Why I Left Goldman Sachs: A Wall Street Story (25 page)

After the settlement, a lot of people at Goldman felt relieved.
Maybe
, they thought,
with all this out of the way, we can move on
. Yet business didn’t get a lot better: the firm’s reputation had been damaged with some clients. A lot of clients were no longer comfortable taking counterparty risk with Goldman Sachs. They would be willing to trade only listed, transparent products that went through a clearinghouse. That way the clients’ money, and market exposure, would be safe, irrespective of what happened to the bank they were trading with. Not the case with OTC derivatives or structured products, with which you would be subject to the fate of the bank with whom you did the trade.

As the pressure for revenues increased, so did bad behavior of various kinds inside Goldman Sachs. There was more pressure to steal a colleague’s client or to try to persuade unsuspecting clients to do things that weren’t in their best interest. People who had risen to leadership positions during the crisis, elevated for their ability to bring in cash rather than lead, now consolidated their power. Right and wrong had become a thing of the past; the new watchword was “GC or not GC?” Gross credits: they’re what people cared about, talked about, measured themselves by, and got paid for. More and more people in the firm carried this banner, and these people were now the managers setting an example to their teams.

The smarter among their ranks must have known how the optics of this would play out. After the Senate hearings, Mr. Cleanse forbade the mention of GCs in office e-mails, for fear that such messages might, like those of the Fabulous Fab, someday become public. Or, just as bad, that a client might see such an e-mail and begin to understand what kinds of hidden charges it was paying.

Jack Welch, the iconic former CEO of General Electric, wrote that once an organization starts rewarding bad people for generating profits, the good people become demoralized, the culture gets ruined, and some of the in-between people (those on the fence) get lured into thinking they have to act like the bad people. And the more this happens, the more it continues to happen, until it becomes the norm. This moral erosion was swiftly becoming the norm at Goldman Sachs.

Welch (in Reuters) on culture:

With the squeeze on, the old-fashioned kind of business (making flat commissions on transparent exchange-listed trades) was increasingly seen as not profitable enough. Around the time of the SEC settlement, a Goldman quant came up with a sexy new black box with a very unsexy name. Call it Clorox. The real tag is even more generic—the firm was very concerned, post Abacus, that new structured products be designated as blandly as possible, I suppose to avoid drawing undue attention to them.

Clorox was what is known as a “multi-asset-class momentum product”—a fancy term for “Give us your money and we’ll reallocate your funds based on historical models (taking a big markup on every reallocation).” This product was a bit like a jazzed-up version of basic portfolio management. It was like taking a baloney sandwich and offering it to a client as a Panino di Bologna. The first is worth fifty cents; the second, you can sell for eight dollars.

Some clients went for it, especially the kind I mentioned earlier: the simple ones and the ones who didn’t know how to ask questions. There were a number of endowments, foundations, and philanthropies out there who took the bait and bought Clorox.

When my bosses pressured me to try to sell Clorox to some of my bigger clients, I knew immediately that it would not be up their alley. They would have been offended, in fact, had I broached it with them, because they can do asset allocation and portfolio management themselves. Why on earth would they need a complex black box called Clorox that generated outsize fees for Wall Street? They could achieve the same thing using exchange-listed stocks, futures, and options. I pushed back on pushing Clorox to my clients. It was not in their best interest.

As the sales force went out flogging Clorox to philanthropies, state teachers’ retirement plans, and small hedge funds that were just getting up and running, I wondered,
Is this reflecting any lessons we’ve learned from the Senate hearings or the crisis?
And I couldn’t help thinking,
No, this is not reflecting any new direction. In fact, the rhetoric around GCs is increasing constantly
.

Then the firm commenced its “Business Practices Study.” Goldman took it upon itself to say, “All right, we haven’t done everything right; let’s start investigating.” All the top people at the firm were put on the Business Practices Committee. The guy in charge of it was a long-standing partner named Mike Evans, who was supposed to be old-school, up-front, and high on the list to take over the firm one day.

I was hopeful about the study, hopeful that Goldman could start repairing this trust deficit it had with clients. I had a vision of going back to my client in Asia and saying, “Look, we’ve studied these things. We know it is going to take us time to fix this. But we’re determined to get it right.”

But as the study proceeded, I began to wonder whether it was all just for show. I would have liked to contribute to the study, offer some opinions, but I wasn’t contacted. I didn’t know anyone who was contacted for their input. Was the study being conducted in a back room somewhere?

I had developed a real money niche. Thousands of clients and internal Goldman people were on my distribution list when I sent out my market commentaries. I had built up a track record of thoughtful content, and had been more right than wrong in my market predictions. This was part luck, but since my early days with Rudy and then Corey, my market instincts had improved. They had become sharper. I had a sense for how markets might react under different circumstances. After all, in my decade-long career so far, I had seen multiple bubbles and busts; I had seen how market cycles work. My little essays were becoming dialogue-starters. People would say, “Did you see the ‘Real Money’ piece?” or, “Did you see Greg Smith’s latest?” They forwarded them around to their clients. I was proud that I was producing original content. Very few salespeople were doing this on a regular basis, aside from me and my two MD friends.

I was also proud to maintain a level of objectivity. I said what I thought, rather than parroting the company line. This didn’t go down well in all quarters. One day, toward the end of the summer of 2010, my co-boss Beth called me into her office for yet another worried conference about how slow business was and what she wanted me to try to do about it. When I mentioned a recent piece I’d written, she made a face.

