall Street itself, and the surest way for that to happen is for the managers of pension funds and union retirement funds and other institutional investors to see that the Goldmans of the world aren’t just arrogant sleazebags, they’re also not terribly good at managing your money…
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Felix Salmon, Reuter‘s finance blogger, not so much:
It’s that time of year — think February to March — when bonus checks have cleared and voluntary departures from investment banks spike. So it’s obvious why Greg Smith quit now. The question is, why decide to quit in as public and destructive a manner as possible?…
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Smith says that Goldman is currently “toxic and destructive”. He goes on to say that “It makes me ill how callously people talk about ripping their clients off,” and that “the morally bankrupt people” need to be weeded out — how, he doesn’t say — by the board of directors. It’s much easier to see the disgruntled ex-employee here, quitting in a huff, than it is to see someone genuinely trying to do his part to reconstitute the Goldman Sachs of Gus Levy and John Whitehead.
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To a certain extent, time will tell. If Smith ends up founding or joining a rival company, his decision to harm Goldman as deeply as possible will end up looking rather self-serving. On the other hand, if he goes to, say, join his former colleague Gary Gensler at the CFTC, working to regulate all investment banks from the outside and to try to level the playing field between the buy-side and the sell-side as much as possible, then we might start taking him a bit more seriously. Smith has declared a serious moral purpose today; that’s not something you can wear for just one news cycle before moving on to the next thing, and so I hope and trust that he’s going to spend the proceeds of his ill-gotten final bonus check in the service of that moral purpose. After all, it was the work of those morally bankrupt traders in the ripping-eyeballs-out business which got him all that money in the first place…
It’s worth reading both pieces in full, since they’re more complementary than contradictory. Greg Smith made what is politely called “walk-away money” in service to a financial firm using (according to his and others’ reports) increasing degenerate methods to profit from gaming an ever-degrading system. Salmon thinks Smith’s “public and destructive” exit is hypocritical; Taibbi thinks it’s… a start.
Either way, I hope Richard Cordray at the CFPB makes a point of listening to Greg Smith’s story.
SpaceSquid
“Smith has declared a serious moral purpose today; that’s not something you can wear for just one news cycle before moving on to the next thing”
Absolutely. It’s not like he’s Evan Bayh.
wilfred
“This always had to be the endgame for reforming Wall Street. It was never going to happen by having the government sweep through and impose a wave of draconian new regulations, although a more vigorous enforcement of existing laws might have helped.”
Priceless. Wall Street, heel thyself.
NotMax
Whither the commonwealth?
One could well argue that he’s conflating ethics and morals, but Mr. Reich nevertheless scores points:
Schlemizel
So, which of the crooked gambling houses do you want to place you wager in? Since there is great money to be made in running a fixed game & there is no house not running one, exactly what do you think the motivation is to reform?
Michael57
We turn to the immortal Yes, Prime Minister, for our text.
“The basic rule of the City (London’s version of Wall Street) was that if you are incompetent then you have to be honest, and if you are crooked you have to be clever. The reasoning is that, if you are honest, the chaps will rally round and help you if you make a pig’s breakfast out of your business dealings. Conversely, if you are crooked, no one will ask questions so long as you are making substantial profits.”
–so an article detailing ways in which Goldman is both crooked and incompetent was bound to create a stir. No one minded one or the other. The Street always assumed that Goldman was crooked but clever. Now they are starting to wonder. And it’s one thing if Rolling Stone calls you a criminal enterprise or a vampire squid; it’s another if one of your own top guns says it on his way out.
Jibeaux
O/T but I need to find Bill Kristol’s bracket. I have Obama’s but that does me no good as a “pick the opposite” strategy.
Bootlegger
Last chance to fill out your Balloon Juice NCAA brackets. Winner gets braggin’ rights (which are worth about as much as Newt’s haircut around here).
Women’s tourney.
Only two entries so far, that’s weak y’all.
