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Greg Smith Slams Goldman: The Street Responds

Aaron Task
Daily Ticker

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Wall Street is abuzz over a New York Times op-ed/resignation letter by (now) former Goldman Sachs' executive director Greg Smith, who frets about a "decline in the firm's moral fiber."

"The environment now [at Goldman] is as toxic and destructive as I have ever seen it," declares Smith, an 11-year veteran of the firm, most recently as head of the firm's U.S. equity derivatives business in Europe. "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 (GS), of course, disagrees, telling Bloomberg: "In our view, we will only be successful if our clients are successful. This fundamental truth lies at the heart of how we conduct ourselves."

But Rolling Stone contributing editor Matt Taibbi, the man who coined the term "vampire squid", says Goldman's retort rings hollow.

Citing the April 2011 report by Senator Carl Levin's subcommittee on investigations, Taibbi says there's a history of Goldman seeking to dupe its clients and unload what Smith describes as "stocks and products that we are trying to get rid of." (The Daily Ticker has reached out to Sen. Levin's office which has declined to comment at this time.)

"The essence of Smith's piece" -- that Goldman routinely screws its clients -- "is devastating," Taibbi continues, suggesting Goldman's clients might take their business elsewhere and top talent may no longer seek to work for the firm.

"The resignation will have an effect on Goldman's businesses," he declares, an idea that Forbes contributor Peter Cohan explores in his piece: Greg Smith Quits, Should Clients Fire Goldman Sachs?

The Street Responds

Here's a sampling of how some Wall Street pros and some of the world's top financial bloggers have responded to Smith's slam on his former employer:

Chris Whalen, senior managing director of Tangent Capital Partners.

All criminals want to confess. I don't see him offering to disgorge the ill-gotten gains.

Josh Brown, financial advisor at Fusion Analytics and author of The Reformed Broker blog:

The "culture" of Goldman Sachs was, is and always will be about making money, often at the expense of a client. 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.

(See: How to Quit a Job Without Publishing an Op-Ed)

Chris Rupkey, Bank of Tokyo Mitsubishi:

Keeping in mind I don't work there...the customer is number one at every firm I have worked for. This editorial looks like hyperbole to get the editors attention in an era when the 98% versus the 1% has taken the headlines in newspapers. You don't get quoted if you don't make bold claims.

Barry Ritholtz, CEO of Fusion IQ, author of The Big Picture Blog:

Sure, profits matter, but Wall Street used to be about so much more than that. There was a culture of mentoring, developing, teamwork, a belief that doing the right thing for your clients was in your own best interest.

Firms that used to be Partnerships — as opposed to the publicly traded corporations of today — meant that you had to be more involved in what your partners were doing, as they had the ability to bankrupt the firm AND the individual partners. This was a huge factor in the dynamic — and it made recruitment, training and mentorship all that much more important.

People I have been fortunate enough to meet and know in this business have painted quite a clear picture of what it once was like, and you cannot blame it all on the rosy glow of nostalgia.

(See: The Sad State of Goldman, Merrill et al)

Daniel Alpert, Managing Partner Westwood Capital LLC:

I admire the (young, I assume) man's earnestness. But there is a correlation between the culture at Goldman (and other places) and the fact that it has become very, very difficult to make a buck. Desperation leads to unfortunate behavior. Behavior that would not come to the fore if it were not for the foolishness and misdeeds of an entire industry in the past, to be sure. But unsurprising nevertheless.There is only one outcome for businesses that deal with their clients with anything other than an attitude of fair play and respect, and that is that they will have fewer of them. And that will happen without regard to op-ed pieces. And it is sad.

Tell us what you think in the comments below!

Aaron Task is the host of The Daily Ticker. You can follow him on Twitter at @aarontask or email him at altask@yahoo.com


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