Muppet manifesto: Blistering exit for Goldman exec

The head­quar­ters build­ing of Gold­man Sachs, in New York. On Wednes­day, Greg Smith, an exec­u­tive direc­tor at the bank, resigned with a blis­ter­ing edi­to­r­ial in the New York Times that accused the bank of los­ing its “moral fiber” putting prof­its ahead of cus­tomers’ inter­ests and dis­miss­ing cus­tomers as “mup­pets.” (AP Photo/Richard Drew, File)

CHRISTINA REXRODE

AP Busi­ness Writer

NEW YORK — Gold­man Sachs, arguably the most sto­ried invest­ment bank on Wall Street, has been com­pared to a money-sucking vam­pire squid and called the evil empire of finance. On Wednes­day, it got a black eye from one of its own.

Greg Smith, an exec­u­tive direc­tor at the bank, resigned with a blis­ter­ing pub­lic essay that accused the bank of los­ing its “moral fiber,” putting prof­its ahead of cus­tomers’ inter­ests and dis­miss­ing cus­tomers as “muppets.”

“It makes me ill how cal­lously peo­ple talk about rip­ping their clients off,” he wrote.

The decay of Goldman’s proud cul­ture of team­work, integrity and humil­ity, he wrote, threat­ened the sur­vival of an invest­ment house that weath­ered two world wars and the Great Depression.

The sting­ing essay, “Why I Am Leav­ing Gold­man Sachs,” appeared on the Op-Ed page of The New York Times on Wednes­day morn­ing. It was the talk of Wall Street imme­di­ately and cir­cu­lated online all day.

CNBC ran clips of the ornery bal­cony crit­ics from “The Mup­pet Show.” Other web­sites quickly posted spoofs, includ­ing “Why I am Leav­ing the Empire,” by “Star Wars” vil­lain Darth Vader. Smith became a trend­ing topic on Twitter.

The Times said the essay had received 3 mil­lion page views online by 4 p.m. The second-most-viewed story had 500,000, and that was a busi­ness sec­tion story about the essay.

Gold­man CEO Lloyd Blank­fein and Pres­i­dent Gary Cohn told the bank’s employ­ees in an open let­ter that Smith’s claims did not reflect the cul­ture of the bank. They cited glow­ing inter­nal reviews of the ser­vice Gold­man pro­vides to clients.

“It is unfor­tu­nate that all of you who worked so hard through a dif­fi­cult envi­ron­ment over the last few years now have to respond to this,” they wrote.

Smith worked for Gold­man in Lon­don when he resigned, but the bank did not pro­vide fur­ther details or say how much money Smith made. He pre­vi­ously worked in the New York office.

Smith, iden­ti­fied by The Times as head of the company’s United States equity deriv­a­tives busi­ness in Europe, the Mid­dle East and Africa, wrote that he attended sales meet­ings in which help­ing clients was not part of the discussion.

“If you were an alien from Mars and sat in on one of these meet­ings, you would believe that a client’s suc­cess or progress was not part of the thought process at all,” he wrote.

Smith wrote that Gold­man had devolved from a com­pany he was proud to work for when he started 12 years ago. Gold­man became a pub­lic com­pany in 1999, adding pres­sure for the bank to turn big­ger profits.

On Wall Street, the essay may have been shock­ing in tone, but it was not sur­pris­ing in con­tent. Goldman’s peers, even some of its cus­tomers, take its pur­suit of profit as ordi­nary business.

“I would be very sur­prised if it did any­thing more than anger the peo­ple who are already hos­tile to Gold­man,” said Lawrence Bax­ter, a for­mer exec­u­tive at Wachovia who teaches at Duke University’s law school.

Per­haps most sur­pris­ing was that the essay was writ­ten by an insider in an indus­try known for pro­tect­ing its own — and at a bank that has been known in the past to look down on its peers.

“In my expe­ri­ence, it’s unusual that some­body would talk ill of their firm,” said Maryann Bruce, the for­mer pres­i­dent of Wachovia’s Ever­green Invest­ment Ser­vices. “You don’t usu­ally air your firm’s dirty laundry.”

