Greg Smith Goes Rogue on Goldman Sachs

Has anyone not involved in a crime blown out of a major firm with a more devastating sendoff? Smith took no prisoners: "Today, many of these leaders display a Goldman Sachs culture quotient of exactly zero percent." Exactly zero!
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I'm not usually thrilled by quick-reaction posts. I'd rather stay up at night pondering sexy subjects like bank capital or regulatory capture. But today, Greg Smith's valedictory kiss-off and missile strike at Goldman Sachs & Co. on the op-ed page of the New York Times demands comment.

For readers who have been comatose, Smith quit Goldman today decrying its "toxic" culture, its conflict-ridden strategies and its general disdain for clients -- at least in derivatives. Has anyone not involved in a crime blown out of a major firm with a more devastating sendoff? Smith took no prisoners: "Today, many of these leaders display a Goldman Sachs culture quotient of exactly zero percent." Exactly zero!

Smith, an insider, a Goldman veteran, makes Abacus and the Fabulous Fab look minor. Indeed, in exiting, Smith managed to confirm just about every charge this side of Matt Taibbi (who argued, fancifully, that the firm has been engineering bubbles since forever) and illegality. A few thoughts immediately arise. Goldman didn't know of his anger and disgust? Goldman had no clue Smith was about to go rogue on the very day he left? Goldman didn't make an effort to stifle him with the usual say-no-evil-or-we-take-your-family-hostage agreement? Did Smith manage to get all his assets out of the firm before hitting "send"? Maybe he had no assets.

Is there a backstory here that doesn't involve moral revulsion at a corporate culture that, in his view, has curdled?

A prediction: A backstory will appear. It will be ugly. Anonymous sources from within and around Goldman will report that Smith a) was a mere vice president who worked alone, or b) didn't get a real bonus and was bitter at being driven out of Eden, or c) wasn't any good, or d) was always a kiss-ass, a do-gooder and self-promoter (a Rhodes finalist, not a winner, and ping-pong bronze medalist, at the Maccabiah Games, not the Olympics) or e) worse. And golly, Goldman has already anonymously offered up a), with undoubtedly more to come. (Brilliant really: Smith was a nobody.)

However, Goldman launches its defense at a severe disadvantage. Leo Strine's recent decision in the El Paso-Kinder Morgan case throws a powerful light on the very kind of conflicts and opportunities for self-dealing Smith discussed in his op-ed. Strine was scathing about the appearance of self-dealing; Smith makes it worse because he suggests just how much contempt and arrogance Goldman midlevel executives and "leaders" have for clients, forever to be known as "muppets." (Smith helpfully adds to the dictionary of Goldman jargon, including "axes" and "hunting elephants.") Clients have remained loyal to the firm, and they do pay the bills, particularly with proprietary trading getting pared back. At the very least, this is a fine mess for the new public relations team that follows the recently terminated Lucas Van Praag. It also doesn't exactly help Goldman recruiters (a job Smith once held) as the spring hiring season heats up.

But it's bigger than just PR, recruiting or clients. In fact, Smith's broadside appears to be so well-planned, executed and targeted at top leadership, albeit in distancing, neo-Churchillian prose -- "When the history books are written about Goldman Sachs, they may reflect that the current chief executive officer, Lloyd C. Blankfein, and the president, Gary D. Cohn, lost hold of the firm's culture on their watch" -- that it raises the possibility that there is more here than just one pissed-off midlevel executive. Is there a struggle for leadership going on within Goldman, not unlike the partnership factions that developed in the '90s over whether to go public or not?

In some ways, you can discern similar fault lines in Smith's exit column: relationship versus transactional, intermediary versus principal, banker versus trader, integrity versus self-dealing. The bankers, of course, lost that war in the late '90s, and Goldman morphed into a gargantuan trading machine and a firm that seemed to have a genius for appearing on every side of a transaction. At the very least, Smith is pinning the blame on Blankfein and heir apparent Cohn (who have absorbed any number of other blows) and, significantly, calling on the board to step in, which may well mean that it should make a change at the top: "I hope this can be a wake-up call to the board of directors."

All this, of course, is the rankest of speculation, which will join all the other bloggy analysis on this subject. (The New York Times has already decided that Goldman went bad because of the changing "incentive" structure over the last 25 years.) There is talk that Goldman is poised to make serious layoffs, particularly on the trading side. That'll just intensify the toxicity of the shiny glass building over there on West Street and raise more questions.

Robert Teitelman is editor in chief of The Deal magazine.

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