Start the conversation
Comment on This Story
Or to contact Money Morning Customer Service, click here.
By now you've heard about Greg Smith.
He's the former executive director of Goldman Sachs (NYSE: GS) who pulled a Jerry Maguire on Wednesday while resigning from the illustrious Vampire Squid.
In his New York Times op-ed piece, otherwise known as the scorched-earth letter, Mr. Smith explained that he resigned from Goldman because he could no longer abide by the firm's culture of ripping-off clients to line their own pockets.
The blunt frontal assault on the firm he once revered was a career move. What kind of career move remains to be seen.
But before I get into what really goes on behind Wall Street's velvet ropes and what Mr. Smith's pronouncements about Goldman's culture says about Goldman, let me say this about his future employment prospects.
I'd come out of retirement and start a new hedge fund if Mr. Smith would come on board.
In fact, after hearing all the hoopla about how he has burned any and all bridges he might have had as a Goldman alum and how he'll never work on The Street again, I can't help but laugh.
And I'm not the only one.
Bill Singer, a noted New York securities attorney who's not shy about speaking his mind openly and honestly, said to me, "Seriously, if the guy has as little as a $10 million book of business there'll be people all over him to come on-board. Not only that, but there are a lot of firms that would want to throw this in Goldman's face by hiring the guy."
Greg Smith's Jerry Maguire-like moment might just be the best career move he's ever made.
And I'm serious; I think he'd be a great addition to my new hedge fund operation. What do you say Greg?
Nothing New About Goldman Sachs
One thing is for certain: as biting as Smith's commentary was on Goldman Sachs, there were no new revelations about how the firm operates.
The bottom line about Goldman, according to Smith's op-ed piece, is that "people [at Goldman] push the envelope and pitch lucrative and complicated products to clients even if they are not the simplest investments or the ones most directly aligned with the client's goals. Absolutely. Every day, in fact."
Like I said, Smith's not delivering any revelations. It's not an insight into just Goldman, either. This mantra is essentially the Street Creed.
Wall Street only needs clients to make money for itself.
If you don't understand that, you don't know how the game is played − or how it's won.
The pinnacle of success on Wall Street is not having to have any clients. In other words, you've got so much money that you spend all your time making yourself more money with your own money.
But that's a fool's game.
Because the real truth is that if you're that successful managing money, trading, or doing deals, you want client money to play with.
Sure, the good guys pool their money with their clients, and that's the kind of manager and banker everybody wants to be in bed with.
But, no matter how big you get yourself, you'll never be as big as the sum of the client money you can manage and profit from.
Ultimately, having clients makes you money when you win, and doesn't cost you much when you lose, because it's their money your losing.
You may lose a client here and there, but there are always clients to be had. There are always "elephants" to bag.
However, Goldman takes unique advantage of its position on the Street. Not that all the other banks don't do the same, or try to − they do.
But Goldman's perceived power keeps clients coming in the doors and keeps unhappy clients from leaving, too.
The Real Truth Behind Goldman Sachs
Of course you're going to hear that this is all nonsense, and how Goldman couldn't survive if it constantly ripped off all its clients.
Well, the truth is it doesn't rip off all its clients all the time.
There are always sacred cows at every firm that aren't messed with and are treated with white gloves. Why? Because they're either too big to lose, too lucrative to mess with, or too high profile to ever get into a pissing match with.
As far as the rest of the clients?
They're there for the taking with excessive fees, front running, and saddling with insane swap deals that keep making money for the likes of Goldman (can you say Greece?) while sinking clients into such a hole that they have to do another swap to get out of the first one that's sinking them. And that next one, you better believe it will cost you.
Muppets? That's what Mr. Smith says clients have been referred to as. That's cute.
With all the cursing and name-calling on the Street, calling clients Muppets is laughable to me. After all, referring to clients as puppets is like calling the Grand Canyon a ditch.
Whatever they're called, they are something else very important. Clients are tools.
They are used to make money for the firm. Sorry, folks, the truth is the truth. Besides, you already knew that.
What Greg Smith was saying about Goldman is that it has changed. And, of course, he's right.
It has gotten better at making money by ripping off its clients for bigger and bigger fees and commissions.
