Wall Street arrogance, greed still exist, despite reform law
Across America, people quit their jobs every day. Most quit quietly; some quit with some flare or offer some comments in an exit interview.
Few people quit their job with an op-ed column in the New York Times, blaming their employer for encouraging a toxic culture that places profits above clients’ best interests.
Greg Smith’s column, “Why I Am Leaving Goldman Sachs,” which appeared in Wednesday’s Times, explaining why he was leaving his job at the Wall Street investment bank Goldman Sachs after 12 years, is unusual, but it could help refocus public attention on investment banking.
With the financial crisis fading from memory, and the passage of the Dodd-Frank financial-reform law by Congress, many Americans assume that the Wall Street excesses that contributed to the financial crisis are a thing of the past. But Smith’s column is a reminder that not much has really changed at some Wall Street banks.
Smith wrote that Goldman meetings he attended were never about how best to serve clients. Instead, he said, the meetings were “purely about how we can make the most possible money off them.”
Smith critics remark that a focus on profits is essential in any business, whether on Wall Street or Main Street. But, Smith’s column is a reminder of the damage caused by the profits-at-any-price culture and casino-style risk-taking that dominated Wall Street in recent years.
Paul Volcker, former Federal Reserve chairman, said that the Goldman culture changed dramatically in 1999 when it switched from being a partnership to a public corporation. At that point, Volcker said, the mentality changed and the once highly respected bank became a high-risk trading operation that harmed both its clients and the national economy.
As a partnership, Goldman’s top executives had their own fortunes on the line and that served to check excessive risktaking. As a public corporation, that risk aversion was removed, as top partners no longer had their own wealth on the line — they were, in many ways, playing with other people’s money.
The emphasis on trading promoted short-term profits over the rewards of long-term relationships with clients.
Volcker noted that the years leading up to the financial crisis were great years for Wall Street, but not so great for Main Street. Commenting on Smith’s column after attending a Wednesday meeting in Washington, D.C., Volcker said of the pre-crisis years, “These were brilliant years for Wall Street from one perspective. Were they brilliant years for the economy? Well, there’s no evidence of that.”
That’s the view shared by most Americans as they read news reports about multimilllion-dollar bonuses on Wall Street while Main Street struggled to survive.
The financial sector’s extraordinary profits grew the sector to represent a larger percentage of national profits than it historically had. This produced an imbalanced economy, according to Volcker, who said he hoped the financial-reform process would change incentives for bankers in ways that will lead to change in behavior and culture.
Smith’s column described an arrogant culture on Wall Street that led to some Goldman bankers referring to their clients as “muppets.” That same arrogance is no doubt at work as Wall Street’s lobbyists work behind the scenes to weaken the Dodd-Frank financial-reform law.
Any national debate that Smith’s column stimulates is a good thing if it focuses more scrutiny on Wall Street practices and applies political pressure on Washington, D.C., where Wall Street’s influence is still too great.