Saturday, March 17, 2012

Goldman Sachs: Filing for Moral Bankruptcy

The investment Banking community was stunned by the hard hitting statements made by Goldman’s former executive, Greg Smith. Smith's scathing, but heartfelt remarks, published in the OpEd section of the New York Times, was the topic of lively debates and criticism around the globe this week.
After reading Smith’s behind-closed-doors account of what’s really going on at Goldman, it would seem that Wall Street’s gold plated, celebrated investment bank of 143 years has somehow lost its core values on which they built their brand of “Trust” and “Integrity”. Goldman Sachs was once an awe inspiring investment bank, whose brain trust is referred to as “the best and the brightest”, but they have certainly suffered from a leadership deficiency. Strong leadership or the lack thereof, is the basis of the rise and fall of many businesses – regardless of their size. It is the “leadership” of Steve Jobs who, upon returning to Apple, was able to bring the company from the brink and take it to quintessential plateau, far beyond anyone’s imagination. That’s leadership.
Mr. Smith’s commentary might have easily been dismissed as a disgruntled employee, were it not for the fact that he was a highly regarded executive director, who has spent over a decade of his career there. From my perspective, Smith gains credibility for his tone, and the manner in which he described the pride he felt being a part of Goldman, and praised the company that once was. He was convincing because of his effort to be constructive in his criticism - disclosing examples of the troubling shift away from providing investment advice in the best interest of the client. Rather than simply throw destructive daggers and below-the-belt punches that serve only to damage the company, his rant was respectful but unyielding. Smith had the power to do a lot more damage than he did. Keep in mind, never once did he accuse Goldman of fraudulent practices.
Mr. Smith’s piece focused on Morals, Ethics and Integrity, which was summarily lacking, apparently much like the leadership. Smiths cited his leaving the company because he could no longer stomach the Goldman that has emerged. The shift in focus from Client-centered investment services to, revenue-driven “elephant hunting” (Smith, 2012) has eroded the company’s code of ethics to the bare bones. Having developed an unnatural preoccupation with taking every allowable advantage of the client, Goldman Sachs is left morally bankrupt.
Let us all be reminded of the Senate hearings, and the SEC investigations of 2010 and 2011, which resulted in fines and a multi-million dollar settlement. Meanwhile, the public has barely had a chance to digest the law suits that have come from international companies claiming Goldman mislead them about the rouge mortgage-backed securities they purchased from Goldman, without so much as a warning.
The firm’s Chief Executive Lloyd Blankfein and Chief Operating Officer Gary Cohn issued a statement more than 24 hours after the OpEd sent global shockwaves throughout the investment community. As expected, they were essentially denying the allegations made by Smith. Unfortunately, it was too little, and about $2.2 billion too late, as the value of the company took a dramatic hit after Smith's public resignation letter went viral. The stock recovered all but $800 million in value the following day, due to investor excitement about positive economic statements from the Federal Reserve, and stronger than expected retail data. Still, intangible losses are mounting where trust, good will, and brand are concerned. For this reason, many question the wisdon behind the delayed reaction from Goldman. It's too early to tell what the fall out will be, and Goldman's overall Damage Control Strategy is yet to be seen.

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K Reilly
The Cohn-Reilly Report

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Anonymous said......

Great article Katherine! The Goldman crew only needed 10 BILLION dollars (place pinky to corner of mouth)to stay afloat after the greatest heist on the planet by these guys:
It only took Goldman (Gold,man!)a couple of years to repay 10 Billion dollars... what does that tell me about how easy money comes to them?
At least one of them is admitting being morally bankrupt! It's about time!
We should have done what Iceland did instead of screwing over the people.
Now what?
Chris G / Mar 18, 2012 05:17 PM

K. Reilly said......

Hey Chris G., thanks for your comment. I also checked out the link, which I enjoyed scanning through. Sorry for the delayed response. :)