Greg Smith leaving Goldman-Sachs

[MediumTex]

I wonder if he read "Liar's Poker" before going to work for a big Wall Street firm.

None of what he is describing is new or unique to Goldman Sachs.  Screwing their clients is the business model of most large financial institutions.

[craigr]

Agree with Tex. This is always how brokerages have been. It didn't just change the last decade.

[MediumTex]

Goldman Sachs was engaged in such client tomfoolery way back in the 1920s, and it was partly the result of such shenanigans that the modern securities laws were enacted, over the objections of Goldman Sachs, which argued that disclosure of a fund's holdings to shareholders was not necessary.

Here is a good article documenting one such scheme from the late 1920s that worked out especially poorly for shareholders (ironically the article was written in 2007 before the latest round of client skinning came to light):

The Goldman Sachs Trading Company deserves special mention. Goldman Sachs was the largest promoter of closed end funds during the 1928-1929 time period. Goldman Sachs partner Sydney Weinberg, when asked why his company had formed so many closed end funds, replied- “Well, the people want them”?.

In December 1928, Goldman Sachs formed the Goldman Sachs Trading Company but retained enough common stock to keep control. In the summer of 1929, it launched the Shenandoah Corporation. Goldman Sachs held most of the common stock in Shenandoah and sold common/preferred stock to the public. This established a fund of funds with leverage.

The Shenandoah Corporation then set up the Blue Ridge Corporation, holding most of the common stock itself and selling common/preferred stock to the public. This established a fund of fund of funds with leverage at two levels. Any gain in Blue Ridge would be passed on to Shenandoah with leverage, and these gains would be further magnified as they flowed back to Goldman Sachs Trading.

The Blue Ridge Corp sold at a 46% premium in August 1929, but fell to a discount of 24.5% by 1930. The Shenandoah Corp sold at a 103% premium when it first came out as a new issue in 1929. Goldman Sachs discovered that leverage is a two way street and the Goldman Sachs Trading Corporation stock collapsed from its high point of $280 a share in 1929 to $1.25 in 1932.

If anyone is interested, you can purchase a beautiful engraved certificate of the Blue Ridge Corporation from scripophily.com. It was issued in 1930 and costs $69.95. I wonder if any Goldman Sachs employees have this certificate hanging on their office walls.

Something tells me that Goldman Sachs didn't provide its clients with full disclosure regarding all of the risks associated with the investments described above or all of the ways in which Goldman Sachs was profiting from them.

[stone]

Another bit from the link:

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. I truly believe that this decline in the firm’s moral fiber represents the single most serious threat to its long-run survival.
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. I have always taken a lot of pride in advising my clients to do what I believe is right for them, even if it means less money for the firm. This view is becoming increasingly unpopular at Goldman Sachs. Another sign that it was time to leave.

I thought that asset management for clients was now only a very small part of what Goldman Sachs did. The bulk of what they do is prop-trading. As such I presumed that everyone there had the view of the world that has so repulsed the author. What I find bizarre is how someone so idealistic would devote their career to trading. Even if you are doing it for the service of a client, are you not transferring wealth from someone else to your client. So you might not view your client as the "muppet" having its "eyeballs ripped out" but you will still see the counter party like that

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. I have always taken a lot of pride in advising my clients to do what I believe is right for them, even if it means less money for the firm. This view is becoming increasingly unpopular at Goldman Sachs. Another sign that it was time to leave.

What is so Noble about helping people with a trillion dollars gather even more money from other people

[MediumTex]

In reading and thinking about Greg Smith's experience, I am amazed that such an apparently intelligent and charismatic person can be so naive about what kind of operation he was joining.

I'm sure he is loving the attention and the self-righteousness that goes along with playing the good guy, but if being dishonest bothers him it would probably have been a lot better if he had simply chosen another career path in the first place.

[MachineGhost]

I'm sure he is loving the attention and the self-righteousness that goes along with playing the good guy, but if being dishonest bothers him it would probably have been a lot better if he had simply chosen another career path in the first place.

You might want to rewatch the first Wall Street again...  it's easy to forget what it was like in our 20's.

[MediumTex]

I'm sure he is loving the attention and the self-righteousness that goes along with playing the good guy, but if being dishonest bothers him it would probably have been a lot better if he had simply chosen another career path in the first place.

You might want to rewatch the first Wall Street again...  it's easy to forget what it was like in our 20's.

What about it in particular?

Wall Street ends the way the 2008 crisis should have ended--with the Gordon Gekko thugs broke and on their way to prison and the Bud Foxes of the world on their way to new careers in other industries.

[smurff]

Perhaps MachineGhost means that people in their 20s don't have enough experience to tell a sociopath from a footpath.  Even if he were lucky enough at that age to realize what he was getting into, he might have also believed that 1, it would not affect him and he could remain aloof from it while still being accepted by colleagues, or 2, all workplaces are like this, so might as well go with the one that pays the most.

[dualstow]

That Greg Smith isn't you, is it, Greg-1NV35T0R? ;-)

[Greg]

Sadly or unsadly, that Greg is not me. I'm 25 and like robots. Finance is also quite cool but I couldn't imagine doing it as a profession.