Posted by on October 22, 2012

As a former employee of Goldman Sachs, I sometimes receive e-mails addressed to the “Goldman Sachs Alumni Network”.  The latest one is entitled “Media Interest in Greg Smith’s Book” and it contains  the “briefing toolkit” that has  been sent to all Goldman Sachs employees.  I consider myself honored to receive a copy.

To refresh everyone’s memory, Greg Smith was the Vice President who loudly resigned, denouncing Goldman’s culture and methods of doing business, in a Letter to the Editor of the New York Times; he is also the person who has done the most to popularize the word “muppets” since Jim Henson.   Since then, the GS spin machine has attempted to portray Smith as a failed and disgruntled employee who acted out of spite.  As proof of this, the “toolkit” offers the following evidence:

…to better understand Greg’s criticisms, we examined his performance reviews for 2009-2011 to determine if we had failed to appropriately address issues which he may have raised about the conduct of his colleagues, and, more generally, about our culture. Our review showed that Greg did not provide any negative feedback on any of his reviewees in any of those years.”

This quote proves that Goldman, for all of its travails, has certainly not lost its whimsical sense of humor.

Now, things may have changed since I walked the halls of 85 Broad Street and 133 Fleet Street , but I suspect that the performance review process is still largely intact.  Performance reviews happen once a year, just before the declaration of bonuses.  The main objective of employees in their reviews is to maximize the amount they will shortly be granted, as well as to position themselves for future career enhancement and compensation.

Given this, I am shocked, absolutely shocked to hear that Greg Smith did not use these opportunities to raise fundamental questions about Goldman’s culture and methods of business.  I am sure that any such questioning would have been greeted with humility and an earnest desire to change by the leaders responsible for the creation of that culture, and that there would have been no risk of monetary reprisal.  I therefore find the absence of any such questioning to be compelling — no, irrefutable — evidence that Smith’s criticisms are unfounded and vengeful.

If this the best defense that Goldman has to offer, then I judge the firm guilty as charged.  But I disagree with Smith in one very fundamental way.  This is not a Goldman problem; this is the foundation of the industry.  Much of modern investment banking, and certainly the most profitable bits,  is dedicated to the transfer of wealth from clients to the bank (and its employees).  Goldman is simply much better at this than the others.  The other Goldman difference is that, unlike some of their competitors, the people there are generally smart enough to know that they are selling snake oil, a cynicism that makes the firm’s sanctimony all the more nauseating.

The bloated investment banking industry long ago ceased to be able to support itself only from productive activities.  The IPO of “crap” dot-com companies…the CDOs offering more and more concentrated exposures to garbage loans…the lousy M&A advice to earn a fat fee…the traps for the unwary embedded in many derivatives…etc, etc, etc…the industry has proven time and time again that it does not have its clients’ interests at heart.  The only real mystery here is why people continue to play this lopsided game.  Although this is a topic for another post, at least part of the answer is that many of the industry’s patsies are playing with that favorite currency, OPM (“other people’s money”).  Or, as I used to think while wandering the halls of 85 Broad, when clients decide to gamble with OPM, someone (Wall Street) has to manufacture the dice.

Funnily, though, I didn’t put this thought in my performance review.

Roger Barris, Switzerland

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