Why Greg Smith left Goldman Sachs
Greg Smith wrote the essay that echoed across Wall Street like a thunderclap.
Smith was a vice president at Goldman Sachs until March. He announced his departure from the investment bank with a blistering essay in The New York Times, accusing Goldman of routinely deceiving clients and relentlessly pursuing profit at the expense of morality.
And he struck a nerve. The essay, on the Op-Ed page of The Times, went viral in the financial world and beyond. Smith was praised for uncloaking corruption that was crying out to be addressed, and also derided as a disgruntled employee.
Goldman Sachs denies Smith's allegations about deceiving clients. The bank says it took his concerns seriously, thoroughly investigated them, and found no evidence to support them.
Smith's book, "Why I Left Goldman Sachs," is being released Monday. It's a window into a company that is notoriously tight-lipped, with stories about a swaggering place where interns arise for 5:00 am meetings and business trips mean slapping down US$150 ($13,500) for one person's dinner.
What Smith hopes to do, he says, is educate people about how Wall Street works, and fuel a public conversation about what went wrong ethically, and how to fix it. The practices that caused the financial crisis, he says, were never really resolved; they're just lying dormant.
Smith, 33, gave his first text interview to The Associated Press. Excerpts have been edited for clarity and length.
Q: Tell us about March 14, the day you left Goldman. You were working in the London office, and you say you had already cleaned out your desk and had been told the essay would go online at 7 a.m. your time.
A: I get up at 6 a.m., and I type a very heartfelt email to nine people in Europe, including the CEO of Goldman Europe, and express in very personal terms why I'm leaving. I talk about exactly what I thought was wrong with the place, this obvious deceit of clients.
Within five minutes I get an email back from someone on the management committee in Europe who says, "I'm really surprised to hear this. I'm in London today. I'd love to meet with you." I get two voice mails from two other people. And then at 6:57 or 6:58, the piece comes online.
Q: What did the bank do?
A: My work BlackBerry stayed on for about three more hours, and I started getting emails from clients who were saying, "We completely agree with you, we don't trust Goldman Sachs, we do business with you guys with a 'buyer beware' attitude." I started getting text messages from Goldman managing directors who were supportive as well. And Goldman reached out to me in formal fashion and said, "We're sorry to hear you resigned; we'd like to air these concerns out."
Q: The bank denies everything you've charged about its ripping off clients.
A: The thing that disappoints me most is that management is denying there's a problem. Why not try to repair the trust instead? Clients are telling you they don't trust you. There's been an SEC fraud suit that was settled for half a billion dollars.
(The Securities and Exchange Commission accused the bank of selling investments to clients when the bank believed the investments were going to fail. Goldman paid US$550 million. It remains the largest SEC penalty paid by a Wall Street firm.)
I'm not some lone voice who thought there was a problem, a change from a client fiduciary model (doing what's best for the client) to use-the-client-to-extract-wealth model. It's a problem that many, many of my colleagues felt and that the public feels as well, borne out in SEC suits and congressional testimonies and clients saying publicly that they don't trust us.
Q: Were you just disgruntled? Maybe you didn't get the bonus or the promotion you wanted?
A: I was actually doing well in my career at Goldman. My bonus, I was told I outperformed my peers by 10 percent. I'm a competitive person, and my goal was to get promoted, and I was told by multiple partners that I was two years away from getting promoted. So it certainly was a goal of mine. And on the compensation side, I was earning a lot of money and had a very good living, so I was grateful for what I was earning. It allowed me to have a good life and to support my family and to do things that I thought were valuable.
Q: But you were at Goldman for almost 12 years, if you start with your summer internship in 2000. Weren't there times when you should have stood up, should have said something about what you thought was morally wrong?
A: I actually made a conscious decision not to sell toxic deals to clients. I didn't think it was the right thing to do, but I also saw the idea that if clients' trust is being burned and they're getting blown up, you're not going to have a career for very long.
Now that does not mean I was not part of a system that was doing things that were unethical. In the book, I try to show some of the conflicts I noticed that gave me pause. For many years, I gave the firm the benefit of the doubt.
It absolutely could have happened quicker. But one can always see things earlier and sooner.
Q: OK, but isn't the purpose of any capitalist company to make money? You certainly made a lot of money at Goldman. (Smith says he made in the "high hundreds of thousands of dollars" in his best years but declines to be more specific. His publisher declines to say what he was paid for the book.)
A: Capitalism should be where everyone competes hard and makes money, in an environment where there is fair play and competitiveness. Right now the system is stacked against everyone else in favor of the banks.
It's a little like a casino. A real casino is regulated and there are cameras everywhere and the casino cannot see your cards. With Wall Street today, the bank can see what every government, every pension fund, every hedge fund in the world is doing. They can effectively see everyone's cards. Then, instead of facilitating the client's will, they're trying to get the client to facilitate their will.
Q: What do you hope to accomplish with your book?
A: People know there's this huge conflict, and that things are being done that are unethical but are not necessarily illegal. But nobody can put their finger on exactly what the problem is. My goal with the book was to write it to a general reader who knows nothing about finance. By the time someone reaches the end of the book, they can say, "I can now speak more intelligently about where the conflicts of interest are, and I can lobby my congressman or I can speak about it more." If people are not educated about what the issues are, they're powerless. That was the problem with Occupy Wall Street — they didn't know what they were protesting.
Q: The banks are going to say any bad practices were caused by just a few bad actors, and that those guys are gone.
A: This is not some conspiracy of five people sitting in a room plotting to destroy the world. This is far more boring. This is where people have created a perverse incentive system.
If someone can overcharge a client by a million dollars, their leaders are going to say, "Great job, we just made an extra million dollars off this pension fund."
Q: So the endemic part is that people don't speak up?
A: People don't like being asked or compelled to make morally dubious decisions. But unfortunately a lot of people's livelihoods are tied up in this, and it's not an easy thing to unwind. Their lives are caught up in this system where they're sending their kids to private schools — it's almost like the machine for them is working so well that there's no way to undo it unless you want to change your lifestyle.
Q: Why should we care about what happens on Wall Street?
A: You see a lot of commentary that Wall Street is just rich people gambling with other rich people's money. I want people to know that it ultimately affects everyone. In 2008, banks had to be bailed out and that hits taxpayers. If you're a teacher or a fireman or a charity, and you have an investment fund that is trading with Wall Street, and Wall Street is not being held accountable and behaving ethically, then that directly impacts everyone.
Q: What about the reaction of your family and friends to all this? You didn't tell them about the essay beforehand.
A: No, my mother would have been really upset, and frankly my mother is still very upset. She's mostly worried about how I don't have a job right now. For my parents' generation, the idea of stability is very important, while my generation is a little more idealistic about wanting to actually change things, even if it involves some kind of personal risk. It took me a while to show my mother that I was actually very proud of this.