It was probably ill advised, but I had to say something on my own behalf. “I don’t want to make too big a deal of this,” I said, “but some of the biggest clients in the division are reading and responding to my pieces, and we are gaining mind share with them in a tough climate.”

She shook her head a little sadly, as if I were a particularly dense grade-school student. “Content and ideas are not going to lead to success at Goldman Sachs, Greg,” she said. “The only thing that matters is the numbers.”

Every September 11 since 2002, Wall Street has observed three moments of silence to commemorate the attacks on the World Trade Center: one at 8:46
A.M.
, when the North Tower was hit; one at 9:03
A.M.
, when the South Tower was hit; and one at 9:30, when the opening bell on the New York Stock Exchange rings.

For the first few years after 2002, somebody would always pipe up on the Hoot, “Guys, moment of silence coming up; everyone keep it down.” The trading floor would go dead quiet. But after the five-year anniversary, in 2006, I began to notice that people were no longer paying attention.

The moments of silence would be going on in the background—on the monitors, you could see the observances on CNBC—yet people just carried on with their business: calling clients, checking their Bloombergs. I don’t think they were being intentionally disrespectful; I think they were just being young.

By the mid- to late part of the first decade of the 2000s, the average employee tenure at Goldman Sachs, in a workforce that now numbered thirty thousand, was approximately five years. So, when it came to September 11, people simply didn’t have the context. They hadn’t been here then; they’d still been in college, or even high school. Aside from the brief annual commemoration, Goldman’s institutional memory had sealed over and walled off the trauma, so that we could go on with business as usual.

By September 11, 2010, we were in a new world altogether at the firm. It made me feel old, and sad. But I also felt proud to have stuck around so long.

Also, in September 2010, something monumental happened.

My green card. I got it! Fourteen years after I landed in America as a college freshman with a thick South African accent, I was now a permanent resident of the United States of America. What a feeling it was to open that envelope and see that card. A mixture of wonderful emotions: freedom to stay in America, flexibility, relief, happiness. People born and raised in America have no idea how hard it is, and how long it takes, to get that magic card. And I was thrilled. My adopted homeland had been good to me, and I could not have felt prouder. Lex and I—buddies in Jo’burg, buddies at Stanford, buddies when he had stayed in Palo Alto and I had flown off to New York—were both now full-fledged permanent residents of this great nation. When we saw each other a few weeks later, we toasted our achievement, feeling proud of how far we had come, that we had been able to stay in America. Jo’burg seemed a long way away now.

I have always sought out mentors. After my market pieces began to gain traction, I formed a bond with a very senior 2006 partner who seemed to take a genuine interest in my career. He liked my writing, which meant he liked my ideas. As an upper-echelon partner, he knew what was going on in the organization, and he felt I was on track toward taking the next step up, to managing director. He also had ideas about what I might do to facilitate the move. “I’ve heard good things,” he would say. “This is how you need to position yourself.”

I was about to turn thirty-two in December; I had been a vice president for four years. Most new MDs were promoted in their mid- to late thirties. There were people such as Dave Heller who had made it under thirty. So it would not have been unheard of for me to move up now, but it would certainly have been considered quick. My partner mentor had also said, “The good guys around here always finish first, but it usually takes them longer”—meaning that the bad guys did well and rose fast, but the good guys ultimately outlasted them.

In truth, I was never very good at the political game. I always (perhaps stupidly) wanted to let my work speak for itself. But I could tell that, in the Goldman Sachs world I was living in now, it was essential that I look out for myself, find sponsors, make sure to speak up and ask for what I wanted. That’s why I was happy to have found a senior partner mentor.

A few weeks later he asked me to swing by for a follow-up meeting. “How are things going?” he asked. “How’s the year progressing?” He mentioned my last couple of market commentaries, and said, once again, “These pieces you’re writing are great—it’s really good stuff.”

I thanked him. “But I have to say—” I hesitated.

“What is it?” he asked.

“It’s a little bit hard for me to hear from my boss that these pieces are almost irrelevant,” I said, and then I told him about my unsatisfying discussion with Beth.

To his credit, he was very disturbed to hear this. In fact, he got quite angry. “Gary is very concerned about this kind of stuff,” he said. He told me that Gary Cohn had worried aloud to a number of the partners that the good guys in the organization, meaning the culture carriers, weren’t succeeding as much as the people who were selling ice in the Sahara Desert—say, unwinding distressed positions for panicky clients—and racking up huge fees. My mentor said Gary realized that throughout the mortgage boom and the subsequent crisis, Goldman had promoted a lot of people for selling ice, putting a lot of the wrong people into leadership positions. “Gary is very worried about this, and is very focused on getting it right,” he told me. “I’m going to talk to somebody about this.”

Two days later, at 7:45
A.M.
, Beth asked if we could have a chat in her office.

I have to say that I wasn’t especially worried. On a spectrum of people Beth hated and loved, I was probably somewhere in the middle: I didn’t ever have a sense that we had a bad relationship. My first thought was that my complaint to my mentor had gotten back to her, and she wanted to rough me up a little bit. I also wondered, since she knew he had been mentoring me about the managing director track, if she wanted to assert her power as my boss and take control of that conversation. As I walked into her office, I imagined her saying something like “Look, your mentor has spoken to me, and first of all, you need to be careful about how you portray things. But also let’s talk about the MD track. We see it as being maybe two years out for you. Here’s what you need to do; here’s what you don’t need to do.”