Bruce left Wachovia in 2007, the same year the bank set­tled fed­eral alle­ga­tions that it had mis­han­dled an Ever­green mutual fund by allow­ing ques­tion­able trad­ing. Reg­u­la­tors also found that Bruce had banned such trad­ing in 2000, but that another exec­u­tive went behind her back to con­tinue the practice.

Smith couldn’t be reached for com­ment. On the Web, he was both praised as a truth-teller and derided as dis­grun­tled, and some peo­ple noted that he had waited until after Goldman’s bonus sea­son to quit.

“I’m not sur­prised there is this kind of effort to dis­miss him,” said Bax­ter. “The sys­tem always mar­gin­al­izes peo­ple who dare to crit­i­cize its fun­da­men­tal working.”

By quit­ting, Smith almost cer­tainly gave up stock options that had not vested.

In his essay, Smith said he came from South Africa to attend Stan­ford, was a Rhodes Scholar national final­ist and won a bronze medal in table ten­nis in the Mac­cabiah Games in Israel, some­times known as the Jew­ish Olympics.

He also said he was one of 10 employ­ees at a bank of more than 30,000 selected to appear in a recruit­ing video.

In the essay, Smith said there are easy paths to becom­ing a leader at Gold­man, includ­ing per­suad­ing clients to invest in prod­ucts that the com­pany wants to get rid of or that will bring the most profit to Goldman.

Another way, he said, is to “find your­self sit­ting in a seat where your job is to trade any illiq­uid, opaque prod­uct with a three-letter acronym.”

John Alli­son, the for­mer CEO of BB&T Corp., now the 11th-largest finan­cial com­pany in the U.S., said he sus­pected that pock­ets of Wall Street sac­ri­ficed their clients to save them­selves when the sys­tem started unrav­el­ing in 2008.

But gen­er­ally, he said, “We never ever want to do any­thing that was bad for our clients. Even if you cre­ate a profit in the short term, it will come back to haunt you in the long term.”

Goldman’s suc­cess has made it one of the most pow­er­ful engines of Wall Street. Gold­man and Mor­gan Stan­ley were the only major invest­ment banks to sur­vive the finan­cial cri­sis intact in 2008. The cri­sis crushed Bear Stearns and Lehman Broth­ers and almost killed Mer­rill Lynch.

But Wall Street’s suc­cess and excess have also made it a light­ning rod for law­suits, reg­u­la­tory probes and pub­lic wrath — and no doubt con­tributed to the white-hot pop­u­lar­ity of Smith’s essay online.

Cracks are also show­ing in Gold­man as it nav­i­gates a weak econ­omy and tighter gov­ern­ment con­trols. In the third quar­ter of last year, it lost money for just the sec­ond time since going pub­lic. Rev­enue has fallen for each of the past seven quarters.

The influ­ence of the bank, some­times called the New York Yan­kees of finance, isn’t lim­ited to the pri­vate sec­tor. Gold­man is known for churn­ing out lead­ers who run the world, earn­ing its alumni praise for pub­lic ser­vice but also rais­ing ques­tions about whether bankers should over­see the indus­tries that made them rich.

Henry Paul­son, who was trea­sury sec­re­tary when the gov­ern­ment devised its $700 bil­lion bailout of the banks in 2008, is a for­mer CEO. So is Jon Corzine, the for­mer New Jer­sey gov­er­nor who was at the helm of the bro­ker­age MF Global when it collapsed.

Matt Taibbi of Rolling Stone, a vocal critic of Gold­man who wrote the “vam­pire squid” line, said in a blog post that Smith’s edi­to­r­ial might do what finan­cial reg­u­la­tion and the Occupy Wall Street protest move­ment could not.

“Real change was always going to have to come from within Wall Street itself,” he wrote, and the best way is for investors to see that “the Gold­mans of the world aren’t just arro­gant sleaze­bags, they’re also not ter­ri­bly good at man­ag­ing your money.”

Posted by AP News on Mar 14 2012. You can follow any responses to this entry through the RSS Feed. Comments can be made below.