Another Ex-Goldman Banker Confesses: The Firm Became 'Toxic'

Goldman Sachs soundoff
Goldman Sachs soundoff

The fallout continued on Thursday from a Goldman Sachs (GS) employee's scathing public resignation in the pages of the country's most famous newspaper. On Wednesday, The New York Times published an op-ed by Greg Smith, previously "a largely anonymous 33-year-old midlevel executive at Goldman Sachs in London," in the words of a Times follow-up piece. Titled "Why I Am Leaving Goldman Sachs," Smith's diatribe declared Goldman's environment to be "as toxic and destructive as I have ever seen it," and denounced management for allowing "the interests of the client... to be sidelined in the way the firm operates and thinks about making money."

The Times -- touting its own impact, to be sure -- quoted an unnamed Goldman executive as saying the op-ed landed "like a bomb" inside the bank.

Goldman, which by now has lots of experience in responding to bad publicity, quickly released a memo from CEO Lloyd Blankfein and President Gary D. Cohn to the firm's employees, characterizing Mr. Smith as "disgruntled" and merely one "of nearly 12,000 vice presidents" (in other words, not such a big fish among the 30,000 swimmers in Goldman's pond).

But, tellingly, the firm did not dismiss the allegations outright. The Wall Street Journal reports that Goldman "said it will examine" Mr. Smith's "claims... that executives 'callously' talk about 'ripping their clients off' in order to make more money." The company also attempted to contact Mr. Smith "for more information about his accusations, including that he saw five managing directors call their clients 'muppets' in the past year."

PHOTO: The reception area of Goldman Sachs London Office. Photo by sperkyajachtu, Flickr

(Lest you assume that Goldman thinks of its clients as creatures of felt, the Journal explained, "'Muppet' is a British slang term for 'idiot' and is sometimes used on Wall Street trading floors to denigrate an opposing trader." Remember, Smith worked in London.)

Goldman Exec Quits And Writes Searing Op-Ed on Company
Goldman Exec Quits And Writes Searing Op-Ed on Company

Mixed Reviews of Smith's Opinions, Accuracy

Many were critical of Smith, questioning in particular his timing and honesty. Dealbreaker editor Matt Levine, for instance -- like Smith, a former vice president in Goldman's equity derivatives business -- argued against the contention that the firm's culture had changed dramatically over the last decade. "Yes," Levine explained, "there was once a time when big investment banks made most of their money by advising clients on mergers and capital raising, rather than by trading with clients. And yes, those times are long gone. But they were long gone when Smith started."

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The derivatives sales business, moreover, "has always and necessarily been a business in which Goldman is on one side of a trade and its clients... are on the other. Each dollar that Goldman makes comes directly out of its client's pockets." And, of course, the bank's clients know this. They just think the benefits of working with Goldman outweigh the costs. To Levine, Smith seems to have been motivated to leave by a company-wide decline in compensation, and is cloaking his mercenary impulse with high-minded sounding justifications.

But several other former Goldman employees have gone on the record supporting Smith's claims, leading the Times to suggest that he "is part of "what some Goldman staff members and alumni refer to as a sizable, yet silent contingent within the investment bank," a group of people who "are increasingly frustrated with what they see as a shift in recent years to a profit-above-all mentality."

A DailyFinance Exclusive: A Former Goldman Trader's Response

DailyFinance spoke with one former Goldman Sachs employee, who worked at the firm for the better part of a decade (and left of her own accord -- no disgruntlement here). She provided the following statement in response to the Smith controversy. She largely agrees with Smith's analysis, although she offers the novel excuse that post-financial crisis disdain for investment banking perhaps contributed to bad attitudes and cynical behavior on Wall Street. Finally, she ends on a note of pessimism, doubting that anything good will have come of Smith's "whistle-blowing".

Here are her thoughts:

I had (what I still consider to be) the privilege of working at Goldman Sachs for eight years and on three continents. My analyst class of 2003 was much the same as Smith's recollection: We needed to be taught everything, almost down to how to tie our shoes (or, in the case of us ladies, how to convincingly wear those killer heels in an imposing but still feminine way). In the majority of cases, our mentors embodied the values the firm still claims to espouse: integrity, teamwork, hard work and success; but success should never at the expense of our reputation or our clients' trust. Clients paid our salaries and kept the lights on. There might have been a "muppet" or two on the desk, but clients were respected almost to the point of adulation. This philosophy held true across the globe, particularly in Asian offices, where someone always had to be at the office just in case a client decided to call at 10 p.m.

Unfortunately, the firm that I joined in 2003 is not the same firm that I left in 2011. Toxic is exactly how I've described the environment to friends and family, in explaining why I abandoned a job that most people (still) would give their left arm for. I'm incredibly proud of the work that I did over those eight formative years -- I'm a smarter person with a suitcase full of life experience I'd never trade -- but they got their proverbial pound of flesh, and the rewards -- not just financial -- had become nonexistent.

In an environment where earning money the traditional way (innovate, work bloody hard, be smarter than everyone else and do right by your clients) was no longer enough, and faced with increasing scrutiny from the media and, by extension, absolutely everyone, the firm had become paralysed and its employees cynical and desperate. Feeling constantly under attack -- your every action, your reason for going to work each day, your choice of career -- rarely brings out the best in people. It's no surprise that things have devolved to the point of Smith publicly announcing the reason for his departure. Unfortunately I doubt it will have much affect on the inside (my sources tell me the internal response is to "not air the dirty laundry"), but I do hope the firm is able to recover the values it once stood for. I'm incredibly grateful for the opportunities I had and I still believe the firm occupies a critical role in the capital markets -- a position I'm dismayed to see has been eroded.

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