The culture that Greg Smith thought he was becoming a part of has been in rapid decline since the day Goldman went public, right about when Mr. Smith joined the bloody fray.
No, there were no revelations in Greg Smith's letter to The New York Times.
There are no hidden truths about Wall Street. Its bare-knuckled, winner-take-all tactics are front and center and woven into the lining of every banker's custom-made suits.
We'll see what becomes of Goldman's own Jerry Maguire and we'll see what becomes of Goldman Sachs.
The question is whether there is enough room for both of them on Wall Street.
Related New and Articles:
- Money Morning:
A Flash Crash, Fat Fingers, and Positioning for a Correction - Money Morning:
Liquidity Liquor and the Battle Ahead - Money Morning:
The Greek Bailout, the CDS Market, and the End of the World - Money Morning:
Don't Be A Wall Street Patsy
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
He helped develop what has become known as the Volatility Index (VIX) - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of 10X Trader, Shah presents his legion of subscribers with the chance to earn ten times their money on trade after trade.
Shah is also the proud founding editor of The Money Zone, where after eight years of development and 11 years of backtesting he has found the edge over stocks, giving his members the opportunity to rake in potential double, triple, or even quadruple-digit profits weekly with just a few quick steps.
Shah is a frequent guest on CNBC, Forbes, and Marketwatch, and you can catch him every week on Fox Business's "Varney & Co."
He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.
well said & well worth reading
Goldman Sachs is in on weather manipulation game to benefit from betting on the futures' movements all over the world especially in Australia (floods).
I'd want Smith on my team as well if I had access to the sort of hedges that would draw investment bees.
I appreciate your wit, your candor, and your willingness to slaughter the sacred cows and expose the massive bull that is so tragically evident in todays markets.
There have always been allegations that the money boys on Wall Street 'churn' the customer accounts. Many, if not most, trades are done merely to generate commissions and transaction fees. This is why more people turn to precious metals, taking delivery themselves, not leaving them in other hands. They don't want their assets 'Celentised' by the likes of Jon Corzine, who is getting away with it by means of political connections. Wall Street needs to clean up its act PDQ before people entrust their assets to more honest markets—HongKong, Singapore, Bombay, where real money can be made.
That is why I left the business, you are not supposed to do right for the client. You just use them to dump the garbage that the firm needs to rid themselves of, anything to get the crap off of their books.
I have read enough to realize all this is true, so true in fact that I have begun to question the basic tenets of American-style capitalism. Surely, we can be better than this. If not, if we have become souless creatures deserving of whatever fate our rapacious greed may bring us.
Gentile or Jew, the evil these men endorse on a daily basis is characteristic of a system destined to fail.
Since Goldman Sachs is one of the founding members of the Federal Reserve, the biggest rip-off artist in modern history, they'll survive. As a founding shareholder, they get their cut of the trillions the FED rakes in from income taxes and other scams; and, of course, since the American citizens are chattel property of the FED by law (1933, Emergency Banking Act, Trading with the Enemies Act of 1917 as modified March 9, 1933, etc.) and usage of Federal Reserve Notes (debt instruments), they also, as shareholders, have claim to all the property and income of the citizens of the… Read more »
As a former retail broker (who left the industry due to a character fault known as ethics); if the stupid fat cat clients from Goldman are getting ripped off so be it. Remember there is no place for morality, ethics, or a conscious in the markets. Just Greed. Isn't capitalism wonderful?
Greg Smith has confirmed my long held suspicions about the
the financial services industry. As a relatively small investor
the best move I ever made was to get out of the clutches of
so called 'Independent Financial Advisors' and their pet fund
managers and look after my own fund with the help of a brilliant
stockbroker who deserves the trust he has earned.
00923237564757 what my mony have in my account how much
The NYT and Money Morning? I am informed!
Ct-Man – I agree with you that our economic csriis won't be over until we can fix the failures of the big banks. I hope that Obama's economic team is up to that challenge…Sojourner and Mike – We call it a bailout now. They will be saying, "it's the reason that Daddy went to jail" later…Karen – I've never thought to tip anyone at a fast food place before. I guess the fact that I've never worked at one makes me under-appreciate what they do…Webmaster – Can you clarify what you mean by Obama getting money from Goldman Sachs?