The Fog of Envy

What to Believe About Goldman Sachs

A few days ago, a mid-level executive quit his job at Goldman Sachs and sent off an expose to The New York Times that ricocheted around the internet.  He accused the firm of contemptuously exploiting its customers, “muppets,” he said the traders called them.  “These days, the most common question I get from junior analysts about derivatives is, ‘How much money did we make off the client?’”

Greg Smith’s description of Goldman’s “toxic and destructive” culture certainly has the ring of truth, and comes as no great surprise to those who know anything about the financial industry.  Conflicts of interest are among the very least of Wall Street’s sins.  Contempt and arrogance are endemic.

But the issue is so charged and has so many partisans that it is hard to see the landscape clearly.  The firm has awed so many with its intellectual fire-power and financial muscle that many have seen it as in a class by itself.  Other firms suffer from “Goldman envy,” palpable in the glee and schadenfreude that has greeted Smith’s expose.  On the other hand, many have rushed to the firm’s defense, like New York’s Mayor Bloomberg.

There is also the virulent competition ever-present in the industry, and the eagerness of other firms to capitalize on any damage to Goldman’s reputation and the eroding trust of its clients.  Moreover, there is dread about how this will further undermine the standing of the financial industry, especially at a time when it is struggling to fend off increased oversight and regulation.

Powerful and swirling emotions cloud the issues.  Smith’s account has a strong suggestion of disillusionment, and a few false notes.  His initial naivete seems exaggerated: “When I was a first-year analyst I didn’t know where the bathroom was, or how to tie my shoelaces.”  And his account of the culture he came to know at the beginning seems too idealized to be credible:  “teamwork, integrity, a spirit of humility, and always doing right by our clients.”

And then there are his attempts to boast while trying to sound modest:  “Over the course of my career I have had the privilege of advising two of the largest hedge funds on the planet, five of the largest asset managers in the United States, and three of the most prominent sovereign wealth funds in the Middle East and Asia. My clients have a total asset base of more than a trillion dollars.” (See, “Why I am Leaving Goldman Sachs.”)

I don’t doubt the facts he reports, but his account is vulnerable to the scorn with which other financial executives have greeted his “innocence.”  It is also without a suggestion of illegality, making almost certain there will be no investigation.

My guess is that, titillating as the “expose” may be, and accurate in its facts, it will fade quickly from our minds.  The moral, if there is one, is too familiar:  caveat emptor (let the buyer beware).  And Goldman Sachs will go on.