The Goldman Op-Ed furor: Who are the 'muppets'?

Greg Smith's parting shot at Goldman Sachs in a scathing New York Times Op- Ed piece yesterday has touched off a firestorm.
APR 27, 2012
Greg Smith's parting shot at Goldman Sachs in a scathing New York Times Op-Ed piece yesterday has touched off a firestorm. According to Jon Friedman, the media columnist at MarketWatch.com, “Why I Am Leaving Goldman Sachs” has received more than 3 million page views on the Times' website, and the total is no doubt growing. There also has been an explosion of print stories, web posts, commentary and general chatter about the unflattering portrait drawn by Mr. Smith of Goldman's culture and top management. In a nutshell, the former head of the firm's U.S. equity derivatives business in Europe, the Middle East and Africa accuses the firm's leaders of having abandoned its vaunted client-first culture emphasizing teamwork. Instead, he charges that the firm has become a cesspool of self-interest where customers are sneered at as “muppets.” But are Mr. Smith's comments really so shocking? That the 33-year-old midlevel executive chose such a public forum to confirm critics' “cathedral of greed” view of Goldman is certainly surprising and uncharacteristic of someone who seemingly would want to continue working in corporate America. But if anyone was surprised by the substance of what Mr. Smith said, I offer just two words: “Grow up.” The more refined environment that Mr. Smith longs for is gone. Just as TV's “Playhouse 90” has given way to “Jersey Shore,” the gentlemanly, “long-term greedy” world of Gus Levy and other venerated leaders of Goldman Sachs' partnership days is but a memory. But so are corporate CEOs whose take-home pay was only a dozen times what the janitor made. We live in a coarser age, where money seems to be the measure of everything. (Not that people didn't care deeply about money in the 1950s; they just were more quiet about it.) Mr. Smith apparently objects to the pressure to sell. But that's nothing new either. Wall Street long has been called the sell side for a reason: It makes money by selling people stuff. That “stuff” used to be plain old stocks and bonds, which the Street peddled to individuals and institutions, and investment banking services, which it peddled to corporations and municipalities. Investment banking, once you strip away the macho fixation on “the deal,” merely is the first step in a manufacturing process that creates the “stuff” that the firms then peddle. Since there's hardly any money to be made in plain old stocks and bonds, Wall Street now peddles more complex, arcane and esoteric stuff, like derivatives and derivatives of derivatives. But selling is selling, even if the financial press loses sight of that in its adoring coverage of the supposed brilliance of Wall Street's salesmen. By the way, if I sound like I don't appreciate salesmen and selling, you're wrong. Having come from a long line of salesmen, and further back, actual peddlers, I think selling is an honorable way to make a living — as long as the buyer knows you're a salesman. When you buy a car, for example, there's no way anyone on earth could assume the guy asking if you want leather or cloth interiors is your personal automotive consultant. But mortgage-backed securities are not Mazdas or BMWs. While institutions and corporate clients know full well that Wall Street is the sell side and act accordingly, individual investors rarely know the difference between a securities sales representative and an adviser. Mr. Smith may object to his former colleagues calling customers “muppets,” but any corporate or institutional buyer who bought Goldman's goods without first kicking the tires and doing their homework had to be pretty dim. But individual investors — who, in the case of Goldman, constitute a minuscule part of the client base — are the ones most likely to be sold a bill of goods by Wall Street, largely because they can't tell whether they are being sold or advised. And Wall Street, as evidenced by its continuing efforts to throw sand in the machinery leading to a fiduciary standard for all who provide investment advice, wants to keep it that way. Let's just hope that if “The Muppets Enter Retirement” is ever made into a movie, it's about Kermit and Ms. Piggy, not Mr. and Mrs. Wall Street Investor.

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