Why We Think "Why I Left Goldman Sachs" Is Mandatory Reading For Trustees and Money Managers
Greg Smith did something not too many of our best and brightest do – he walked away from 12 lucrative years at Goldman Sachs and published a tell-all piece exposing the cynicism with which Goldman Sachs treats its clients. On March 14, 2012, Smith wrote an op-ed in The New York Times entitled, “Why I Am Leaving Goldman.” He now backs up his expose with his just-released book, “Why I Left Goldman Sachs.” Both pieces should be mandatory reading for this generation of business students, and for each and every person who has responsibility for managing money. What we learn – which we all should have known– is that Goldman and other investment banks generally have no fiduciary duty towards their clients, and that they take full advantage of it and their clients. Kick the tires, and if you can’t, don’t listen when they tell you they have your best interests in mind. Trust me! You are to them, as Greg Smith tells us, a “Muppet” – an idiot, a fool easily manipulated. Smith singles out teachers, police and firemen funds as some of these clients/targets.
In recent interviews Smith has identified the problem at big banks: “A change from a client fiduciary model (doing what’s best for the client) to use-the-client-to-extract-wealth model…If someone can overcharge a client by a million dollars, their leaders will say, ‘Great job, we just made an extra million dollars off this pension fund.’”
Smith compares big banks to a crooked casino. A real casino is regulated, there are cameras everywhere and the casino cannot see your cards. “On Wall Street, the bank can see what every government, every pension fund, every hedge fund in the world is doing. They effectively see everyone’s cards. Then, instead of facilitating the client’s will, they’re trying to get the client to facilitate their will.” We agree with Smith when he says, “Capitalism should be where everyone competes hard and makes money, in an environment where there is fair play.”
In recent interviews Smith has identified the problem at big banks: “A change from a client fiduciary model (doing what’s best for the client) to use-the-client-to-extract-wealth model…If someone can overcharge a client by a million dollars, their leaders will say, ‘Great job, we just made an extra million dollars off this pension fund.’”
Smith compares big banks to a crooked casino. A real casino is regulated, there are cameras everywhere and the casino cannot see your cards. “On Wall Street, the bank can see what every government, every pension fund, every hedge fund in the world is doing. They effectively see everyone’s cards. Then, instead of facilitating the client’s will, they’re trying to get the client to facilitate their will.” We agree with Smith when he says, “Capitalism should be where everyone competes hard and makes money, in an environment where there is fair play.”
This is a system that will not change easily. As Smith explains when asked why people don’t speak up: “A lot of people’s livelihoods are tied up in this…Their lives are caught up in this system where they’re sending their kids to private schools…the machine for them is working so well that there’s no way to undo it unless you want to change your lifestyle.”
We do see a way to change the system very quickly. Make any investment banker who sells their product to a fiduciary, a fiduciary themselves. You can wait for Congress to pass such a law – which is unlikely since that would hurt campaign contributions – or write it into your contracts.
The great orator Cicero instructed that if you cannot respond to the merits, attack character. Goldman has done just this to Smith, calling him disgruntled, and disappointingly,the press has repeated this familiar refrain. We find this disturbing – as the merits of Smith’s courageous act threaten to become lost. We should treat every whistleblower as a hero. Without them, the game and sins of insiders remain silent – and we remain Muppets. We salute Smith and ask others to come forward. In the meantime, consider yourself warned and insist on a fiduciary relationship with the investment bank who sells to you their newest financial product.
