In the letter, Smith essentially asserted that Goldman had abandoned the much-lauded culture that it had build over decades in favor of scalping clients to make as much money as possible. As he put it:
I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients. It's purely about how we can make the most possible money off of them.
He also claimed that Goldman bankers liked to refer to clients as "muppets" (a.k.a. dummies) in internal emails.
Not surprisingly, the letter created quite a stir. It also helped Smith land a tell-all book deal with Grand Central Publishing with an eye-catching $1.5 million advance.
But Smith's "holier than Goldman" schtick may be more fantasy than fact. Last month, reports circled that Smith had done little, if any, fact-checking and corroboration for his book. More concerning for the Greg Smith fan club might be Goldman's report to its board of directors saying that there's essentially no basis to Smith's claims.
"Sure," you're probably saying, "but of course Goldman is going to say that." Indeed, Goldman has a vested interest in refuting the claims, but it wasn't without due research. For instance, Goldman found that the one reference of "muppets" in an email to Smith did not have anything to do with ripping clients off. Meanwhile, the other 99% of the references had to do with the movie about Jim Henson's Muppets.
Further, the investigators highlighted that not only was Smith passed over for promotion to managing director multiple times, but he was also upset about a recent bonus. An email from a manager at the time read:
Greg Smith off the charts unrealistic, thinks he shld trade at multiples. We told him there's v little tolerance for reactions like that and he needs to tone it down.
Are we the muppets, then?
At this point, we've got a bit of a he-said, she-said going on here. But the tale that Smith was weaving was compelling to many and one that the media and many readers were quick to latch onto as just one more sign that the financial industry is a sick and twisted morass.
To be sure, a lot of ugliness went on during and in the lead-up to the financial meltdown, and if you want evidence, you don't have to look further than the lawsuits hitting Bank of America (NYSE:BAC), JPMorgan (NYSE:JPM), and even Wells Fargo (NYSE:WFC).
But at this point we may want to revisit what's fact and what's fiction as far as what goes on at banks and financial companies. Despite Stephen Colbert's assertion that corporations themselves are people, what we're really talking about is vast collections of employees that are distributed around the country and even the world. Bank of America has an employee base approaching 300,000 -- are they all working to the evil end of swindling their customers? Are even most of them like that? That would strike me as a bit of a simplistic view.
For us investors, sussing out the truth -- as best we can -- in a situation like this is crucial. Allowing emotion and sensationalism to dictate what we invest in is just about the last thing we want. In investing it's very rare that something is perfectly black or white, so when people start to see it as such -- "Banks and bankers are bad!" -- it's time to pull out that ol' horse-manure-o'-meter. In this particular case, Greg Smith may have scored a big payday with his book, but it seems there may be more than a whiff of cow patty going on here.