Andreas Whittam Smith: Not just greedy banking, but morally worthless

I have developed a rule. If you have money, there will always be somebody trying to take it off you

Share

In an outpouring of rage, shame and frustration, Greg Smith wrote in The New York Times yesterday, the day of his resignation from Goldman Sachs, that the investment bank had become "as toxic and destructive as I have ever seen it". During Mr Smith's 12 years with the firm, something did indeed change in the way banking is conducted and not just at Goldman Sachs, but everywhere else.

Investment banking went from being "relational" to being "transactional". Clients ceased dealing with a single investment bank, using it as a trusted adviser and facilitator, almost as a family friend, and began to shop around for the best provider of the service it was looking for at a given moment. If I want to do this sort of transaction, I shall go to Bank A; if another sort of transaction, I shall go to Bank B. In response, banks started to think in terms of offering products rather than a broad-based service.

This change had begun some time before Mr Smith started his career. Many banks had originally been partnerships, with the partners doing their work in a single big room, each one sitting at a rather grand desk. These business relationships, which each partner would handle on his own, using only the administrative services of the firm, would often last for decades. Goldman Sachs continued to operate with a partnership spirit until 1999, when it became a public company. Now these firms are more like high-class shops with products to shift. Even loans become products.

Alongside this change from counselling to selling came a new emphasis on avoidance, that is avoidance of regulation and avoidance of tax. Avoidance has become a feature in what investment banks do. The technique is the same in both cases, exploiting loopholes in the regulations. The first one serves the bank's own purposes; the second, the clients'. Which is not to say that the activity is illegal. Mr Smith comments: "I don't know of any illegal behaviour."

In his article, he recalled the culture he encountered when he first joined Goldman Sachs: "It revolved around teamwork, integrity, a spirit of humility, and always doing right by our clients." And he bitterly contrasted it with what he had more recently encountered. He would attend meetings with fellow executives at which "not one single minute is spent asking questions about how we can help clients. It's purely about how we can make the most possible money off of them. If you were an alien from Mars and sat in on one of these meetings, you would believe that a client's success or progress was not part of the thought process at all... people talk about ripping their clients off." The clients are called "muppets" in internal emails.

Having long sensed and seen evidence that this way of doing business is rife, almost natural I sometimes think, given the ease with which people do it, I have developed a rule. If you have money, there will always be somebody trying to take it off you. I apply it in business settings and in managing my own resources. When I receive an unsolicited letter asking me to some tax planning seminar, or containing an "offer" from my bank, I think only that these people are trying to take my money away through charging excessive fees.

However, if I were running Goldman Sachs, I would have a simple answer to Mr Smith's diatribe: "Goldman Sachs does not deal with the public. All our clients are themselves professional firms or businesses and it is caveat emptor or let-the-buyer-beware out there. If our clients allow themselves to be ripped off, as you claim, they have only themselves to blame." This is an arguable defence, even though products are often made unnecessarily complicated to thwart rational analysis. But, again, there is a simple answer: if you don't understand it, don't buy it.

What Mr Smith is pointing out, however, is the sheer unpleasantness of operating in the way he describes, its moral worthlessness. Indeed, he calls some of his colleagues "morally bankrupt". He has longed for a Goldman Sachs leadership that would be about "ideas, setting an example and doing the right thing. Today, if you make enough money for the firm (and are not currently an axe murderer), you will be promoted into a position of influence."

My guess is that if Goldman Sachs operates as Mr Smith describes, then it is a relatively rare example of the heartlessness with which financial firms can behave, driven by greed. I can think of a different example. A large endowment fund, of which I am a trustee, employs a successful, long-established investment manager in the US to undertake a specialised task. On more than one occasion in the past 10 years, when markets have become unfavourable, the firm has advised us to withdraw some of the funds it manages on our behalf and bring them back when the outlook improves. The firm loses investment fees as a result but earns enormous goodwill and trust from us. I must send Mr Smith the name.

a.whittamsmith@independent.co.uk

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Pharmaceutical Computer System Validation Specialist

£300 - £350 Per Day: Clearwater People Solutions Ltd: Pharmaceutical Computer ...

High Level Teaching Assistant (HTLA)

£70 - £90 per day: Randstad Education Birmingham: Higher Level Teaching Assist...

Teaching Assistant

£50 - £80 per day: Randstad Education Birmingham: Randstad Education is the UK...

Senior Java Developer - API's / Webservices - XML, XSLT

£400 - £450 Per Day: Clearwater People Solutions Ltd: Our client is currently ...

Day In a Page

Read Next
 

i Editor's Letter: Take a moment to imagine you're Ed Miliband...

Oliver Duff Oliver Duff
 

Letters: No vote poses difficult questions – so why rush?

Independent Voices
Secret politics of the weekly shop

The politics of the weekly shop

New app reveals political leanings of food companies
Beam me up, Scottie!

Beam me up, Scottie!

Celebrity Trekkies from Alex Salmond to Barack Obama
Beware Wet Paint: The ICA's latest ambitious exhibition

Beware Wet Paint

The ICA's latest ambitious exhibition
Pink Floyd have produced some of rock's greatest ever album covers

Pink Floyd have produced some of rock's greatest ever album covers

Can 'The Endless River' carry on the tradition?
Sanctuary for the suicidal

Sanctuary for the suicidal

One mother's story of how London charity Maytree helped her son with his depression
A roller-coaster tale from the 'voice of a generation'

Not That Kind of Girl:

A roller-coaster tale from 'voice of a generation' Lena Dunham
London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

London is not bedlam or a cradle of vice

In fact it, as much as anywhere, deserves independence
Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

Vivienne Westwood 'didn’t want' relationship with McLaren

Designer 'felt pressured' into going out with Sex Pistols manager
Jourdan Dunn: Model mother

Model mother

Jordan Dunn became one of the best-paid models in the world
Apple still coolest brand – despite U2 PR disaster

Apple still the coolest brand

Despite PR disaster of free U2 album
Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits