Last week the New York Times published an op-ed piece by Greg Smith, a 33-year-old midlevel banker with Goldman Sachs in London, in which he explains why he is resigning from the Wall Street firm. In his view, the culture in Goldman Sachs is “toxic and destructive”, and the firm no longer acts in the best interests of its clients. “It makes me ill how callously people talk about ripping their clients off,” he writes.
The article set off a viral reaction. Liberals saw Smith’s cri de coeur as proof from an insider that a bank they blamed for the financial meltdown was unrepentant, still pursuing greed and excess. Matt Taibbi – the Rolling Stone writer who coined the phrase “vampire squid” to describe Goldman, thus reviving an old anti-Semitic trope – called Smith's piece “historic” and “brave and thoughtful”. New York Times financial columnist Gretchen Morgenson wrote that Smith’s article provides “yet another reminder of why it is crucial that we remake our financial markets so that they are safe for investors and taxpayers”.
In fact, Smith’s article tells us nothing of substance about the financial world or the economy, and does not lend weight to any argument regarding public policy.
In his departing outburst, Smith comes across as breathtakingly naïve. Describing his early days at Goldman, he makes it sound like he had joined Save the Children: “It wasn’t just about making money,” he writes. “It had something to do with pride and belief in the organization.” Then just imagine his surprise and dismay when he discovers only 12 years later that those half a million dollar pay checks he had been receiving were not for putting smiles on kids’ faces, and that in fact Goldman Sachs was in the business of – gasp – making money.
Smith makes a big deal about Goldman employees talking in internal meetings about “ripping the eyeballs out” of clients, and calling them “muppets”. Here he sounds like a Victorian lady prone to fainting upon hearing swear words. Perjorative names thrown about in an internal meeting – a meeting of investment bankers no less - well I never! Come on, Greg, is “muppet” really the worst name your ex-colleagues used? All I know is that on this side of the Atlantic, his reference to “muppets” led to a universal “huh?”, since we Americans still only use the term to refer to the cuddly TV puppets. And given that one enterprising researcher discovered that the company owned by Jim Henson’s family is indeed a client of Goldman, maybe it was all one big misunderstanding.
The discussion about Goldman’s “clients” generally is a confused one, and Smith does not clarify matters. Goldman’s work combines two activities - investment banking advice and trading - and customers of both are often referred to today as “clients”. However, in the past, investment banking was seen as having clients to which a fiduciary responsibility was owed, while trading did not. Trading is akin to gambling, and obviously you have to find someone who wants to take the other side of the bet. All the time critics of Goldman claim that, because the firm engages in trading, it cannot be an honest investment adviser, but they are really just conflating the two activities.
Even though the balance of Goldman’s business has shifted towards trading (in line with the general trend in finance towards more superficial activities), it is not as if Goldman has changed fundamentally, as Smith asserts. The firm has always pursued its own interests, and saw no contradiction between what it sells and what its customers need – and in this, they are like nearly every capitalist enterprise. Arthur Levitt, a Goldman adviser and former chairman of the Securities and Exchange Commission, was right when he said: “I don’t buy the argument that the old Goldman was more principled and less greedy.”
Smith warns that “people who care only about making money will not sustain this firm – or the trust of its clients – for very much longer.” Indeed, reading Smith, you wonder why any business would hire Goldman Sachs if they were as wicked as he and others make out. Yet, despite all of the recent negative publicity Smith cites (“Fabulous Fab, Abacus, God’s work”), Goldman’s business has so far remained pretty healthy.
As Holman Jenkins notes in the Wall Street Journal, a Goldman-commissioned study by the Boston Consulting Group found that most companies were wary of the firm, but knew what they were getting into. Similarly, a Goldman client told the New York Times that he is aware that Goldman trades against its clients at times: “Come on, that is what they do and they are good traders, so I do business with them.” The reality is that companies are adults, not kids in need of protection from morally fibrous bankers like Smith.
The bottom line is that Smith’s lengthy article does not contend that Goldman broke the law. He hints that the firm has acted unethically, but doesn’t provide solid evidence. He levels charges that the culture has changed for the worse, but that is old news.
Taibbi calls Smith’s article “brave”. It is nothing of the sort. It is a narcissistic, attention-grabbing act. This is especially the case when Smith takes a paragraph to list his life’s achievements – Stanford scholarship, Rhodes Scholar, “winning a bronze medal for table tennis at the Maccabiah Games in Israel, known as the Jewish Olympics”. It sounds like he’s putting his CV out there for a new job.
Smith’s opinion piece was hardly brave given that he expressed views that are widely supported in society today, that he must have known would be received well. Disgruntled employees resign all the time. Some like to go out with a bang – tell the Man where he can take this job and shove it. But it is extremely rare for someone to be given space on the op-ed page of the New York Times to get his payback.
Indeed, for all of Smith’s faults, this story is really less about him, and more about the Times; it was the Times that that plucked one of Goldman’s 12,000 vice-presidents out of obscurity and made him out to be a star witness to all that is wrong today. The simple-minded view that all of the economic problems in the country can be put down to bankers – especially one bank named Goldman Sachs – extends far beyond the finger-twinkling circles of Occupy Wall Street. Smith did not need to offer hard evidence of real problems in Goldman. His byline alone served its purpose: to confirm the existing prejudice that bankers are enemy number one.