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Financiers are dangerous idiots who need to be watched every minute

This resignation letter by one Greg Smith, formerly of Goldman Sachs, has created a bigger splash than most. Maybe because he published it in the New York Times.

From the letter:

I have always taken a lot of pride in advising my clients to do what I believe is right for them, even if it means less money for the firm. This view is becoming increasingly unpopular at Goldman Sachs. Another sign that it was time to leave.

. . .

It makes me ill how callously people talk about ripping their clients off. Over the last 12 months I have seen five different managing directors refer to their own clients as “muppets,” sometimes over internal e-mail.

No wonder Goldman’s stock price tanked the next day, although it bounced back. Although Smith says he didn’t see anything illegal, he definitely saw, and describes, things that Goldman could be sued for. The fact is, when you have a client–whether you’re a doctor, or an accountant, or an agent–you have a fiduciary duty to advise your client in his or her own best interest. Breaching that duty isn’t a crime in most states, but your client can damn well sue.

The initial chatter about Smith focused on the small question of whether or not he’s right (he is)–whether Goldman’s corporate culture has deteriorated to the point where they put profits above clients (Michael Bloomberg says no. He’s wrong, but he’s right when he says that the financial industry is crucial to New York City), and whether said deterioration is a Goldman problem or endemic to Wall Street (it’s the latter).

But others have pointed out that Goldman “never had moral fiber” (in Robert Reich’s words), that they have “a long history of duping clients.”

So, have Goldman’s (and Wall Street’s) morals deteriorated, or were Goldman (and Wall Street) always a bunch of bastards?

Both are true.

Wall Street has always been filled with amoral bastards who want to make money any way they can. The country saw that in the 1920s, with the orgy of speculation that led to the 1929 crash and the Great Depression.

Even after the crash, it took surprisingly long for people to understand just how bad–as people, and even as financiers–Wall Streeters were. It took years of depression, followed by congressional hearings in which (in the historian William Manchester’s Arthur Schlesinger, Jr.’s words) the heroes of Wall Street confessed to “one breach after another both of normal ethics and normal intelligence.”

After that, the New Deal set things up so that finance stayed simple and easy to supervise, and so that Wall Street was more or less forced to do what it’s supposed to do: to find real, productive investments for our savings.

Since that was the way to make money, that’s what Wall Streeters did, whether they were bastards or not.

Starting in the 1970s, we deleted our regulations in the name of the free market. The result was exactly what you would expect: a replay of the 1920s.

How long till we get it into our heads, again, that financiers are dangerous idiots who need to be watched every minute?

Before I leave this subject, check this out: It’s Goldman’s CEO’s response to Smith. Go read it. Then ask yourself: Does this read like something from the pen of an effective, dynamic person–someone so alert, so sophisticated, and so brilliant that he deserves millions of dollars a year if he deigns to lend his powers to the service of a company? Or does it sound like the work of a dull, petulant nobody?

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