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The Man Who Quit Goldman Sachs and Wrote a Tell-All Book Gets Trashed by Corporate Media

Wall Street hates Greg Smith for telling the world of rampant abuse in one of its most prestigious firms.

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This is a long winded intro, but the critics of Smith’s naivete about Goldman’s conduct don’t get that the failings he saw were a big deal if you’ve identified strongly with the Goldman culture, and the firm works extremely hard to recruit and inculcate people with that end in mind. It appears from Smith’s age and his tenure at the firm that this was his first real job, so he was the perfect sort to be imprinted by Goldman. It’s like having been a loyal Catholic, say 40 years ago, and realizing not only that the church had pedophile priests, but the top leadership was aware of it and refused to do anything about it. Now with hedge and PE funds having knocked Goldman off the apex of financial glamor jobs, and the firm now a sprawling global enterprise, it’s actually remarkable that it has managed to maintain as much of its cultishness, um, cohesiveness as it has.

Goldman’s dedication to clients has fallen in the Blankfein era. Even though Smith doesn’t deliver the goods in his book, his bottom line is correct: Goldman’s internal ethics have declined, and the fall over Smith’s tenure likely is on a steeper trajectory than in its peers.

I’d have dinner a few times a year with a senior Goldman officer in a staff function that put him in front of the of the Executive Committee and department heads on a regular basis. He was extremely circumspect about his day-to-day activities. However, he found it pretty much impossible not to convey to me how the firm was changing, and how disturbing he found it to be. While he did not think much of Hank Paulson, he did regard the co-presidents under him, John Thain and John Thornton as both concerned with preserving Goldman’s culture and franchise (Thornton had been particularly opposed to going public for that reason) and were long-term oriented. By contrast, he was distressed by and contemptuous of Blankfein and the new leadership, who largely came out of the commodities/trading side of the firm (the view from the old Goldman that commodities was lower class and less ethical than the more highly regulated securities markets was strong in my day and was confirmed by the negative reactions internally by non-partners to Goldman’s acquisition of J. Aron. I was the most junior staffer on that deal). My dinner buddy made it clear he thought the new management team was less able, less thoughtful, concerned only about as much money as possible now, and didn’t care much about what impact that might have long term.

Confirmation of the change in the firm under Blankfein comes from former Goldman co-chairman John Whitehead’s unusually direct criticism of Goldman’s bonus policies in 2007. Similarly, I’ve been told that the Weinberg family (Sydney Weinberg played a huge role in Goldman’s rise to pre-eminence; his son John was co-chairman with Whitehead) is distraught over the disclosures made over firm practices in recent years.

Goldman has such a strongly developed internal culture that even a change at the top would take a while to percolate through, and Smith appears to have seen the impact.

Finally, critics don’t recognize a hidden upside to Smith’s dramatic exit. If you leave Goldman, the assumption is you are some sort of loser and perhaps on the verge of being fired. Yet in Goldman’s efforts to trash Smith, the worst they had on his was his bonus ask was way too high given the firm’s overall results; one managing director even told him that he needed to be patient, it had taken him a long time to become managing director and Smith needed to keep the faith. So Goldman officially confirmed that while Smith was not on the fast track, he was still a contender, which is a lot more than most places will say when someone slams the door on their way out.