Tim Cahill: Mr. Smith Goes to Wall Street

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Tuesday, March 20, 2012

Tim Cahill, GoLocalWorcester MINDSETTER™

The world now has a new hero, or villain, depending on what side of the street you live on. His name is Greg Smith. In case you missed it last week because you were too busy reading nasty reviews of Lindsey Lohan's Saturday Night Live performance, he very publicly resigned from his job as an executive at Goldman Sachs. In his resignation letter, which was printed in the New York Times, he described a company with no moral or ethical compass. His language was blunt and painted a distasteful picture of the culture inside one of America's most famous companies.

It is a difficult thing to do to a firm that has already been described as, "a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money". The difference here is that the criticism is from within. It has come from a man who has worked for the company for over a decade and was one of the faces of their college recruitment campaign.

Although Mr. Smith never used the words "squid" or "blood funnel" in his resignation letter, what he said will do more long-term damage to the the Goldman brand than any of the earlier depictions. His criticism of the firm rests on his belief that the only thing that matters is how much money can be extracted from their clients. He goes on to detail the attitudes expressed by Managing Directors about clients and the derogatory language used to describe them, such as " muppets" and "ripping eyeballs out."

Why should any of this matter to those of us on Main Street? After all, is Goldman Sachs any different from any other of those Wall Street investment banks? Is it not their job to make as must profit as they can? Isn't that how capitalism is supposed to work?

It matters to the rest of us because Goldman Sachs was the recipient of a $12 billion government bailout in 2008. It also benefited greatly from the multi-billion dollar taxpayer bailouts of AIG, Freddie and Fannie Mac. All yet to be paid back. Like other Wall Street firms, such as JP Morgan and Morgan Stanley and Citibank, they took tremendous amounts of risk leading up to the crash in 2008, and needed the United States government to pump billions of taxpayer dollars into them just to stay solvent.

It matters because capitalism, as another Mr. Smith so famously pointed out over two hundred years ago, is not a zero-sum game. You don't have to lose for me to win. Taking into account a clients' or a customers' best interest most often leads to a long-term, profitable relationship for both parties. The ethos of the investment banks under the old partnership model was to develop long-term relationships with clients so that as one grows so does the other. That was the place that Greg Smith thought he had gone to work at twelve years ago. But that place no longer exists in the world of Wall Street investment banks.

What about Greg Smith? He is clearly a hero to many, especially those who want to blame the banks for all of our recent economic misery. It took quite a bit of courage to publicly resign and face the wrath of not only Goldman Sachs and it's legion of admirers and sycophants, but all those on Wall Street who profit from the same culture. It says a great deal about a person who is willing to sacrifice his future by telling the truth about what really happens behind the curtains of a seemingly great institution. Maybe if someone such as Greg Smith had coached at Penn State more young boys would have been spared.

 To others he is nothing more than a traitor to a company and an industry where he made millions and lived a life that few can even dream of. He is already being vilified and dismissed by those who interpret what he has done as the ultimate betrayal. His former employers now casually refer to him as "just a middling employee". On Twitter he is being described as "Goldman Sachs executive having a mid-life crisis."

Greg Smith cannot go back, but he can go forward. He must now put his words into actions. Leaving Wall Street behind does not have to mean that his life in finance and investing is over. There are plenty of capitalists that don't follow the "Goldman way." They make there mark on main streets and office parks of cities and towns all across America. If you don't believe me just ask Warren Buffett in Omaha, Nebraska.
 

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