The Goldman op-ed: Is what Greg Smith said true?

Kai Ryssdal Mar 14, 2012

Kai Ryssdal: First of all, I’m kidding. Not leaving. Second of all, if I were, what a way to go out, right? A guy named Greg Smith — who until today worked at Goldman Sachs — did the print equivalent of the same thing this morning. Quit, very publicly, blasting his former employer in the process. In an op-ed in the New York Times, Smith said — among other things — that Goldman is toxic and destructive. That it puts profits ahead of clients, you get the picture. Pretty much burned that bridge right down. We’re gonna take a minute and dissect what Smith said — and how true it might be — with Barry Ritholz. He’s the CEO at Fusion IQ. And Josh Brown of Fusion Analytics and a regular on our morning show. Guys, good to have you here.

Barry Ritholtz: Thanks for having us.

Josh Brown: Thank you.

Ryssdal: So Josh, I heard you on the Morning Report this morning with Jeremy Hobson talking about this thing. You basically said, ‘You know what, this is the Wall Street culture. Get over it.’ Really?

Brown: Yeah, really. Well, I think the op-ed itself was a little bit inflamed and overly dramatic. I think the vast majority of people that work at Goldman Sachs are good people who are trying to do the best they can. It’s not necessarily a culture where they want to rip everyone’s throats out.

Ryssdal: Barry, what’s your sense?

Ritholtz: I take a little longer view. And remember the days when… First of all, it’s not just Goldman Sachs. It’s Goldman, it’s Merrill, it’s Morgan, UBS. It’s all the big shots. And second, the change that really dramatically altered the cultures took place when they went from partnerships to publicly-traded companies. And once you’re a public firm, well guess what, the number for the quarter drives everything else into a secondary position. Gotta make your revenue numbers, gotta hit your earnings, go, go, go. Whatever you gotta do. And that’s how you end up with a culture that places a high value on ripping the client’s eyeballs out.

Ryssdal: Josh Brown, let me pick up on that. Not that image, but that idea. Isn’t it in the firm’s best interest to take care of its clients, and doesn’t that give lie to the whole Goldman ethos?

Brown: Yes, and I think it’s important that we don’t talk about Goldman like it’s a monolithic firm and they’re only in one line of business. It’s not like Ford where they just make cars. Goldman’s got areas of the business where it’s very important where they execute and take care of the clients. But then there are other parts of the firm where they’re moving and shaking with assets that are going from one balance sheet to the next and they’re trading as a principal against their actual clients.

Ryssdal: Josh, let me ask you to give Barry a poke in the eye here for a second, and ask you if what he’s saying isn’t a little bit of false romanticism here. He wrote this morning about how guys used to tell great stories and it’s camaraderie and mentoring and taking care of each other.

Brown: I still think that exists today. I think that you had a culture where there was a lot more trading and mentorship. But even still, that mentoring was mentoring people to come into their own and become killers.

Ryssdal: There’s a whole lot of I’m shocked — shocked — to find out this happens on Wall Street in the press today. None of this is new, man. I mean, you go back to Michael Lewis and Salomon Brothers and you’re so stupid you could be a client. I mean, this has been around forever.

Brown: That’s the point I’m trying to make. It’s not like Wall Street was the Girl Scouts and then all of a sudden a switch was flipped. You can go back even further than Michael Lewis in the ’80s and the ’70s. You could go back 100-some odd years, anyone could get fleeced at any time. So to say that all of a sudden the culture has changed is a little bit naive and a little bit childish, and that’s the part of Greg Smith’s op-ed that I took exception with.

Ryssdal: Barry, the regular person on the street who is three years out of a financial crisis that almost sunk the entire economy and will read probably the first two paragraphs of Greg Smith’s op-ed, if that. What are they supposed to make of Wall Street now?

Ritholtz: It’s funny because I’ve been a vociferous critic of Wall Street and I find myself in the unusual situation of defending some of what the street does that that’s right. If we’re going to use Goldman as an example, they used to call it: “We’re long-term greedy. We want to be greedy, but over a period of decades and grow as the clients become wealthy.”

Brown: Hey Kai, I have an iron-clad law of financial products. Brown’s law of financial products states that the more you’re compensated as the broker to sell something, the worse it is for the client.

Ryssdal: Barry, what about that?

Ritholtz: Remember the great scene in “A League of Their Own” where he says, ‘This is a simple game. You hit the ball. You catch the ball. You throw the ball.’ Well, Wall Street should be similar. You buy good companies with strong growth and good earnings. You buy high-quality bonds with good dividends and little risk. And you allow time to compound over long periods.

Brown: Yes, but it’s way sexier if you don’t do that.

Ryssdal: Josh Brown, he’s at Fusion Analytics. He blogs at The Reformed Broker and he’s a regular on our Wednesday Morning Report with Jeremy Hobson. Barry Ritholtz blogs at The Big Picture. He’s the CEO at Fusion IQ. Guys, thanks a lot.

Brown: Bye-bye.

Ritholtz: Our pleasure.

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