The Aporetic

The’re been a lot of buzz about Greg Smith’s editorial in the New York Times, explaining why he resigned from Goldman Sachs. It’s mostly a load of nonsense, not because he’s wrong about Goldman Sachs, but because of the way he sets the story up.

Smith says he’s resigning, after 12 years at the firm, because the firm has a thoroughly unethical culture, and treats its customers like marks to be fleeced. I don’t doubt that for a second: the firm exists to make profits for itself–profits to its clients in the process are a happy but not necessary outcome.

Smith started, he says, around 1990, with idealistic expectations. He writes:

 It might sound surprising to a skeptical public, but culture was always a vital part of Goldman Sachs’s success. It revolved around teamwork, integrity, a spirit of humility, and always doing right by our clients.

“Surprising” is not the right word here: Something more like “unbelievable” or “preposterous” fits much better.

Back in the 1980s, there was a whole series of books about Wall Street. Liar’s Poker, for example, described the culture of investment banking as crude, relentlessly rapacious, and entirely unprincipled. Michael Lewis, the author, cannot describe this enough: at one point he describes one of his co-workers sneering “some people are born to be customers,” that is, chumps. Bonfire of the Vanities, a staggeringly popular bestseller which was made into a terrible movie, made exactly the same point. Oliver Stone’s film Wall Street  makes it again, and adds the same lament for better days in the past, when men of character ran the show.

Arrant nonsense! People go into investment banking because they love making money, not because of some humble spirit of public service, and they get away with acting like unprincipled thieves because:

A. they have a near monopoly over the services they offer

B. They were unencumbered, for the most part, by regulation.

Goldman Sachs is a member of the Federal Reserve System, which means among other things it gets to borrow money for the Fed at practically zero interest, then lend it back to people at higher interest. What a lovely arrangement! And made lovelier by the fact that its top management is closely connected to the Federal Reserve itself, serving on its boards. Two of its highest level employees, Robert Rubin and Henry Paulson, served as Secretary of the Treasury. Another Goldman employee, Stephen Friedman, was named Chairman of the New York Branch of The Federal Reserve. The bank took, directly and indirectly, nearly 200 billion dollars of taxpayer bailout money after 2008.

Henry Ford is reputed to have said that if the American people understood how the Federal Reserve System worked, there’d be rioting in  the streets. He didn’t actually say that, as far as I can tell, but he should have.

What level of slack jawed credulity is required to accept the argument that Goldman Sachs was once run by honorable “humble” men who put their clients first?  How big a set of blinkers would it have taken for Smith to not have been aware of these best selling critiques of Wall Street?

This kind of discourse endlessly repeats itself, as if there was some imaginary time when people on Wall Street were honorable and good, and then the wrong people got in there and now it’s greedy and bad. .

People go to work on for investment banks because they love money–that’s the whole story. The only way to restrain their greed is to restructure the economy and introduce effective regulatory restraint. Everything else is just fantasy