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.
When I arrived at Goldman Sachs, John Weinberg headed the firm. It was a partnership of professionals then, not a publicly traded corporation, and the partners’ wealth was largely invested in the firm. I saw Weinberg, a Marine veteran of the Pacific campaigns, many mornings on the elevator with a muffin perched on a Styrofoam coffee cup, his briefcase in his other hand. He had just arrived at 85 Broad Street in his Ford (Ford was a longtime personal client). His appearance was closer to the guy behind the counter at the deli than the titan of Wall Street that he was. When he spoke, he was incisive and wise. His motto for Goldman Sachs (coined by his predecessor Gus Levy) was, “Be long-term greedy, not short-term greedy.”
He believed these words. The firm promulgated “Our Business Principles,” and the bankers bought into it. We included these in every presentation and were convinced that clients and potential clients would be persuaded of the firm’s trustworthiness given its fine principles. Like the Marines of Weinberg’s youth, we were convinced that we were the best of the best. But, wisely, the company’s culture was structured to tamp down arrogance and hubris. Peer reviews became a ritual in which working with a team and serving clients well were key metrics of success. The firm installed co-heads of many groups, demanding that the two cooperate. (Younger bankers predictably referred to them as “cone heads.”) The practice included the heads of the firm. Weinberg, in fact, initially served as co-head with John Whitehead, who retired just after I arrived.
Goldman Sachs was almost a cult. I worshipped it and was by no means unique. We all wanted to make a profit, and, inevitably, the ever-present temptation of greed led to a fair number of scandals and investigations. But principle was generally the trump card. Weinberg forbade participation in hostile takeovers, an immensely lucrative business. When the market crashed in 1987, he refused to take advantage of an “out” in an underwriting for the government of Great Britain, knowing that it cost the partners $100 million, and his loss was by far the largest. He blocked every suggestion to take the firm public. It was impossible to know whether his motives were based on principle or on the knowledge that the accumulated goodwill would return profits beyond imagination. For Weinberg, they were inseparable.
The parade of Goldman leadership after Weinberg’s departure in 1990 is truly remarkable: Bob Rubin and Steve Friedman, as co-heads; Jon Corzine; Hank Paulson; and Lloyd Blankfein. As the leadership evolved from the greatest generation to the baby boomers, the underpinnings of the culture decayed. “Our Business Principles” were always featured in the annual report and handed out to new recruits. But everyone could see that the firm’s view of its clients was changing. They became a source of transactions, the success of which was measured by the payday, not the enhancement of a long-term relationship. Professional retreats became dominated by speeches about how Goldman had to change to survive. For some of us, the time to move on had arrived, and it was a deeply emotional process.
Wallace Turbeville is a Demos Fellow and practiced law for seven years prior to his 13 years at Goldman Sachs, where he specialized in energy finance in US and international markets. He was CEO of a firm providing credit management services for energy derivatives trading for seven years.