Global Agenda: The Muppet Show

Smith claims that Goldman and the entire Wall Street system of which it is the undisputed pinnacle has gone off the rails.

By PINCHAS LANDAU
March 15, 2012 23:02
4 minute read.
Benjamin Netanyahu

Bibi netanyahu. (photo credit: JPost Staff)

Since Wednesday, a single subject has dominated the financial world. For a change, it is not about Greece, nor any other country and its woes. It is not focused on a specific piece of data or information, about an economy or a corporation. It is just a newspaper article , a mere opinion piece.

True, it was published in The New York Times, but for Wall Streeters and their ilk across the world, that is a secondary newspaper to The Wall Street Journal and probably also less important than the Financial Times. So why has a piece by the hitherto unknown Mr. Greg Smith rocked the entire financial establishment and triggered a massive reaction that is just getting under way and will continue for a long time – not in the markets, but in the dealing rooms and board rooms of the firms that ultimately make and control the markets.

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The answer is that Smith, in a short article entitled “Why I Am leaving Goldman Sachs,” has committed the ultimate crime in the rule book of the “masters of the universe”: he has revealed the inner workings of the largest and most powerful of the American financial institutions. Furthermore, at least so he claims, he has exposed the inner soul of Goldman Sachs – and how the firm has sold its soul to the devil.

Smith notes, correctly, that many people don’t believe that Goldman and, by extension, its peers in the financial world were ever anything other than soulless, totally corrupt, infinitely greedy and utterly determined to gouge their clients to the greatest extent possible. However, he says that in the 12 years he worked at Goldman, ending with his very public resignation on Wednesday, he witnessed a severe and rapid decline in the firm’s culture and integrity, to the point that he became unwilling or unable to continue to be part of it and he quit his quite senior position.

Anyone with the slightest interest in finance must surely have read the article in question by now. But being that Smith sent his piece to the Times rather than the Journal or the FT, shows that he was aiming his message at a wider, non-professional audience – quite rightly, in my opinion.

This piece, this message and the debate that has exploded in its wake, must and will become part of the presidential campaign; why is Obama surrounded by Goldman alumni, and why are so many of the key positions in the policymaking arena filled by people who were previously at Goldman, or soon will be? But it goes far beyond Obama and the Democrats; after all, Bush’s secretary of the treasury was the former boss of Goldman. It goes to the heart of the overriding issue of who runs America – and for whom? Is there any remaining trace of a “by the people, for the people” system of government, or have the “banksters,” the “one-percenters” and the “fat cats” taken over, with the 99% left on the outside? Smith doesn’t talk politics, let alone party or personal politics.

He uses terminology such as “corporate culture” that most outsiders will scoff at, or perhaps throw up over. But he has revealed a few insights that have, in the space of a few hours, not merely “gone viral,” but already entered the public arena and embedded themselves in popular and political language – never to be dislodged.

Thus, we now know that Goldmanites refer to their hapless clients (these, by the way, are major financial institutions, not hapless widows and orphans) as “muppets” and that the overriding focus of how Goldmanites see the relationship between them and their clients is how much money they can make off them; not, as Smith claims was the case a mere decade ago, how can the bank serve its clients and help them achieve their goals.

In short, Smith claims that Goldman – and again, by extension, the entire Wall Street system of which Goldman is the undisputed pinnacle – has gone off the rails. He regards its attitudes as cynical and cavalier, explicitly denying criminality and avoiding the charge of corruption. But for everyone outside Wall Street, Smith’s revelations are more than sufficient to convince them that corruption is the norm and, at the very least, to raise strong suspicions of criminality. The cozy relationship between the regulators, notably the SEC, and the big institutions has long been regarded as a central and essential element in Wall Street’s excessive power.

The Wall Street adage that “there is never a single cockroach” will undoubtedly be proven correct again. There will be more Greg Smiths and many more revelations from within. Some will be phoney, some will be cranky and a good number will be substantive. Their cumulative impact will be critical in determining the future path of the American and global economies, because although the central banks can pump endless amounts of money into the commercial and investment banks to keep their balance sheets looking healthy, they cannot save their ultimate asset.

That, as Smith makes crystal clear, is the confidence of their clients. Once that goes, the game is up and the long-awaited “reboot” of the entire economy can commence.

landaup@netvision.net.il


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