(This is not a scientific poll)
Yesterday, former Goldman Sachs employee Greg Smith published a New York Times op-ed entitled Why I'm Leaving Goldman Sachs. He argued that, essentially, the company prided itself in ripping off its own clients. Here's a quote from Smith:
The firm changed the way it thought about leadership. Leadership used to be about ideas, setting an example and doing the right thing. Today, if you make enough money for the firm (and are not currently an ax murderer) you will be promoted into a position of influence.
What are three quick ways to become a leader? a) Execute on the firm’s “axes,” which is Goldman-speak for persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit. b) “Hunt Elephants.” In English: get your clients — some of whom are sophisticated, and some of whom aren’t — to trade whatever will bring the biggest profit to Goldman. Call me old-fashioned, but I don’t like selling my clients a product that is wrong for them. c) Find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym.
On CNN.com, former Goldman Sachs employee Matt Levine argues that Smith's broadside misfired:
One question on everyone's mind is: Why now? March is a customary time to quit, since Smith's 2011 bonus check will have cleared, but why did it take him 12 years to figure out that Goldman's culture was rotten? After all, Matt Taibbi and the SEChave been saying similar things for years.
One possible answer is that Smith is part of a broader exodus. The past year has seen many departures by Goldman Sachs partners, including Smith's boss' boss' boss' bosses, David Heller and Ed Eisler. Those career traders are unlikely to have left because they felt sad for clients.
Instead, the widespread speculation is that they left because the money isn't good enough. Average pay at Goldman was down 15%in 2011, albeit to a still-healthy $367,000 per employee. Stricter regulations on proprietary trading and higher capital requirements will probably reduce profitability - and pay - for years to come.
Investment banking and trading are difficult businesses; bankers work long hours, travel frequently and are under intense pressure. Smith is hardly the first banker to worry about whether his work makes the world a better place. Working at an investment bank involves trading off those negatives - stress, hours and a nagging sense of unfulfilled purpose - against the positive aspects of the job, which can be loosely summarized as "huge paychecks." When that balance changes, a good trader re-evaluates his position.
Expect to see more departures from Goldman and its peer firms in the coming months. But don't take too seriously the idea that they're leaving because they're sick of making money off of clients. More likely, they're leaving because they're sick of not making as much money off of clients as they used to.
Also on CNN.com, Harvard Professor Lawrence Lessig argues that the real problem with Goldman began when it went public:
For most of its history, Goldman Sachs was a partnership. That meant the principals were jointly and individually liable for the losses of the firm. And for most of its history, Goldman Sachs operated in a relatively boring financial environment. Low risk and low reward. No doubt there was money to be made. But regulations designed to keep the system safe meant that the real money in that economy got earned by people who made real stuff.
In the 1990s, however, both conditions changed. Goldman Sachs went public in 1999, though the partners kept 48% of the stock themselves. And the regulations that had kept finance boring had all but disappeared by the time Goldman's IPO was issued.These changes increased the market opportunity — radically. They also increased the market pressure on financial firms — radically, as well. Bold (and sometimes reckless) experiments ("financial innovations") created incredible opportunities for firms like Goldman to profit.
Persistent and relentless pressure from a publicly traded stock pushed employees to experiment more boldly still. Ticking across every employee's computer was the firm's stock price, a constant market signal of how they were doing — up, good; down, bad. Those signals in turn were driven by the behavior of competing firms.