Former Goldman Sachs employee Greg Smith wrote an op-ed in yesterday’s New York Times that simmers with pathos. Smith describes the devolution of the culture at Goldman: Whereas in the past, the company worked in the interests of its clients, they are now seen merely as the source of transactional profit, to be manipulated for the benefit of the firm. His story emerges in the midst of a huge effort by Wall Street to eviscerate and delay the implementation of the Volcker Rule, which limits bank traders to running a client-service businesses by prohibiting trading for the bank’s own account.
Having spent 12 years at Goldman prior to 1997, I sympathize with Smith’s feelings of loss and betrayal. I left just at the beginning of the institution’s evolution into its current form and have observed the process with despair—not only for the organization but for the loss suffered by the nation. Some context might provide greater meaning to Mr. Smith’s story.
At its best, Wall Street serves an important function. Historically, it provided the wherewithal for growth in industries as varied as rail and information technology; by bankrolling productive growth of industries that provided jobs and products to sell around the world, it vastly increased the well-being of all Americans. In times of crisis, bankers worked to preserve economic stability. Sometimes, they were genuine altruists, accepting the moral responsibilities that go along with their positions of wealth and power. More often, they were simply pursuing their own self-interest. Was J.P. Morgan a robber baron or the man who almost single-handedly saved the economy in the panic of 1907? The answer is both. But altruistic or not, bankers understood their enormous stake in the long-term vitality of the economy. Preserving the health of the economy was good for business this year and for decades to come. That was the contract between Main Street and Wall Street.