“Surprise! Goldman Sachs Exec Reveals Wall Street’s Dirty Little Secret”
Below is a recent article published by Securities Lawyer Jake Zamansky on Forbes.com - 03/19/12
Why is it so hard for Goldman Sachs to adhere to the Cardinal rule of American business - that the customer comes first, not the firm’s profits?
It seems such a simple principle to uphold in business, but Goldman’s ability to follow that Cardinal rule has been called into serious question of late.
The leading investment bank on Wall Street was the focus of the business and national media last week after a former Goldman Sachs executive on Wednesday printed an indictment of the firm in the New York Times, with the editorial appearing minutes after he officially resigned.
Referring to the smell and feel right now at Goldman, the executive, Greg Smith, wrote: “And I can honestly say that the environment (at Goldman) now is as toxic and destructive as I have ever seen it.”
Managing directors insultingly refer to clients as “Muppets,” Mr. Smith wrote.
And one more observation from Mr. Smith about how Goldman bankers take care of their clients: “It makes me ill how callously people talk about ripping their clients off.”
Ok, so the me first, customer be damned culture at Goldman stinks. This is not a surprise. We’ve been writing about that for years now.
But Greg Smith’s characterization of the firm is simply the latest and perhaps most vivid evidence that Goldman has no interest in putting its clients first. His indictment is straight from inside the belly of the beast.
The cracks in Goldman’s me first culture are showing, in a variety of ways.
According to an article in the Saturday Wall Street Journal by Gina Chon and Anupreeta Das, Goldman is reviewing policies on investment bankers’ potential conflicts that may strengthen internal rules on disclosure to clients of bankers’ financial holdings.
Why is Goldman considering such rules now?
As the article noted: “The concerns emerged after a Delaware judge said in a Feb. 29 opinion that the $21.1 billion proposed sale of El Paso Corp. to natural-gas pipeline operator Kinder Morgan Inc., announced last year, was riddled with potential conflicts of interest.”
“Among the conflicts the judge said, was the $340,000 stake in Kinder Morgan of a main adviser to El Paso, Stephen Daniel, Goldman Sachs’ top energy banker.”
Oh, so that’s what Mr. Smith meant when he wrote: “Weed out morally bankrupt people, no matter how much money they make for the firm.”
Want more? There were the accusations by the Securities and Exchange Commission in 2010 that the firm intentionally tricked certain institutional clients by selling them a mortgage-backed security product that a hedge fund client of Goldman designed, in a bet that the housing market would crash.
Goldman’s defenders have a laughable response to all this.
They routinely say that reporters or the editors at the New York Times simply don’t understand the Wild West of Capitalism and that concerns raised in the El Paso opinion are way, way overblown.
Investment banks, the Goldman defenders say, are full of tough, alpha males who eat their opponents for lunch and then swill down a couple of martinis for good measure. This is just the way business gets done, and if you’re the New York Times or a federal judge or the SEC, well, too bad. You don’t understand business, not get out of the way.
Investment banks, the Goldman defenders say, have always done business like this. And the clients of investment banks know that banks like Goldman have taken a trading position in deals that goes against clients’ best interest but will pay off for the bank.
And clients love it, according to the Goldman defenders.
More Wall Street nonsense.
We will close with an observation from ’s column in Saturday’s Times about why Mr. Smith’s column struck a chord last week with the American public.
“The reason is that the kind of amoral, eat-what-you-kill capitalism that Goldman represents is one that most Americans instinctively find repugnant,” Mr. Nocera wrote. “It confirms the suspicions many people have that Wall Street has become a place where sleazy practices are the norm, and where generating profits in ways that are detrimental to society is the ticket to a successful career and a multimillion-dollar bonus.”
Goldman’s defenders should think about that the next time it’s revealed that a fundamental part of Goldman’s business strategy is to screw its clients.
Disclosure: Zamansky & Associates are securities attorneys representing investors in arbitration and federal and state litigation against financial institutions, including UBS.
Read article by Securities Attorney Jake Zamansky on Forbes.com