Financial Arrogance

I read with great interest the op-ed by Greg Smith in the NY Times a little over a week ago. In it he announces his resignation that day from venerated financial giant, Goldman Sachs. He claimed that “the integrity problem” at the firm became too big to ignore. While he was at the firm for twelve years he only now came to the conclusion that the ethical environment was so toxic that he could no longer look at the candidates he was recruiting from top college campuses and tell them with a straight face that Goldman was a great place to work.

While I admire Mr. Smith’s stand I am frankly miffed at what took him so long. For a bright guy who was recruited to Goldman out of Stanford he should have realized that he was about to wade in a swamp of immorality, deceit and ruthlessness otherwise known as the financial services industry. Goldman, proud to always have the “smartest guys in the room” certainly tried to appear to be above the fray, but the bottom line always was that they were in the same game as the rest of the banks. They have but one objective; make money, lots of it. Deregulation of the industry helped prod along a culture of greed and one thing remained a constant, the objective of making money at all cost, morality and ethics be damned.

As a young broker at a Wall Street firm I remember being told at a sales meeting “you don’t work for your clients, you work for us.” The implication was that the best interests of the client were the farthest things from our objective. That culture has been around for a long time and won’t change anytime soon. Certainly we free market supporters, believers in capitalism don’t see anything fundamentally wrong with making money. Perhaps it’s the road taken that needs rethinking.

Let’s face it, success breeds’ arrogance; it is inherit in human nature. The more we have the more we feel we deserve. We see it in everyday life and I’ll give you, my neighbors, a test to prove it. Next time you see a car parked illegally say in a cross walk on Central Avenue, check out the year, make and model of the vehicle. Chances are it’s a late model Porsche, not a 02’ Camry. It doesn’t make a difference if it’s institutional arrogance like that being displayed at Goldman or individual arrogance – it is a sense of self-importance and entitlement.

I’m not knocking success, what I am pointing out is that the financial crisis of 2008 and the years that led up to it were chock full of arrogance, enough for thieves to believe that their stolen treasure was earned through superior intelligence and hard work. What we learned was that anybody can make money if the deck is stacked in his or her favor. No doubt some pretty smart people work at Goldman but the fact is that institutional arrogance forced them to do some pretty slimy things like selling clients securities they themselves thought were crap. Illegal? Probably, but the government seems to be giving them a pass on this crime. Ethical? Of course not! Ramifications? Close to none.

Power in the world has shifted from governments and thinkers to corporations and a select few who run the major corporations. Power is never given up easily but our country has a history of reformers from Andrew Jackson to the two Roosevelt’s. Reform need not be radical but it has to be concrete. The interests of corporations must go beyond just the interests of the shareholder. In our current system, most shareholders are represented by agents; fund managers, insurance companies, retirement funds and the like who are thus at odds with the interests of those they represent. Think about it, the guy that manages your 401k gets paid no matter how your account preforms. While many of us saw the value of our portfolios diminish, those agents cashed undeserved bonus checks while the taxpayer bailed them out from their reckless behavior. Greg Smith’s public outing of Goldman is a good step towards change, but really he is a day late and dollar short