(Shaun Curry, AFP / Getty Images
In case you missed it, Greg Smith, wrote a scathing Op-Ed in the New York Times on Wednesday which cost his former employer $2 billion in stock losses. Actually, a little more than $2 billion.
The piece titled, “Why I am leading Goldman Sachs,” became an instant must-read on Wall Street and quickly went viral. As a result of Smith’s sharp criticisms, Goldman Sach’s market value took a $2.15 billion hit as the company’s share price tumbled 3.4 percent in trading on Wednesday.
Smith, who wrote that the company’s ethics and treatment of clients had steadily declined in his 12 years at the firm, held nothing back when blasting CEO Lloyd Blankfein and the culture of greed among top management. According to news reports, the company sent a memo to employees on Wednesday, saying that Smith was wrong. Shares are still up 33 percent for the year.
Smith, who was responsible for more than $1 trillion in investments on three continents, said the culture at Goldman has become twisted.
He wrote: “What are three quick ways to become a leader? a) Execute on the firm’s ‘axes,’ which is Goldman-speak for persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit. b) ‘Hunt Elephants.’ In English: get your clients — some of whom are sophisticated, and some of whom aren’t — to trade whatever will bring the biggest profit to Goldman. Call me old-fashioned, but I don’t like selling my clients a product that is wrong for them. c) Find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym.”
Smith said the lack of integrity had degenerated into outright derision of clients. That observation was similar to the internal Goldman emails uncovered two years ago by Sen. Carl Levin in which brokers wrote that they were amused at the “crap” they were selling to unwitting clients. The Op-Ed noted that the disrespect continues even after numerous instances in which Goldman was pummeled publicly.
“It makes me ill,” Smith wrote, “how callously people talk about ripping their clients off. Over the last 12 months I have seen five different managing directors refer to their own clients as “muppets,” sometimes over internal email. Even after the S.E.C., Fabulous Fab, Abacus, God’s work, Carl Levin, Vampire Squids? No humility? I mean, come on. Integrity? It is eroding. I don’t know of any illegal behavior, but will people push the envelope and pitch lucrative and complicated products to clients even if they are not the simplest investments or the ones most directly aligned with the client’s goals? Absolutely. Every day, in fact.”
Many financial analysts praised Smith for thoroughly denigrating the money-money-mindset on Wall Street. But not everyone was quick to praise the Times’ guest columnist.
Tunku Varadarajan, editor of Newsweek International, mocked Smith for declaring that he suddenly discovered a moral bankruptcy at Goldman. Varadarajan also tweaked the former broker for choosing to resign after being paid an estimated $10 million in bonuses by Goldman over the past decade.
He wrote: “So it seems to me that Smith made his fortune, doesn’t have to work anymore and can safely couch his retirement in heroic rhetoric. I do hope he and his lawyers are clear on any non-disparagement agreements that he may have signed over the years. And I do hope he will give to charity all of his tainted lucre, made in all those years when he was part of a firm that ripped off its clients, even as he lacked the fiber to push back, protest, stand up for the little guy — or the fiber to resign a lot earlier than his theatrical resignation after ten cycles of bonuses.”
Over at ProPublica.org, which has probably given more coverage to the after effects of the Wall Street meltdown than any other news organization, reacted very differently to the Op-Ed.
ProPublica noted that Goldman has a history of putting profits ahead of clients, and they narrowed it down to one aspect of the firm’s track record: SEC charges levied against Goldman and its employees over the past decade. They came up with a list of 13 incidents in 10 years which collectively cost the firm hundreds of millions of dollars in fines.
You can see the list here. 
You can read the Op-Ed here.

And you can get a look at Varadarajan’s critique here.