Wednesday, March 14, 2012
- Why I Resigned In A Times OpEd
Greg Smith is resigning from Goldman Sachs and in the process confirming every dark liberal fantasy about how Wall Street works and what it does.
It's been a while since I've been on the sell side, but I can still see this guy coming a mile off. I don't know him at all. But it's obvious that he's lost some internal political war and made the determination that he'd be better off leaving in a big public way than trying to tough it out a little longer. Maybe he's changing firms, or maybe he's looking for a gig on MSNBC, working on a book, and he thinks an OpEd would be an opener for him into the media world. Like I said, I don't know him. But I do know that no one who is capable of success on Wall Street writes an OpEd trashing their employer unless the bridge is already burned.
My first job on the JPMorgan trading floor was working on the exotic swaps desk in NY. Swaps were still a new thing back then, and we dealt in Swaptions, knock-ins, knock-outs, step functions and the various permutations of the probabilistic swaps market.
Although it's quite a way back in the mists of time, I can still recall a situation where we determined that one client - a municipality - had put on it's positions in such a convoluted way that if rates went up they paid us a lot, if they went down they paid us even more, and if they stayed the same they paid us a little. These were just hedges so the numbers weren't very big, and we had responded only to customer requests so it wasn't our fault - it's what the client did to themselves. But since they had lost track of their positions, they had put themselves in a spot where there was literally no way for them to win.
We explained this to the MD in charge and he ordered us to inform the client of the situation and to unwind which ever two of the three risk components they wanted us to. "They may go broke" he said "but they aren't going to go broke because of us." We argued that they may have positions with other firms offsetting the positions with us (and in fact they did) but it meant nothing to the boss. He was insistent. And it was a good thing too. The client was Orange County California, and just a few weeks later, they declared bankruptcy - and did it with no help from us.
The point is, a Sell Side firm and their clients have aligned interests, but the bank doesn't control them. They never did. It's even more true for this guy where his clients are professional investors, than it was for me. And in an environment like the one we have today where Wall Street is being systematically vilified by politicians and 'fellow travelers' like the NYTimes editorial board, it's probably going to be even more true. Goldman is no different from JPMorgan in that regard.
This guy says that it's testimony to how important he was that he appeared in the recruiting video. To me that only says that he has one of those interesting and worldly sounding South African accents. We all used to fight like hell to avoid recruiting work because you don't make the firm any money doing it. And if you don't make money for the firm then you don't get promoted and you don't get paid. That's the real culture of the Sell side - always has been. And I think that probably points to Greg Smith's real problems at Goldman.
Whatever industry you're in, I'm sure you've seen people who lose political battles and are forced to leave because the tide turns too strongly against him. That's what this guy sounds like to me. He has no specific allegations and names no names. He doesn't even have the 'evil' corollary to my story where he was told to ignore the client's interest and focus on profitability. All he has is a general feeling about the culture of the firm, and an instinct that his political sun is setting. But that's enough for him to trash Goldman and the rest of the industry on his way out the door.
The big banks aren't saints. They never were. But to believe a story like Greg Smith's is to indulge in a fantasy that benefits no one. I'm quite sure that he's written this piece because he thinks it will help him. He believes it's opening up his options. He's going to be a hero to the left of course, but he's no hero. He's a guy who can't take his loss like a man and move on like the rest of us do. He's not the first guy to be where he is.
Already a spoof: Why I left The Empire By Darth Vader
I'm sure someone is already working on the subtitles for when Hitler learns of Gregg's departure from the Third Reich.
%%%%%%%%%%UPDATE #2 %%%%%%%%%%%%%
A person familiar with the matter said Mr. Smith’s role is actually vice president, a relatively junior position held by thousands of Goldman employees around the world. And Mr. Smith is the only employee in the derivatives business that he heads, this person said.
Apparently there is a reason I don't know the guy. Twelve Years as a VP in charge of a one man department is not exactly a fast tracker.