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Leaving Goldman

“I knew it was time to leave when I realized I could no longer look students in the eye and tell them what a great place this was to work.”  So says Greg Smith, until today the head Goldman Sachs’ equity derivatives business in Europe, the Middle East and Africa.  This relatively young man who was working his way to the top very quickly simply walked off, leaving behind a scathing resignation letter – that he sent to the New York Times.

You can read the entire piece here, and it’s worth the time.  There isn’t anything particularly new in it for those of us who have been watching Goldman for years, but the details are chilling all the same.  They may be what gets the world moving toward correcting the problems that are not just at Goldman, not by a longshot.

What was the final straw for Smith?  He doesn’t tell us, but he was very disturbed by the overall picture. “I can honestly say that the environment now is as toxic and destructive as I have ever seen it.”   It is all about making money, not doing what was right for the customers they apparently loathe.  “Over the last 12 months I have seen five different managing directors refer to their own clients as ‘muppets,’ sometimes over internal e-mail.”

Smith also makes reference to “Fabulous Fab”, Goldman Vice President Fabrice Tourre, who famously boasted in an internal email sent in January of 2007, just as everything was starting to fail:

“More and more leverage in the system, 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 he created without necessarily understanding all of the implications of those monstrosities!!!”

Five years on and Smith finally had his fill.  He apparently expected everything to change after 2008 or so, and it hasn’t.  It took him this long to make up his mind and he has.  We don’t know what salary he is walking away from, but you can easily guess it is not a small one – so it took him a while.  No matter.  He did it.

How will this public rebuke from the inside change anything in our financial system?  It is very hard to tell at this point, especially since this does little more than confirm what most people who watch this closely already knew.  We are far beyond “too big to fail” or even “too big to understand” – we blew through those warning signs years ago.  The biggest, baddest firm of them all is full of people who don’t care at all.

One thing does stand out from Smith’s 12 year career – he can’t be any older than his mid-30s. How does such a young man get such a high paying job with so much responsibility in a firm like Goldman?  The answer is clearly that aggressiveness and creativity are what they value the most, likely burning out execs like Smith quickly when they become a bit older and wiser.  Finance is not a career for staid men of substance, working their way up slowly.  The days when banking was boring, as it should be, are long gone.

Where does that leave those of us who are on the outside?  There is nothing that we can do to change the culture or practices at Goldman, unless of course we have a big account with them.  We might be able to propose some regulations that will make things tougher for them, but those are not likely to do anything to change the internal culture that Smith rails against.

What we can, and must do is take steps to limit the power of this organization and learn what they do.  We must never think that these people create jobs, innovate important new products, or in any way improve the lives of people around the world.  The problem at Goldman is culture, according to Smith, and the problem outside of this “toxic” firm is also culture.  Elevating finance companies to the status of Gods only gives them a way to spread their disease and infect the whole world.

Goldman exists to make money any way they can.  We should see them as a potential source of  revenue, having no other potential public good other than what we squeeze out of them.

“Goldman Sachs today has become too much about shortcuts and not enough about achievement.”  Whatever Smith was being paid, it became clear to him that he wasn’t actually earning it.  He shows in leaving that a moral, decent person can’t stand that situation forever, enticing as it is.  That’s the big lesson for all of us – inside Goldman and out.

21 thoughts on “Leaving Goldman

  1. I am not surprised and yet it is hard to read his letter. It sounds like Goldman Sachs is just like a movie would portray it. They are too influential on too many things around the world to let this keep up. I have to disagree that we can not change the way they do business, I think we have to somehow. If that means regulation or more investigations then the SEC should get on it right away. This is not good at all.

    • I have no ideas how to change Goldman Sachs into a company mindful of the public good – no ideas at all. The only thing we could possibly do is reduce their influence. That sounds very difficult, but a few more stories like Greg Smith coming out and it should hit them where it counts. At least, I hope it does. The problem with Goldman is that they might do something utterly bizarre and everyone will follow them simply to avoid being left out – talk about controlling the market!

      • There has to be a way to hold a company responsible for bad investment advice that fleeces the customers and nothing more. Don’t you think?

      • I suppose a lot of lawsuits would take care of it. Perhaps there is some way of regulating them by setting up a consumer protection agency that has some real teeth.
        That would take a lot of activism to get anywhere near Congress, let alone passing it, however. If Smith does nothing more than fuel an uprising maybe we can make something of it.

  2. Nothing new here, but it is good to see people getting sick of it. How many more are leaving that do not send their letters to the Times?

  3. I read his letter twice before I realize what made me both sad and mad. He is not saying anything that is new. But Greg seems like a good guy who got sucked in to it and became part of it all. I am glad he got out but it does make me wonder how many people there know they are doing something wrong but do it anyway. They must be paid a lot so it has to be hard to walk away.

