Goldman

This week Greg Smith wrote a New York Times Op-Ed, Why I Am Leaving Goldman Sachs. "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."

He was one of about 12,000 employees with the title "executive director". The next day, "Goldman Sachs Group Inc. saw $2.15 billion of its market value wiped out"

He blames the Goldman IPO and CEO Blankfein and President Cohn and a culture that refers to its clients as muppets. He's not very specific, except in saying he doesn't know of anything illegal happening.

Kevin Smith wonders, "If this were someone who started working for Goldman in the 60s, it would be easier to find him believable. But Smith started out at Goldman in 2000. He was a senior member of the firm during the height of the housing/derivatives bubble. This was not a period of time famous for its integrity and client-centered focus. So what, exactly, has changed in the past four or five years compared to then? Smith is maddeningly unclear about this."

Felix Salmon questions his motives even more. "What’s missing in his op-ed is any sense of mea culpa, any sense that he was at all part of the problem." "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."

Ezra Klein wrote about short-term greed vs. long-term greed Goldman used to offer companies m&a advice, raise debt or equity, take them public, etc. They fostered long-term relationships for repeat business, aka long-term greed. Now they make most of their money in short-term proprietary trading.

"For Goldman Sachs, the real damage of the last two days didn’t come from disgruntled trader Greg Smith’s resignation op-ed. It came from Goldman’s defenders. Many of the replies said, either explicitly or in effect, of course Goldman rips off its clients if doing so will help it make money. Only the naive would think otherwise."

"But the response of many of Goldman’s defenders confirmed the very trend Smith was lamenting: A change from long-term greed, which aligned Goldman’s interests with those of its clients and arguably with those of the broader market, to short-term greed, which is not quite so benign for your clients or for the broader market. If the best that can be said of Goldman today is that it’s well-known that they will do absolutely anything to make a quick buck, then the problem with Smith’s op-ed might be that it’s late, but it’s not that it’s wrong."

Barry Ritholtz mostly agrees, listing his key takeaways. Publicly traded banks means profits come first, and it's not just Goldman. Also, derivatives are complex and opaque so it's very hard to understand them and people often wrongly just trust the salesman. Shocker.

When asked about it Paul Volcker said that preventing government backed banks from proprietary trading (the Volcker Rule) would help stop the conflicts of interest. Suzy Khimm adds that Smith's letter might help regulators get the Volcker Rule finalized.

In other recent Goldman related news, Andrew Ross Sorkin wrote in DealBook As an Adviser, Goldman Guaranteed Its Payday. "Now, however, a court ruling in a shareholder lawsuit has laid bare the truth: Goldman was on every conceivable side of the deal. As a result, El Paso may have unwittingly sold itself far too cheaply. Mr. Blankfein may have said he was ‘very sensitive to the appearance of conflict,’ but the judge’s order ruling ‘reluctantly’ against a motion to block the merger made it clear that Goldman’s conflicts went far beyond mere appearances." The details are here.

Cora Currier wrote in ProPublica 13 Reasons Goldman’s Quitting Exec May Have a Point which lists "SEC charges levied against Goldman and its employees over the past decade."

Others have written public resignation letters this week. James Whittaker wrote Why I left Google and Darth Vader wrote Why I am leaving the Empire. In other related humor, Alphaville adds this: