By now, the NYT op-ed resignation letter of Greg Smith, a former Goldman Sachs employee, has made the rounds on Twitter and the Blogosphere. In an act of professional suicide, Smith has scathingly indicted Goldman for its rancid ethics, declaring that “the environment now is as toxic and destructive as I have ever seen it,” and explaining, “To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money.”
Naturally, the blowback has been fierce. Goldman Sachs hastily issued a response implying that Smith was just a “disgruntled” employee, stating, “Needless to say, 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.” That’s actually sort of funny. If Smith’s op-ed doesn’t reflect the firm’s “values” and “culture”, what does? Maybe SEC charges that Goldman Sachs unloaded $40 billion of “AAA-rated” sub-prime backed securities to its customers while secretly deeming those securities to be junk and betting on them to tank?
But we digress.
Goldman’s fellow Wall Street denizens and the financial press have savaged Smith, condescendingly explaining to him, “Yes, you starry-eyed naif, Goldman Sachs is out to make money and so are its customers, which is nothing new, and if you don’t like good old American capitalism, why don’t you just get over yourself and join the Peace Corps?”
Not surprisingly, they’re all dancing around the point of Smith’s letter, a point he makes thusly:
I don’t know of any illegal behavior, but will people push the envelope and pitch lucrative and complicated products to clients even if they are not the simplest investments or the ones most directly aligned with the client’s goals? Absolutely. Every day, in fact.
In other words, it’s not about Goldman Sachs making money. It’s about Goldman Sachs making money by selling inscrutably complex high-commission products to customers for whom those products are utterly unsuitable. And believe us…every brokerage firm does it, not just Goldman Sachs.
Hugh Berkson is a Securities Attorney with McCarthy, Lebit, Crystal & Liffman, Co. LPA. Hugh is rated AV® Preeminent™ by Martindale-Hubbell®.
He obtained a business degree in Finance from the University of Texas at Austin in 1989, and is a 1994 graduate of Case Western Reserve University School of Law, where he was a member of the Order of the Barristers and received both the American Jurisprudence Award, (National Mock Trial) in 1993 and the Jonathan M. Ault Mock Trial Prize for 1993-1994.