    • Great point. There are good people everywhere, embedded in bad situations like this. Maybe what we need more than anything else is for good people to rise up, speak from the heart, and promote more love and compassion around the world. That may sound like a lot of hippie-talk, and I’m not going to tell you it’s enough by itself, but it sure wouldn’t hurt.
      I’d also like to hear more from religious leaders on this topic as well. We have totally lost our moral compass in this nation, not just Goldman – that’s what got to Smith eventually. Who is giving courage to the moral and decent people of the world to stop the behavior we see at Goldman, regardless of the money involved?

  4. “…that aggressiveness and creativity are what they value the most…”

    That so reminds me of the “up & comers” at the old Norwest Bank during my brief three & a half year career there in the early eighties.I emphasized “aggressive” as that was the standout trait.
    Mr. Smith is being criticized by some pundits who ask, “Why did it take him so long?”

    • Yes, I really don’t think there are any surprises here at all. But I think it’s important to get the word out and confirm our worst fears – hopefully it’ll spur some action and give us a good response to the people who insist that operations like Goldman are somehow good for something in the world.
      As for why it took him so long, see below. 🙂 I think it’s pretty obvious. The young, aggressive “winner” hit an age where maturity set in. I’m guessing he has kids, probably rather young ones, but you never know what set it in motion.

    • Yup. Let’s say he made 1% off of that and his cut was 0.1%. He probably made at least $10M a year – very conservatively. That’s a lot of reasons to stick around even as it starts to seem ugly.

  5. Erik, I think you should use Barataria to specialize in bringing more facts and knowledge and theories on Goldman Sachs to the forefront. Don’t let up! Toss out the Rossini, hockey, holidays, and solstice musings. We need more facts, knowledge and analysis of Goldman Sachs. Even as a conservative I think the moment is right to continue hammering away at Goldman. I would like to know more about what they are doing so I can determine more specifically what they are doing wrong. The above blog entry is a bit too general. I need more examples and a framework for understanding what is good and bad about Goldman Sachs. I encourage you to continue on this subject. (In comparison the Euro crisis is very easy, at least for me, to understand.)

    • Rossini I can drop, but “My Little Pony” really brings ’em in!
      Seriously though, I have thought about this subject a lot. I don’t see this as a left-right political issue, at least in terms of understanding what is going on with these extra-national mega-financiers – and Goldman is at the top of anyone’s list (along with Deutsche Bank, PNB Paribas, and a few others). I am very certain that there is a lot which can be written about them without even getting near solutions or politics in any way at all.
      That idea came to me about a year ago when I was re-reading Galbraith’s “The Great Depression”, where Goldman has a chapter all its own. S-s-s-same as it ever was, eh?
      However, there is a huge problem with doing this: I don’t think anyone, anywhere, understands the world’s financial system and the products sold by these companies. Even inside of them. That’s at the heart off the “Fabulous Fab” boast, after all.
      I have never, ever known just where to start with this company and the ones like it. What I am sure is that it would get arcane and very subtle quickly.
      Here is what I can promise you – I will try. I will dig into this a bit, start perhaps with Galbraith and some history, and work forward as I can. I do have to make a living somehow, so as a project this can only take so much of my time, but I will do my best.

  6. I just realized I’m uninformed on your Barataria business model. Do you think you could create a tab explaining it. I know you have ads but I didn’t know I was supposed to look at them. : )
    If that is how you earn your keep, then I’ll start watching them. But you should give us a little pitch on what the ad is about.

    • Business model? Oh, not, this is just a hobby. I have always used Barataria as a place where I get things out of my head that would otherwise keep my brain too occupied to do the things that make me actual money, which are writing things for other people. The ads are from wordpress, not me! I do make a little bit off of donations on Barataria, but that’s it.

  7. Thanks for the clarification. I did originally think it is a hobby. However, one time you mentioned Barataria as being your gig. And then saw that keep track of the traffic and even try to find out what are the most popular blog entries. You obviously do have a readership/ followership. Assuming you always keep track of your stats, I suppose you have your theories on what drives the eyeballs to Barataria or perhaps not. As readers we always wonder why you choose your topic for the day. But then again you have to write about something. We do live in an era of analysis and meta-analysis.

    • I’d like to make more from this stuff. The reason I went over to economic commentary is that people always seemed to like what I have to say – it’s my niche. I’m far from an expert, of course, but I found a real hunger for what little I knew and have done my best to expand my knowledge and follow this stuff over the last (counts on fingers) five years. It’s been fun.
      I am preparing scripts for some potential YouTube viddies on the subject. I don’t know an artist who can make things as fun as McWilliams’ “Punk Economics” but I do think some straight-up talk on the mysteries of the dismal science is in order. I’ll probably take more of a James Burke (Connections) approach, so I have to be at my cheeky best. 🙂
      My topics are just what I’m thinking about at the time. Always has been. I do try to wind unrelated things together because I have a Taoist “whole-life” view of politics, economics, and sociology. Strange things (like weather!) influence us a lot (Changes in Lattitudes, Changes in Attitudes).
      In the end I try to make sure it’s all not really about me, since I’m not really what matters here – but it is my li’l blog and there are things I just have to get out of my head if I’m going to do other things that people pay me to do!

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