In defense of Goldman Sachs

AP

(MoneyWatch) COMMENTARY My first reaction to Greg Smith's scathing public resignation from Goldman Sachs (GS) was where's this guy been? I mean, didn't we cover all this back in 2010?

To refresh your memory, Goldman sold synthetic CDOs -- what Smith calls an "opaque product with a three-letter acronym" -- to its customers without disclosing its own short position, something Goldman executives referred to as "the big short." So Goldman both perpetuated and benefited from the subprime mortgage mess.

A Senate subcommittee had a problem with that, raking Goldman executives over the coals for days and exposing all sorts of juicy emails, like this one from Goldman CEO Lloyd Blankfein: "Of course we didn't dodge the mortgage mess. We lost money, then made more than we lost because of shorts."

And the result: self-righteous indignation by congressional leaders and regulators whose own hands were anything but clean in terms of the financial crisis. The SEC got its pound of flesh from Goldman -- $500 million worth, to be exact -- which went right back into the same coffer from which the bank bailout came. Yawn.

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Then I got to thinking about something Smith said, that what's changed at Goldman is the way it thinks about leadership. He said, "Leadership used to be about ideas, setting an example and doing the right thing." Now it's all about how much money you make for the firm.

Okay, I thought, that's something worth talking about.

Smith is accusing Goldman of maximizing profits instead of doing what's best for customers, customers that are institutional investors and high net-worth individuals, professional investors who are supposed to read the prospectus of those "three-letter acronym" products.

If you think I sound a little cynical, you're right -- because I think Smith sounds more than a little naive. Unless, of course, the company did something illegal, in which case you can call Smith a whistleblower. But Smith said he witnessed nothing illegal. So we're back to the 2010 moral dilemma and self-righteous indignation thing.

Only this time, Smith's diatribe rings pretty hollow because, after all, he was part of the Goldman culture for more than a decade, an executive director or vice president of the bank. Sure, Goldman has like 12,000 of them, but still. I haven't heard a thing about him donating the millions of dollars he made at the firm to charity, have you?

Then there's Smith's method for dispensing his naive, late-to-the party advice.

It's one thing to write a scorching internal memo, like former Yahoo (YHOO) VP Brad Garlinghouse did with his famous Peanut Butter Manifesto, a document that was both accurate and eerily predictive of the company's lack of strategy that still exists to this day. It was clear that Garlinghouse was trying to do the right thing for his company.

It's another thing entirely to publish a blistering resignation letter in The New York Times over a change in culture that, incidentally, just so happens to coincide with its change from a private to a public company.

Smith talked about doing the right thing. Well, in my book, if you don't like what management is doing, you tell them. If they don't listen, then at least you know you've done the right thing. And if you've really got a problem with it, then you quit. In that order. It's not clear whether Smith discussed his concerns with his management, but he didn't mention it and nobody else is talking.

So, this really comes down to why. Why did Smith take this unorthodox route that isn't even a moral high road compared to those he criticized? Maybe he's disgruntled because he got a crappy bonus this year or he was passed over for a promotion to partner.

Maybe he's had enough with banking and he wants to be the next Michael Lewis of Liar's Poker fame. Smith is certainly radioactive when it comes to the banking industry and he did do quite a bit of self-promoting and selling in his oddly well-written op-ed piece. Hmm.

Or maybe he feels guilty about being part of this unethical culture, for taking all the money and doing nothing about it for 11 years. And, like a lot of people, instead of taking a good hard look in the mirror and taking personal responsibility for his actions, he's lashing out at the big, bad company management.

He certainly dialed into a theme that's been playing out on the world stage for some time now: The subprime mortgage meltdown and financial crisis, bank bailouts and bonuses, congressional investigations, SEC actions, Wikileaks, Occupy Wall Street, the whole Wall Street vs. Main Street thing.

When you look at it that way, Smith isn't just late to the party; he brought a six-pack to a kegger when everyone's already hung over.

One thing's for sure: Smith knew nobody would go out on a limb and defend Goldman Sachs, the evil empire, the Vampire Squid. After all, there's no sympathy for the devil. No, Goldman Sachs doesn't need my or anyone else's sympathy. But I think Greg Smith might. Of all the possible scenarios for why he did what he did, none of them reflect well on the guy.

Guess he'd better be a darn good writer. 

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