Men’s brackets.
No bonus points for upset picks.
Men’s brackets with bonus points.
Omnes Omnibus
@wilfred: Farmers discovering that a method of agriculture is not sustainable and then adopting a new method is more effective than the government forcing the same people to do it. Why not the same on Wall Street? Note that I am not saying that Wall Street should not be regulated or investigated; both of those should happen.
dr. bloor
It was a self-serving piece, sure, and I don’t know how much impact it will have in and of itself, but I was glad to see it. Every little bit of evidence from inside that validates the existence of OWS is a good thing.
Love to see some quotes from Smith’s piece captioning that viral photo of those fuckwads drinking champagne on the balcony of their Wall St counting house.
Omnes Omnibus
@Michael57: Or as the Bard of Hibbing sang: “To live outside the law, you must be honest.”
Alan
I tried to read the op-ed yesterday but couldn’t take that the investment bank was all sweetness and light up until now– including the run up to the ’08 collapse. Utter nonsense! Hell there’s a book from the ’40s titled, “Where are the Customers’ Yachts?” … the customers have always been the investment banks’ dupes.
Bootlegger
@Omnes Omnibus: That is most excellent suh!! I shall use it myself.
c u n d gulag
An act of moral courage would have meant Smith would have walked away when he first discovered there was a problem.
His was an act of amoral courage – he waited to blow the whistle until he was set for life, and never had to worry about money again.
This isn’t exactly “Red Badge of…” territory.
Still, thanks to one of the lesser Vulture Squid for turning on the big ones.
Omnes Omnibus
@Alan: I don’t think sweetness and light was evident. I am sure a fuck load of money was being made, but Smith is suggesting that it had changed form being willing to accept a mere fuck load of money to act in your clients’ best interest to screwing them over in order to make an absolute fuck load.
It is also possible that things have always been thus and the scales have simply dropped from Smith’s eyes. Or he could be full of shit. As Salmon noted, time will tell.
R. Porrofatto
It may be a bit late and even hypocritical, but Smith didn’t have to do it, and the smears and retaliation he’s going to endure have already begun. Salmon goes after Smith and his motivation, but then admits “Which is not to say that Smith doesn’t make important points.”
Taibbi, who is much more of an investigative reporter than Salmon and has a lot less to lose, rightly sees Smith’s apostasy as a good thing because the critique comes from within the Wall St. beast itself. I’ve often wondered, with all the fines and exposure of criminal wrongdoing, why any clients would do business with Goldman or pretty much any other Wall St. firm. Just look at the Abacus deal and marvel how Goldman customers were swindled like they were suckers strolling the midway just so that John Paulson could make a billion dollars and Goldman could pocket millions in fees and short bets against their own clients. And that’s just one of many. (For yet another awesome example re: “double-dipping” see this other recent Taibbi article.)
Cheryl from Maryland
@NotMax: I agree with Mr. Reich — and not only for financial businesses. The lack of concern for the public trust is everywhere.
RepubAnon
Here’s a good cartoon about financial advisors and how important they are to your retirement:
http://www.gocomics.com/theelderberries/2012/03/13
Michael57
@Omnes Omnibus: One of my favorite lines from Bob.
jomo
So the guy cashed in. I’m fine with that. He blew his career up with that article. GS is going to lose at least a few clients to that article – and that is the only way that change is going to happen.
BruceFromOhio
@R. Porrofatto:
Because they didn’t swindle *me*, they would never do that, I have too much invested in them. *I* make money from these crooked bastards while they cheat *you* out of your dinars and baht and shekels. That’s why.
Ignorance is profitable.
dr. luba
There was a very quick response to this published in Bloomberg last night. The comments surprised me, as they ran (last night) about 10 to 1 against the establishment view.
Barry
@Omnes Omnibus: “@wilfred: Farmers discovering that a method of agriculture is not sustainable and then adopting a new method is more effective than the government forcing the same people to do it. Why not the same on Wall Street? Note that I am not saying that Wall Street should not be regulated or investigated; both of those should happen.”
