Goldman years

Why I Left Goldman Sachs: A Wall Street Story, by Greg Smith, Grand Central Publishing, RRP$27.99, 288 pages

Greg Smith became famous in March this year when he wrote an opinion piece for the New York Times, published to coincide exactly with his resignation from Goldman Sachs. His article, which immediately became a viral internet hit, described the bank’s descent into a “toxic and destructive” culture. Smith clearly hit a nerve: some $2bn was wiped off Goldman’s market value that day.

His follow-up book details his 12-year journey from summer intern to vice-president of equity derivatives sales at Goldman’s offices in London. The publisher bills Why I Left Goldman Sachs as an exposé of how the bank “went from taking iconic companies like Ford, Sears, and Microsoft public to becoming a ‘vampire squid’ that called its clients ‘muppets’.” The reality falls short of this bold claim.

Greg Smith

Instead of an explosive, or even illuminating, account of the inner workings of Goldman, Smith’s work reads like a teenage diary – filled with odd tales of his prowess at ping pong, occasional DJ-ing and gastronomical preferences. (His advice to those dining in London is to “add a lot of salt and pepper to whatever you order”.)

It doesn’t help the writer that Goldman has mounted a furious media offensive against him, turning the entire saga into a “he said, she said” Wall Street spat. Smith says he left his position with the aim of lifting the veil on the bank’s practices; Goldman counters that Smith was a middling employee who demanded a $1m bonus just weeks before his very public resignation.

The salacious episodes that do appear are brief and strangely personal: Smith glimpses Lloyd Blankfein, chief executive, naked in Goldman’s gym locker room; an older managing director bins a cheddar cheese salad delivered to him by a lowly intern; and there’s an episode featuring a Las Vegas hot tub filled with six male Goldmanites and one topless woman.

Smith breathlessly recounts encounters with senior financial figures (the time he stood next to billionaire Warren Buffett; the time Gary Cohn, Goldman president and chief operating officer, was in the same elevator). It’s mundane stuff but there are nuggets of insight buried within the book’s pages.

Smith talks of Goldman’s efforts to sell complex “black box” derivatives to help prop up falling revenues. The more impenetrable the transaction, the better for the investment bank’s bottom line, Smith says. He also talks of Goldman selling “axes” – or undesirable positions and trades – to the bank’s more gullible investors.

Some of this rings true. In the boom years, banks made enormous profits from their role as the system’s middlemen: “If you were playing blackjack and you had 19, would you ever expect the dealer to tell you to hit? Sometimes on Wall Street, they urge you to take another card,” Smith writes in his afterword. “If the casino could always see your cards, and sometimes decided what cards to give you, would you expect it to lose?”

On Wall Street, however, the rules are rarely as black-and-white as a playing card. Goldman and Smith’s other critics have argued that the bank does not have any fiduciary duty to many of the clients it sells products to. Some bankers would say that Goldman’s potential conflicts of interest – or tentacles in multiple pies – can be a strength that savvier clients seek out, rather than a weakness they shy away from.

With the blackjack analogy, Smith nails the role that banks such as Goldman often play in the financial system, absorbing flows of information and orders from their clients and using them to their own advantage. Yet he provides few concrete examples of how this works in practice.

The book would have been so much more engaging and relevant had Smith identified – and walked the reader through – a particular transaction that showcased the precise way in which Goldman Sachs uses its middleman position to make money from clients.

Instead, the reader comes away convinced that the fatal flaw here is a fundamental difference of opinion about what it means to be an investment bank. Smith appears as a wide-eyed wannabe who, despite being fixated with the trappings of his Goldman wealth, thinks banking should be a utility-like industry with presumably slim profit margins to match.

In the aftermath of the financial crisis, some regulators would no doubt agree. But Goldman certainly would not: the bank’s unofficial motto has been “long-term greedy” for many years and its money-seeking attitude seems unlikely to change anytime soon.

This book is unlikely to alter anyone’s opinion. While many readers will enjoy Smith’s tale as further evidence of Wall Street gone awry, Goldman insiders will brush it off as the misplaced bitterness of an ex-employee who didn’t quite “get” what the bank was all about.

Tracy Alloway is the FT’s US financial correspondent

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