by Jeff Reeves | March 14, 2012 10:48 am
Today, we are suffering through yet another “viral” story about the greed and callousness of big banks. This time, it’s a very public resignation letter printed in The New York Times from a Goldman Sachs (NYSE:GS) employee named Greg Smith.
When will this crap end?
There are a host of issues with this screed, but let’s overlook manners of taste and philosophy to focus on the core issue: Greg Smith is uncomfortable with the fact that making money is Goldman Sachs’ top priority, when by its very nature that’s what this investment bank does.
So you have to wonder why the heck Greg even signed up for this gig — and more damningly, why he stuck around for 12 years before the light bulb finally went on.
Don’t like playing baseball? Then don’t try out for the team, slugger. And if you play a few games and don’t like it, you certainly shouldn’t commit yourself to 12 seasons.
We can grant this Goldman exec a little leeway, since it assuredly takes some time to figure out whether a job is right for you. But more than a decade, spanning some of the ugliest subprime mortgage scandals out there? Please.
One has to wonder whether Greg Smith was willfully naïve, delusional or just plain stupid to not understand what was going on.
Consider that in 2007, the SEC was alerted to hints of wrongdoing before the subprime mortgage crisis by a 2007 e-mail, written by “an effusive young Frenchman,” who gloated:
“The whole building is about to collapse anytime now…Only potential survivor, the fabulous Fab…standing in the middle of all these complex, highly leveraged, exotic trades that he created without necessarily understanding all the implications of these monstrosities!!!”
Not exactly a good representation of Goldman culture, now is it?
Those emails didn’t stay hushed, either. The SEC got hold of them and by 2010 had negotiated a $550 million fraud settlement with Goldman, the largest in the history of Wall Street. Regulators said Goldman Sachs new the investments it was peddling would collapse, but they didn’t warn clients.
Why am I riffing on the misdeed of GS from five years ago? Well, because Greg Smith seems to think now is the time to quit Goldman because of unscrupulous behavior. The fact of the matter is that if these shenanigans bothered him, he would have walked years ago.
Investment adviser Josh Brown hosts one of the absolute best financial blogs on the web, The Reformed Broker, and puts it very bluntly:
“The “culture” of Goldman Sachs was, is and always will be about making money, often at the expense of a client. Do you even know where the term ‘wirehouse’ originally came from? Let me help you out with that. In the 1920’s, there was no CNBC or internet — there was only news delivered by wire and cable, stock market news and prices included. The ‘wirehouse’ firms like Goldman would transmit stock and bond prices to their far-flung offices around the country from Wall Street where the action was taking place. It is a peculiar and yet telling fact of history that during the Crash of 1929, not a single major Wall Street brokerage firm went under. Wanna know why? Because when the sell-off began, they dumped all their holdings prior to wiring the news out to the rest of the investing public and their clientele across the country.”
(Read Josh’s complete take on the Goldman Sachs letter here.)
Considering the size of the bonuses that Goldman employees got in the early 2000s, it’s hard for me to have sympathy for Mr. Smith. One has to wonder whether he was happy to look the other way amid high compensation for the first several years — and now the outcry over ethics is a convenient scapegoat.
Greg Smith’s complaints about GS pushing “illiquid, opaque products” and his self-righteous claims that working at Goldman “wasn’t just about making money” ring painfully hollow.
Are we to believe that the principled and upstanding folks like Mr. Smith dramatically outnumbered the “fabulous” Fabrice P. Tourre? That the greedy bastards were an outlier that only recently have been a problem — despite almost 150 years of backstabbing and mayhem at Goldman?
Or instead, did Greggy willfully ignore the true culture of Goldman Sachs until it was in his best personal interest to quit and pen a sanctimonious resignation letter to ease his conscience?
Jeff Reeves is the editor of InvestorPlace.com. Write him at firstname.lastname@example.org, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook. As of this writing, he did not own a position in any of the aforementioned stocks.
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