Externalities, my dear boy, externalities.
Barry
@R. Porrofatto: “I’ve often wondered, with all the fines and exposure of criminal wrongdoing, why any clients would do business with Goldman or pretty much any other Wall St. firm. ”
Probably because the Big Boyz control so much of the financial markets that’s not competitive; you pick one of a small number of major corporations, and that’s it.
LarsThorwald
This quote:
That’s quite an admission from a man who spent the better part of 2009 and 2010 bitterly complaining that the Obamna Administration wasn’t doing the very thing he now says “might have helped,” but which (he now concedes) wasn’t going to really change anything.
R. Porrofatto
@Barry: You’re right. No doubt it’s something like that. At the same time, since there’s more power in controlling vast sums of money than merely owning a piece (see University of Texas endowment, George W. Bush appointees, etc.), I’m guessing there’s a lot of clubby back scratching going on between Wall St. firms and those who manage pension, insurance and investment funds, or as it’s known on the Street, “other people’s money”.
Michael
@LarsThorwald: Nice catch. Very true. He was also quoted very commonly by many of Obama’s critics from the left on this blog…wonder how many of them agree with him on that point now? Doubt many at all.
Boots Day
“I’ve often wondered, with all the fines and exposure of criminal wrongdoing, why any clients would do business with Goldman or pretty much any other Wall St. firm. ”
Goldman Sachs gets rich by ripping off unsophisticated investors. Everyone who does business with Goldman thinks of themselves as a sophisticated investor, one who is going to participate in the Goldman gravy train rather than one who’s just providing the gravy.
Gin & Tonic
@Michael57:
This guy was in no way a top gun. He wasn’t even a managing director. He’s “set for life” if being set for life means eating ramen and living in a studio apartment. There’s no way in hell he survives the next 40-50 years of his life on what he cashed out with.
RP
I had the same reaction. Taibbi needs to get his story straight.
General Stuck (Bravo Nope Zero)
@RP:
Polemicists don’t think they need to get their stories straight. And that anything said, true, false, possible is okay if in their minds it serves to reach an end result they seek, as a greater good. It is the ultimate purity of their end goal that matters, and not the accuracy of their argument. Along with personal accolades for fighting the good fight.
RalfW
Taibbi pooh-poohs the role of Occupy, but I think that level of discord and public attention makes an exit like Smith’s more likely, in particular his writing a “see ya, suckers” letter and getting a major outlet to publish it.
daveNYC
Wall Street really does need to self-police (in addition to having Washington provide some police-police), but as publicly traded companies, there’s no realistic way to keep companies like GS, MS, etc. focused on not screwing their customers.
You need to have the upper management have a lot of their own equity at risk in the company’s business, and the best way to do that is with partnerships. Stock options or straight up equity compensation can do very little, since people can pretty easily cash out. Partnerships mean that your cash is in there until you retire, and even then you don’t get it all at once.
JoyfulA
@dr. luba: Looks more like 100 to 1 against Bloomberg’s support for Goldman Sachs.
Brandon
Salmon’s piece seems to take the Bushian tact of attacking the messenger. Whenever a Bush WH official quit and made public criticism, they always went with the disgruntled ex-employee route to undermine them. I am just surprised Salmon didn’t say he was trying to land a book deal. What Salmon fails to do is refute anything the guys says. All his guff about moral purpose is irrelevant to me if his critique is accurate and true. Who cares if he kept the money or what he plans to do next, is he a liar or not?
noodler
fewer clients, less money. Oh wait, that was Jerry Mcguire
Michael57
@Gin & Tonic: “Greg Smith is resigning today as a Goldman Sachs executive director and head of the firm’s United States equity derivatives business in Europe, the Middle East and Africa.” So .. medium gun? And ramen? Seriously?