Goldman Sachs, arguably the most storied investment bank on Wall Street, suffered a black eye Wednesday -- delivered by one of its own.
Greg Smith, an executive director at the bank, resigned with a blistering editorial that accused the bank of losing its "moral fiber," putting profits ahead of customers' interests and dismissing customers as "muppets." The stinging essay, "Why I Am Leaving Goldman Sachs," appeared in The New York Times.
Goldman issued a three-sentence statement disagreeing with Smith. "In our view," the bank said, "we will only be successful if our clients are successful. This fundamental truth lies at the heart of how we conduct ourselves."
Smith worked for Goldman in London, but the bank did not provide further details. Smith, identified by the Times as head of the company's U.S. equity derivatives business in Europe, the Middle East and Africa, wrote that he attended sales meetings in which helping clients make money 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 joined. He said the bank needs to "weed out the morally bankrupt people" and suggested that the erosion of Goldman's culture threatened its future.
Smith wrote that 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."
On Wall Street, the piece 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.
Goldman's success has made it one of the most powerful engines on Wall Street. Goldman survived the financial crisis in 2008, which crushed two of its rivals, Bear Stearns and Lehman Bros., and hobbled Merrill Lynch.
Goldman is also known for churning out leaders who run the world. Henry Paulson, who was Treasury secretary when the government devised its $700 billion rescue of 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.
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