Greg Smith: Why I Am Leaving Goldman Sachs

Anyone seen this yet? Why I am Leaving Goldman Sachs.

Mr. Smith’s problem with 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.

Tell me one commission-based company (or any company for that matter) that isn’t that way?

This is a very critical piece. Give it a read if you have a couple of minutes.

Should he have written it?

I hope this guy never wants to work in banking again.

UPDATE:. I thought this snippet from a WSJ piece was interesting…

 Given the vagueness of the allegations, even Goldman’s pledge to “examine” them sounds silly. (Imagine the scene: “Hi, I am Goldman’s chief inspector. Did you call your clients ‘muppets’?”)

Instead of “examining” unprovable accusations, Goldman and other banks should ditch the “clients- first” mantra they constantly recite and state clearly what they are about.

Rather than extolling Goldman’s “client-driven” culture, as they did in their response to Mr Smith last week, Mr Blankfein and his No. 2 Gary Cohn should have seized the opportunity to explain how the business of finance really works.

Banks aren’t charities—they should have said—and they don’t just seek to make money for customers. They also have shareholders, employees and executives who want to get paid.

Financial bosses try to do everything legally possible to satisfy all their constituencies, but conflicts are inevitable. Customers and the public should be aware of that.

6 thoughts on “Greg Smith: Why I Am Leaving Goldman Sachs”

  1. Of course investment banks want to/ need to make money, no one expects otherwise. …BUT… customers do expect that these banks make money FROM their customers by making money FOR their customers. This is fiduciary resposibility. What has been shown to be case in several instances with GS (mortgage backed securities, for example), is they intentionally and knowing sold customers losing products and in doing so made themselves richer. That’s what Mr. Smith went on a tirade about.

    1. But that’s not news. We knew that years ago. Why did he wait until now to quit and write his exposé?

      I am in no way on Goldman’s side on this. My statement in the post was to show how corrupt the system is.

  2. Money eventually corrupts, no matter how noble the intentions are initially. Sooner or later, someone in power gets sucked in and screws up the culture of many of these great companies. It is inevitable.

    Not getting as much press, but McKinsey & Co had the same kind of BS “client first” culture as well for decades until their CEO, Rajat Gupta started selling inside info from their consulting engagements to his hedge fund buddies. Rajat was on the board of Goldman too (Surprise!).

    There is probably some truth to Mr. Smiths allegations. However, this isn’t really news. Wall Street has been this way since at least the early 80s. It wasn’t like the movie Wall Street was pulled out of Oliver Stone’s ass.

    Honestly, Mr. Smith sounds a bit naive.

  3. Hope Smith can find a company that shares his values. It can’t be coincidence that whenever something bad happens (in the economy),someone affiliated with GS was involved. MF global being the most recent I can recall.

  4. What is missing from much of the dialogue on the role of i-banks is the fact that depending on the type of business they are performing, their legal (and ethical) responsibilities can be very different. In the case of a trading business, such as the one Mr. Smith hails from, the customer expects, and is asking the bank to take the other side of the trade – to literally bet against the customer. If the customer is hedging itself from a drop in the price of the security, then by definition, the dealer is betting that the security will go up instead of down (or in the customer’s favor). Not much different than an insurance co “betting” that your house will not be destroyed by tornados.

    The dealer then manages that risk accordingly. The counter-party (i.e. the customer) does not care one bit how the dealer manages their risk, which direction they are actually betting on, etc. All the customer cares about in this example is getting the best price and the best execution. It’s dog eat dog all around.

    It’s easy for the media to spin this as “banks betting against the customer” in those situations. Keep in mid that the “customers” in these situation are very smart institutional investors and other banks.

    This is not the same as transactions and services where a bank has a “fiduciary responsibility” to act in the customers’ best interest, such as advising on a merger or managing an investment account. In those situations, the bank is legally and ethically bound to avoid conflict of interest.

    These are complex issues, mostly distilled into sound bites. I’d like to think this audience is sophisticated enough not to fall for the easy story.

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