Goldman exec's parting shot renews talk of greed, excess
Greg Smith's New York Times column landed "like a bomb" inside Goldman Sachs, said one executive who spoke on the condition of anonymity.
The New York Times
Greg Smith's column:
NEW YORK —
Until Wednesday morning, Greg Smith was a largely anonymous 33-year-old midlevel executive at Goldman Sachs in London.
Now everyone at the firm — and on Wall Street — knows his name.
Smith resigned in an email to his bosses at 6:40 a.m. London time, laying out concerns that Goldman's culture had gone haywire, putting its interests ahead of clients.
What the email didn't say was that an opinion piece written by Smith would appear in The New York Times about 15 minutes later.
"It makes me ill how callously people still talk about ripping off clients," he wrote.
Smith, who oversaw an equity-derivatives business, also wrote that some Goldman leaders referred to clients as "Muppets" and that workers were rewarded for a practice dubbed "hunting elephants," in which Smith says the goal was to persuade clients to trade any security that would net Goldman the largest profit.
The column landed "like a bomb" inside Goldman, said one executive who spoke on the condition of anonymity.
The article also reignited a debate on the Internet and on cable television over whether Wall Street was corrupted by greed and excess. By noon, television crews crowded outside Goldman headquarters in Manhattan. More than three years after the financial crisis, the perception that little has changed on Wall Street — and that no one has been held accountable for the risk-taking that led to the crisis — looms large in the public consciousness. While Smith's article was an unusual cry from the heart of a Wall Street insider, many questioned whether it would prompt change.
Goldman officials disagreed with Smith's assertions, saying they did not reflect how the firm treated clients. Top executives previously have said that, despite rough times of late, clients have stuck with the firm.
Friends of Smith say they were not surprised by his public farewell.
"He has a really high moral fiber and really cared about the culture of the firm," said Daniel Lipkin, a Miami lawyer who went to Stanford with Smith.
Lipkin learned about the article Wednesday from Smith.
"He sounded confident and felt good about his decision to go public," Lipkin said.
In recent years, Goldman Sachs has had to gird itself against other harsh accusations of corporate greed. In a 2010 Rolling Stone article, journalist Matt Taibbi famously described the investment bank as "a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money."
Sen. Carl Levin, D-Mich., described Goldman Sachs as a "financial snake pit" last year after he led a panel that examined the origins of the 2008 crisis.
Although not highly paid by Wall Street standards — earning about $500,000 last year, according to people briefed on the matter — Smith was part of what some Goldman staff members and alumni refer to as a sizable, yet silent contingent of employees increasingly frustrated with what they see as a shift to a profit-above-all mentality.
Evidence of this shift, they say, can be seen in accusations brought by the Securities and Exchange Commission (SEC) in 2010 that the firm intentionally duped certain clients by selling a mortgage-security product that was designed by another Goldman client betting that the housing market would crash.
More recently, a Delaware judge criticized Goldman over the multiple, and potentially conflicting, roles it played in brokering an energy deal. (Goldman has denied wrongdoing in both cases.)
The reaction on Wall Street to Smith's resignation ranged from cheers to criticism of him for resigning in such a public way. Some within Goldman sought to portray Smith as a lone wolf who had failed to become a managing director. (Goldman has about 12,000 executive directors, the overseas equivalent of a vice president, but only about 3,000 managing directors among 33,300 employees.)
Still, the ripple effects were felt beyond Wall Street. Goldman shares fell 3.4 percent, and media coverage was worldwide.
"Goldman Boss: We Call Our Clients Muppets," screamed the front page of The London Evening Standard.
Others were less surprised. One Goldman client called the letter "naive," saying the firm had been trading against its clients for years.
"Come on, that is what they do and they are good traders," the client said, "so I do business with them."
Another Wall Street executive said it was "unforgivable" for Smith to make his opinions so public and he should have taken them privately to senior managers. While Smith, a fairly junior employee, may have tried to raise his concerns in meetings, he did not have much of a voice.
Goldman's top two executives, Lloyd Blankfein and Gary Cohn, said in a letter to employees: "We were disappointed to read the assertions made by this individual that do not reflect our values, our culture and how the vast majority of people at Goldman Sachs think about the firm and the work it does on behalf of our clients. Everyone is entitled to his or her opinion. But it is unfortunate that an individual opinion about Goldman Sachs is amplified in a newspaper and speaks louder than the regular, detailed and intensive feedback you have provided the firm and independent, public surveys of workplace environments."
What motivated Smith, a native of Johannesburg, South Africa, to come forward now?
People close to him said he had high hopes for an internal report that came out after the SEC case, which Goldman settled.
The report reaffirmed the firm's principles and outlined changes aimed largely at bolstering internal controls and disclosure.
But Smith believed it fell on deaf ears among senior managers, friends say.
"I think this was the ultimate act of loyalty," said Lex Bayer, a fellow South African who attended high school and Stanford University with Smith. "He has always been an advocate for the firm, but he wanted Goldman to do things the right way. In his mind, this was the only way that he could change the culture of the firm."
He may not be alone. At staff meetings, Goldman's leadership has been peppered with questions about the firm's public reputation, say people who have attended those meetings.
Meanwhile, Smith likely made a considerable financial sacrifice Wednesday.
Most Wall Street employees sign nondisparagement and nondisclosure agreements before they join a firm. If Smith did, Goldman may take legal action and refuse to release stock options he has accumulated.
Smith also may find it difficult to find work on Wall Street after such a public resignation. A spokesman said Goldman tried to contact Smith on Wednesday. It is not known whether he responded.
People who have spoken to Smith said he was flying back to New York on Wednesday night to see family and friends and that he has no concrete plan for what to do next.
Information from the Los Angeles Times and The Washington Post is included
in this report.