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TMF Book Review: "Why I Left Goldman Sachs"

By David Smith - Dec 14, 2012 at 8:17AM

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Greg Smith lobs lots of spears at Goldman Sachs, but none really hit their target.

In March, Greg Smith, left the employ of Goldman Sachs (GS 5.79%), the nearly iconic investment banking firm, for which he had toiled for a dozen years, most recently as a sales vice president in its London office.

As he did so, he slipped an op-ed piece with the provocative title "Why I'm Leaving Goldman Sachs" to The New York Times. Nearly 60 days ago, a book with a similar title -- albeit with Smith's abrupt departure now referred to in the past tense -- arrived in bookstores and became available on the likes of Amazon.com (AMZN 3.58%).

Smith's tale is one of disillusionment. He describes in ponderous detail how he'd arrived at Goldman Sachs while still a Stanford undergraduate to participate in the firm's New York sales and trading internship in the summer of 2000. It was, as he tells it, an arduous program. But he survived it, apparently performing more than adequately. A few weeks after returning to California to begin his senior year, he was notified that he would be among the approximately 40% of the year's recent interns to be hired for full-time employment upon his graduation.

A tale of Goldman's slide
Why I Left Goldman Sachs is a moderately interesting, but generally unconvincing, story of the author's disappointment at, as he describes it, joining a firm whose distinguishing features included a culture in which the best interests of its clients were unquestionably supreme. The "why" involves his perception of a steady eradication of that culture.

It's replaced, he believes, by a greedy climate wherein clients are valued only if serving them inures first to the benefit of Goldman. Indeed, especially treasured are those unsophisticated or inept money managers -- referred to as "muppets" in Europe -- whose lack of sophistication makes them easy pickings for Goldman Sachs' tribe of mercenary minions.

At least that's what Smith wants us to believe. And while he sticks to his version of the fall of the house of Goldman, rarely -- if ever -- does he present concrete examples of those plummeting ethics. Admittedly, however, my own reaction to his tale may stem from my having -- as I see it -- lived a Wall Street existence with a more starkly contrasted beginning-to-end change than the one described by the other Smith. But more about that shortly.

How's Goldman taking it?
By now you're likely wondering how the crew at Goldman has reacted to being publicly excoriated by one of its own. Writer par excellence James Stewart, who 20 years ago penned, "Den of Thieves," a superb book about the Michael Milken-centered insider trading scandals of the late 1980s, has a ready answer. In a New York Times review of Smith's minor epoch, and after carefully checking on many of the claims included therein, Stewart pokes enough holes in Why I Left to reduce it to pin-cushion status. In his analysis, Stewart responds to the natural question of pique at the firm toward Smith by observing that: 

The mere mention of Mr. Smith invokes passionate reactions at Goldman, but much of the initial anger seems to have dissipated. People I spoke to who had been close to him felt hurt, wronged, and saddened by a broadside from someone they considered a friend and colleague, dedicated to the firm and its values, who was hard-working, reliable, and humble. He seems, they said, the last person to attack the firm and its culture.

Training to trade
As noted, my own experience seems more stark than Greg Smith's. As something of a wee lad, with my college diploma and Marine Corps discharge in hand, I was hired into the New York trader training program of Kidder Peabody, then a solid, white shoe firm with ties to Civil War-era Boston. The firm was led by Albert Gordon, who -- after beginning his career at, yes, Goldman Sachs as a young Harvard M.B.A. -- had assumed Kidder's leadership amid the financial distress of the Great Depression. 

Upon his death at 107 in 2009, Gordon was referred to by the Times as an "eminence grise of the investment community." (For my part, I'm perhaps selfishly hoping that his astounding longevity was at least partially attributable to an elixir surreptitiously dispensed by the firm's water fountains.)

As I told Fools three years ago, in 2004, I found myself at the now infamous Stanford Group, an investment bank backed by Texas multibillionaire R. Allen Stanford. An analyst concentrating on media companies, I followed such still struggling entities as The New York Times Co. (NYT 1.33%), along with television station operator Belo Corp. (NYSE: BLC) and newspaper publisher A. H. Belo (AHC), which were then housed under one corporate roof.

What sort of ethics?
It didn't take long, however, for me to perceive a distinct stench of rotting ethics. Hence, my own immediate, albeit unwritten, "Why I Left..." reaction. Apparently my senses were accurate: In the same month that Greg Smith's Times op-ed piece appeared, Allen Stanford was convicted of, among other things, operating a massive Ponzi scheme. He's now tucked away in a federal prison, slogging through a 110-year sentence. 

I maintain that my own Al Gordon-to-Allen Stanford adventure represented a far more precipitous and tangible slide than Greg Smith's Goldman 2000-to-Goldman 2012 narrative. Nevertheless, you may still want to pick up Smith's book to discover your own reaction to his notion of changes in latter-day Wall Street. If that's your pleasure, I urge you to do so. But keep a salt shaker at the ready.

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