Greg Smith wrote the essay that echoed across Wall Streetlike a thunderclap.
Smith was a vice president at Goldman Sachs until March. Heannounced his departure from the investment bank with a blistering editorial inThe New York Times, accusing Goldman of routinely deceiving clients andrelentlessly pursuing profit at the expense of morality.
And he struck a nerve. The essay went viral in the financialworld and beyond. Smith was praised for uncloaking corruption that was cryingout to be addressed, and also derided as a disgruntled employee.
Goldman Sachs denies Smith's allegations about deceivingclients. The bank says it took his concerns seriously, thoroughly investigatedthem, and found no evidence to support them.
Smith's book, "Why I Left Goldman Sachs," is beingreleased Monday. It's a window into a company that is notoriously tight-lipped,with stories about a swaggering place where interns arise for 5 a.m. meetingsand business trips mean slapping down $150 for one person's dinner.
What Smith hopes to do, he says, is educate people about howWall Street works, and fuel a public conversation about what went wrongethically, and how to fix it. The practices that caused the financial crisis,he says, were never really resolved; they're just lying dormant.
Smith, 33, gave his first print interview to The AssociatedPress. Excerpts have been edited for clarity and length.
Q: Tell us about March 14, the day you left Goldman. Youwere working in the London office, and you say you had already cleaned out yourdesk and had been told the editorial would go online at 7 a.m. your time.
A: I get up at 6 a.m., and I type a very heartfelt email tonine people in Europe, including the CEO of Goldman Europe, and express in verypersonal terms why I'm leaving. I talk about exactly what I thought was wrongwith the place, this obvious deceit of clients.
Within five minutes I get an email back from someone on themanagement committee in Europe who says, "I'm really surprised to hearthis. I'm in London today. I'd love to meet with you." I get two voicemails from two other people. And then at 6:57 or 6:58, the piece comes online.
Q: What did the bank do?
A: My work BlackBerry stayed on for about three more hours,and I started getting emails from clients who were saying, "We completelyagree with you, we don't trust Goldman Sachs, we do business with you guys witha 'buyer beware' attitude." I started getting text messages from Goldmanmanaging directors who were supportive as well. And Goldman reached out to mein formal fashion and said, "We're sorry to hear you resigned; we'd liketo air these concerns out."
Q: The bank denies everything you've charged about themripping off clients.
The thing that disappoints me most is that management isdenying there's a problem. Why not try to repair the trust instead? Clients aretelling you they don't trust you. There's been an SEC fraud suit that wassettled for half a billion dollars.
(The Securities and Exchange Commission accused the bank ofselling investments to clients when the bank believed the investments weregoing to fail. Goldman paid $550 million. It remains the largest SEC penaltypaid by a Wall Street firm.)
I'm not some lone voice who thought there was a problem, achange from a client fiduciary model (doing what's best for the client) touse-the-client-to-extract-wealth model. It's a problem that many, many of mycolleagues felt and that the public feels as well, borne out in SEC suits andcongressional testimonies and clients saying publicly that they don't trust us.
Q: Were you just disgruntled? Maybe you didn't get the bonusor the promotion you wanted?
A: I was actually doing well in my career at Goldman. Mybonus, I was told I outperformed my peers by 10 percent. I'm a competitiveperson, and my goal was to get promoted, and I was told by multiple partnersthat I was two years away from getting promoted. So it certainly was a goal ofmine. And on the compensation side, I was earning a lot of money and had a verygood living, so I was grateful for what I was earning. It allowed me to have agood life and to support my family and to do things that I thought werevaluable.
Q: But you were at Goldman for almost 12 years, if you startwith your summer internship in 2000. Weren't there times when you should havestood up, should have said something about what you thought was morally wrong?
A: I actually made a conscious decision not to sell toxicdeals to clients. I didn't think it was the right thing to do, but I also sawthe idea that if clients' trust is being burned and they're getting blown up,you're not going to have a career for very long.
Now that does not mean I was not part of a system that wasdoing things that were unethical. In the book, I try to show some of theconflicts I noticed that gave me pause. For many years, I gave the firm thebenefit of the doubt.
It absolutely could have happened quicker. But one canalways see things earlier and sooner.
Q: OK, but isn't the purpose of any capitalist company tomake money? You certainly made a lot of money at Goldman. (Smith says he madein the "high hundreds of thousands of dollars" in his best years butdeclines to be more specific. His publisher declines to say what he was paidfor the book.)
Capitalism should be where everyone competes hard and makesmoney, in an environment where there is fair play and competitiveness. Rightnow the system is stacked against everyone else in favor of the banks.
It's a little like a casino. A real casino is regulated andthere are cameras everywhere and the casino cannot see your cards. With WallStreet today, the bank can see what every government, every pension fund, everyhedge fund in the world is doing. They can effectively see everyone's cards.Then, instead of facilitating the client's will, they're trying to get theclient to facilitate their will.
Q: What do you hope to accomplish with your book?
A: People know there's this huge conflict, and that thingsare being done that are unethical but are not necessarily illegal. But nobodycan put their finger on exactly what the problem is. My goal with the book wasto write it to a general reader who knows nothing about finance. By the timesomeone reaches the end of the book, they can say, "I can now speak moreintelligently about where the conflicts of interest are, and I can lobby mycongressman or I can speak about it more." If people are not educatedabout what the issues are, they're powerless. That was the problem with OccupyWall Street — they didn't know what they were protesting.
Q: The banks are going to say any bad practices were causedby just a few bad actors, and that those guys are gone.
A: This is not some conspiracy of five people sitting in aroom plotting to destroy the world. This is far more boring. This is wherepeople have created a perverse incentive system.
If someone can overcharge a client by a million dollars,their leaders are going to say, "Great job, we just made an extra milliondollars off this pension fund."
Q: So the endemic part is that people don't speak up?
A: People don't like being asked or compelled to makemorally dubious decisions. But unfortunately a lot of people's livelihoods aretied up in this, and it's not an easy thing to unwind. Their lives are caughtup in this system where they're sending their kids to private schools — it'salmost like the machine for them is working so well that there's no way to undoit unless you want to change your lifestyle.
Q: Why should we care about what happens on Wall Street?
A: You see a lot of commentary that Wall Street is just richpeople gambling with other rich people's money. I want people to know that itultimately affects everyone. In 2008, banks had to be bailed out and that hitstaxpayers. If you're a teacher or a fireman or a charity, and you have aninvestment fund that is trading with Wall Street, and Wall Street is not beingheld accountable and behaving ethically, then that directly impacts everyone.
Q: What about the reaction of your family and friends to allthis? You didn't tell them about the editorial beforehand.
A: No, my mother would have been really upset, and franklymy mother is still very upset. She's mostly worried about how I don't have ajob right now. For my parents' generation, the idea of stability is veryimportant, while my generation is a little more idealistic about wanting toactually change things, even if it involves some kind of personal risk. It tookme a while to show my mother that I was actually very proud of this.