March 14, 2012. New York. A vice president from Goldman Sachs resigned today and he went out in a blaze of glory. Writing a two-page opinion piece for the New York Times announcing his sudden departure, the bank rep leveled charges of blind, heartless, soulless greed at the world’s most powerful financial institution. More than that, he accused the bank of ripping off its own customers to fuel its lust for ever-growing profits.
Lloyd Blankfein, CEO of Goldman Sachs.
Until today, Greg Smith was a Vice President, upper-level financial adviser and 12-year veteran of Goldman Sachs. His clients included some of the largest hedge and sovereign wealth funds on the globe. The level of assets he advised on eclipsed one trillion dollars. After graduating from Stanford and working for ten years out of the New York Goldman office, Smith then moved to the firm’s London office.
Greg Smith speaks
The first paragraph of Greg Smith’s public resignation letter in today’s New York Times closes with, “I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity. And I can honestly say that the environment now is as toxic and destructive as I have ever seen it.” He went on to explain, “The firm has veered so far from the place I joined right out of college that I can no longer in good conscience say that I identify with what it stands for.”
Speaking to the public at large, Smith explains, “It might sound surprising to a skeptical public, but culture was always a vital part of Goldman Sachs’s success. It revolved around teamwork, integrity, a spirit of humility, and always doing right by our clients. The culture was the secret sauce that made this place great and allowed us to earn our clients’ trust for 143 years. It wasn’t just about making money; this alone will not sustain a firm for so long. It had something to do with pride and belief in the organization. I am sad to say that I look around today and see virtually no trace of the culture that made me love working for this firm for many years. I no longer have the pride, or the belief.”
Calling out Lloyd Blankfein
In his public resignation today, Greg Smith levels blame for Goldman Sachs’ downfall on the current CEO Lloyd Blankfein and the bank’s President Gary D. Cohn.
Smith writes, “When the history books are written about Goldman Sachs, they may reflect that the current chief executive officer, Lloyd C. Blankfein, and the president, Gary D. Cohn, lost hold of the firm’s culture on their watch. I truly believe that this decline in the firm’s moral fiber represents the single most serious threat to its long-run survival.”
His resignation letter in the New York Times today comes right to the point by accusing Goldman Sachs of misleading its clients and being dishonest in its representations to them. He explains, “I have always taken a lot of pride in advising my clients to do what I believe is right for them, even if it means less money for the firm. This view is becoming increasingly unpopular at Goldman Sachs. Another sign that it was time to leave.”
Greg Smith blames the bank’s unethical culture on its unquenchable greed. He says, “How did we get here? The firm changed the way it thought about leadership. Leadership used to be about ideas, setting an example and doing the right thing. Today, if you make enough money for the firm (and are not currently an ax murderer) you will be promoted into a position of influence.”
Smith explains the keys to getting ahead at Goldman Sachs these days saying:
“What are three quick ways to become a leader? A. Execute on the firm’s ‘axes’, which is Goldman-speak for persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit. B. ‘Hunt Elephants’. In English: get your clients — some of whom are sophisticated, and some of whom aren’t — to trade whatever will bring the biggest profit to Goldman. Call me old-fashioned, but I don’t like selling my clients a product that is wrong for them. C. Find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym.”
Smith takes his accusations one step further when he accuses his former employer of ripping off its customers. He says, “It makes me ill how callously people talk about ripping their clients off. Over the last 12 months I have seen five different managing directors refer to their own clients as ‘muppets’, sometimes over internal e-mail.”
As one of the bank’s mentors and trainers of new employees and interns, Greg Smith describes the bank’s current mentality. He observes, “These days, the most common question I get from junior analysts about derivatives is, “How much money did we make off the client?” It bothers me every time I hear it, because it is a clear reflection of what they are observing from their leaders about the way they should behave. Now project 10 years into the future: You don’t have to be a rocket scientist to figure out that the junior analyst sitting quietly in the corner of the room hearing about “muppets,” “ripping eyeballs out” and “getting paid” doesn’t exactly turn into a model citizen.”
In closing, Smith speaks directly to Lloyd Blankfein and his former Goldman bosses. He finishes with, “I hope this can be a wake-up call to the board of directors. Make the client the focal point of your business again. Without clients you will not make money. In fact, you will not exist. Weed out the morally bankrupt people, no matter how much money they make for the firm. And get the culture right again, so people want to work here for the right reasons. People who care only about making money will not sustain this firm — or the trust of its clients — for very much longer.”
Goldman Sachs responds
It only took a few hours for Lloyd Blankfein and Gary Cohn to respond to Greg Smith’s New York Times resignation letter. Bloomberg News acquired the internal company memo and quickly released it publicly. Among other things, Blankfein and Cohn called Smith a “disgruntled” former employee. In their joint memo to employees, the bank’s leaders insist it isn’t unusual in a company as large as Goldman Sachs.
The bank’s CEO and President reminded Goldman employees of a survey they took, the results of which did not match the description posed in today’s New York Times. In that survey, 89 percent of company employees suggested the firm gives its clients “exceptional service”. The memo also insisted that among the bank’s “12,000 vice presidents, of which the author of today’s commentary was, that number was similarly high.”
Blankfein and Cohn close their internal memo today saying, “It is unfortunate that all of you who worked so hard through a difficult environment over the last few years now have to respond to this. But, our response is best demonstrated in how we really work with and help our clients through our commitment to their long-term interests. That priority has distinguished us in the past, through the financial crisis and today.”
While Goldman Sachs executives downplay today’s embarrassing and potentially costly op-ed piece by one of its employees, it’s clear the author may be closer to the truth than the firm would like to admit. One only need peruse the endless mountain of SEC findings, criminal accusations and out of court civil and government legal settlements to show that Mr.’s Blankfein and Cohn are being less than honest and forthright. In fact, when Greg Smith accuses the bank of being dishonest and ripping off its clients, Blankfein and Cohn prove his point by denying such a well-documented and proven fact. Just because Goldman Sachs repeatedly settles out of court for large monetary fines in order to avoid criminal charges and admitting wrongdoing, doesn’t mean they weren’t guilty of that wrongdoing.
For more information on Goldman Sachs’ role involvement in creating the global economic collapse, read the following articles: