Greg Smith, after 12 years with the firm, managing worldwide assets of $1 trillion, wrote a public letter of resignation to his superiors and to The New York Times because, he said, the culture of the firm has been polluted.
No longer do Goldman executives put the clients’ interests first, says Smith. You get ahead by “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.”
You remember from congressional hearings how Goldman, among others, would take toxic mortgage-backed securities and wrap them up in bright, shiny bonds and sell them for a profit. Sell enough of these brightly packaged, noxious assets to another firm and you can make money betting it will fail.
That is the story of Lehman Brothers, the Wall Street nosedive and the Great Recession.
So Smith’s public resignation is not that of just another disgruntled employee; he’s talking about a cultural change that can do terrible damage.
He mourned the loss of a culture that “revolved around teamwork, integrity, a spirit of humility, and always doing right by our clients. The culture was the secret sauce that made this place great … for 143 years.”
Not to put too fine a point on it, but you’ll notice that Smith did not blame Big Government or sinister, lurking socialism for what had gone wrong on Wall Street. He blamed a climate of excessive corporate greed.
Which brings us back to the halcyon days of yore when George W. Bush was president, Wall Street was virtually unregulated, making money, and everybody was happy.
For those who believe all Washington bureaucrats are arrogant and free enterprise is vestal in its purity, Smith will invite you to read internal emails by managing directors in which they refer to their clients as “muppets.”
The Great Recession wasn’t caused by overreaching Big Government but by the overarching greed of unregulated Big Business.
A 57-page memo in December 2008 to Obama from his incoming director of the National Economic Council, Larry Summers, was not a picture of halcyon happy days. It was cheery as a solar eclipse that would last for years.
So massive was the mess in Bush’s last days that Summers’ memo read like a doomsday scenario: “The economic outlook is grim and deteriorating rapidly.” The economy lost 2 million jobs without a government response; it would lose 4 million more in the next year.
Summers informed Obama that the government was already spending well beyond its means. Yet, in the coming months, in addition to the stimulus bill, the president would have to sign several pieces of legislation left over from the previous administration: a $100 billion appropriation for the two wars, perhaps $350 billion to fund Bush’s TARP program to prevent a total financial collapse.
“Since January 2007 the medium-term budget deficit has deteriorated by $250 billion annually,” the memo said. “If your campaign promises were enacted … the deficit would rise by another $100 billion annually.”
Perhaps the memo’s most on-target prediction was that the deficits would be blamed on Obama.
Ironically, the one domestic achievement of the Obama administration that would dramatically cut government spending is the one that has been demeaned by every GOP presidential candidate as “Obamacare.”
A study of national health systems in other wealthy countries conducted by the respected journalist Fareed Zakaria of Time magazine reveals that similar programs in Taiwan, for instance, could cut U.S. health spending by half.
Greg Smith’s letter comes in a looking-glass world where small is big, where nations can shrink their way to greatness and prosperity, where patriotism is measured by how much potential presidents hate their own government.
His letter turns the world right-side up, reminding us that unregulated greed can do terrible damage, which market self-regulation could not and did not manage to come to the rescue of the economy.
Only the government so hated by GOP candidates had the resources to clean up much of the mess left by the Bush years and start the recovery that we are now beginning to see.
H. Brandt Ayers is the publisher of The Star and chairman of Consolidated Publishing Co.