“How Much Money Did We Make Off The Client?”

To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money. Goldman Sachs is one of the world’s largest and most important investment banks and it is too integral to global finance to continue to act this way. The firm has veered so far from the place I joined right out of college that I can no longer in good conscience say that I identify with what it stands for.

It might sound surprising to a skeptical public, but culture was always a vital part of Goldman Sachs’s success. It revolved around teamwork, integrity, a spirit of humility, and always doing right by our clients. The culture was the secret sauce that made this place great and allowed us to earn our clients’ trust for 143 years. It wasn’t just about making money; this alone will not sustain a firm for so long. It had something to do with pride and belief in the organization. I am sad to say that I look around today and see virtually no trace of the culture that made me love working for this firm for many years. I no longer have the pride, or the belief.

These are the parting words of Greg Smith, who announced in the NY Times this morning that he was quitting Goldman Sachs because of the reasons stated above. Mr. Smith is 33 and was at the firm for 12 years, ending up as executive director and head of Goldman’s equity derivatives business in Europe, the Middle East and Africa.

This has been rather huge on Wall Street and GS is doing what they can to counter the damage. Mr. Smith said the typical attitude around the hallways was, “How much money did we make off the client?”

Most people will enjoy seeing Lloyd Blankfein, its CEO, twist in the wind. I don’t. I think there is much to what Mr. Smith says about GS and about Wall Street. It’s no shock they want to make tanker loads of money. But the popular meme about Wall Street by Wall Streeters has been that they were professionals, like lawyers and accountants who owed a duty of trust to their clients. Dissuade yourself of that fantasy. It’s never been that way, despite Mr. Smith’s lament. 

I’m not saying they are crooks and neither does Mr. Smith. I worked for a brokerage firm 40 years ago and the elderly and courtly president of the firm, one who had survived the Crash of ’29, gave me this simple lesson in the life of stock brokerage. He said, “Harding, think of us like a grocery store with stock on the shelves. Your job is to get that stock off our shelves and sell it to someone.” I did and was pretty good at it. But the pressure was constant to “get your gross up”. I quit.


8 comments to “How Much Money Did We Make Off The Client?”

  • ohioralph

    Jeff, I also worked for a brokerage company now 42 years ago. I was also pretty good but when you wrote “get your gross up”, it brought back all the memories of what I hated. Many stories but I will refrain for now but i am sure they would in common with you.

  • Keith Weiner

    Jeff: good point and well said.

    The government, in its innumerable intrusions into what used to be markets, has broken the iron law of profits: to make money, one must add value to the economy in general and to one’s customers specifically. Today, Wall Street makes money by various wealth-destroying activities and misallocating capital.

  • This is a very sad story. When I was a Kidder Peabody, I used to compete against Goldman and also do business with the firm. We thought Kidder have good Karma representing the customer, but Goldman Sachs always seemed to have an edge with credibility. Of course that was when the firms were private and the partners money was at risk. Derivatives changed the game so that the house always has an edge over the customer. Goldman is now just another wire house with lousy research.

    • Econophile

      Chriss, good observation. There are many fine individuals on the Street that look out for clients’ interests. It’s just that institutionally these firms are biased against that ethic. It’s a sad commentary you make on GS being just another wire house.

  • Bryan

    Commission is the Mission.

    This is all nothing new… the original Motley Fools Guide to Investing described pretty accurately 10 years ago how the cash reports and investment banking world works.

  • Linus Huber

    It is hard for me to understand why bankers still border about their creditability.

    The average guy does not believe one word they say and thinks that the banks are simply a means for siphoning off funds in form of bonuses (this is my take anyway).

  • Jim

    I suppose this speaks of a general decay in the moral fiber. Clarence Manion said, “If you’re going to take the first bribe, you may as well take the rest.”

  • Larry S

    Always interesting to hear the inside Wall St. commentaries.

    Speaking of credibility and research, a couple of years ago, I decided to dabble with hedge funds. After putting some money to work, a hedge fund broker (salesman) convinced me to move my funds from my slightly profitable investment to his better “risk adjusted funds”. After watching the drip, drip of small losses accumulate, I pulled the plug after two months. I am glad that I allowed this expert only a little rope as I would’ve become another wanderer in the Corzine $1.6T wonderland.

    When I was a kid, caveat emptor meant something, but in a fiat world where values and standards are constantly distorted, the definition of caveat emptor becomes more multi-faceted.