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By Yves Smith | Naked Capitalism via Alternet

Wall Street hates Greg Smith for telling the world of rampant abuse in one of its most prestigious firms.

Greg Smith’s book on his time at Goldman has generated a hailstorm of criticism, aptly summed up by Jesse (on Naked Capitalism):

But the absolute trashing and personal attacks on Greg Smith in the past week that were orchestrated by Goldman and supported, heavily, by the US financial networks got my attention. Generally ad hominem attacks are used by those who consider the facts of the case to be dangerous ground, and wish to do anything that they can to avoid discussing them. So instead they seek to discuss the person bringing them to light…

The rationales in favor of Goldman quickly take on the character of the schoolyard. Everyone does it on Wall Street, and singling out Goldman isn’t fair. And what was Greg Smith expecting? Everyone knows Wall Street is predatory and will do whatever it takes, even abuse their customers and make millions out of it. And if the customers are dumb enough to fall for it, they deserve it. Don’t be a fool like him, be a sophisticate and move along.

What people do not realize is that the fraud cuts so deep and wide that it hard to escape it, even if one has no dealings personally with any of these firms. These Wall Street financiers have their hands in everyone’s pocket through the manipulation of the financial system, the price discovery mechanisms, and the money supply. And if you do not understand this by now, you understand nothing.

Smith’s sin seems to be that he’s an insider from an uber prestigious, connected firm who dared say something bad about his former employer. The “don’t rock the boat” attitude is so deeply ingrained in America that it’s considered reckless to be candid about why you are quitting a job in an exit interview. And it’s not a stretch to call the reaction totalitarian when it’s Wall Street that is on the receiving end of criticism. Look how, despite running again and again to Wall Street’s aid, Obama is an official enemy for a mere “fat cats” remark. Similarly, the industry depicts Elizabeth Warren as a power-mad Commie bank serial killer, when her fault-finding is based on clear eyed analysis of how deceptive and predatory practices hurt consumers.

I’ve not read Smith’s book, but based on the extensive commentary on it, it appears that Smith intended it to serve as an insider caveat emptor for people who need financial product warnings. From Clusterstock:

‘Why I Left Goldmanc Sachs’ isn’t for people who know the Street. It’s not even for anyone who’s read Liar’s Poker (that’s way more advanced). It’s for the millions of people who have no idea what Wall Street is. It’s for the people who only heard about Goldman Sachs or Lehman Brothers in 2008, when it seemed like the world was collapsing under the weight of Wall Street’s complex business.

This isn’t hard to pick up. Smith talks about complicated things like markets and hedge funds in simple terms meant to be understood by someone who’s never heard of a derivative.

And while the negative commentary will likely succeed in killing book sales, that may not matter much, since Smith reached more people than were ever likely to read his work via his 60 Minutes appearance, in which he comes off well.

By contrast, as Pam Martens describes Goldman’s brass knuckles reaction in making extensive disclosures from Smith’s personnel files is unheard of outside litigation. Moreover, she highlights a stunning comment by Edith Cooper, the head of pretentiously-named Human Capital Management in a Bloomberg interview, that “Our interests are 100 percent aligned with our clients.” Bloomberg has since edited that world class whopper out; you can go see that it’s missing from the segment, but Bloomberg failed to scrub the lone comment on the video from four days ago calling out the remark (I’ve taken screenshots for posterity since I assume Bloomberg will complete its Goldman-flattering airbrushing now that I’ve pointed out their lapse).

And some of Goldman’s reactions were telling. Smith charged that the firm changed its recommendations on specific European bank stocks frequently, based on the firm’s position. Goldman’s defense was legalistic: that wasn’t Smith’s area (so gossip doesn’t travel? Please), and the firm didn’t have prop trades on (hello, the customer desks have positions as well).

But let’s get to the more interesting question: why is Smith’s book thin on the sort of salacious detail that the many of his critics clearly wanted him to serve up? There may have been legal concerns. Note that fellow Goldman alum Tetsuya Ishikawa wrote a thinly disguised autobiography in the form of a novel; it’s not hard to tell which of the several firms his main character worked for is meant to be Goldman, and his book is full of the liberal use of drugs, hookers, and very expensive wine as inducements in the sale of drecky CDOs, combined with pretty good primers on the products themselves). But we’ll put that aside and offer some possibilities.

Smith was simply too junior. Ironically, Goldman had this as a defense in its “toolkit” circulated before the Smith book hit the newsstands.

By e-mail, excerpted from a book in progress, by Michael Thomas, second generation Lehman partner, back in the days when, pound for pound, Lehman had the best investment bankers on the Street:

In no form of human endeavor does history count for as little as in finance. The more I read, however, the more I’m struck by how little top-level insider material there is. Maybe I should make that “how little honest top-level insider material.” There’s a reason for this: Wall Streeters may be exorbitantly well paid for what they do, but ex-Wall Streeters, especially those with first-hand knowledge of the location of the bodies, and super-especially the big hitters who called the shots, who made things happen and denominated their triumphs in nine digits or more, seldom speak for the record – which is how and why they get to keep the money.

If you ask me, what we really need are accounts dictated by the devils in the details, tell-alls that offer Satan’s first-person account of his evil angels’ handiwork. An insider account, for example, of Michael Milken’s Drexel Burnham junk bond daisy chain, preferably by the man himself. Forget it: ain’t going to happen. When Long Term Capital Management (LTCM) went down the tubes (despite its pretentious name, what killed it were short-term problems), John Meriweather didn’t waste time writing the whys and wherefores and certainly not the mea culpas; he didn’t hire a ghostwriter; he went out and raised a new fund, and if this one taps out – one hears not-so-good things about its performance – he’ll doubtless return for a third at-bat. If he had set down a written record of how he pissed away billions, he wouldn’t have a chance in hell of a do-over. But Wall Street is the mother of career reinvention, the working motto of the place is “This time is different” (which old-timers say it never is), so why screw up the possibility of a second or third go-round with a mea culpa or a mea whatever?

The problem is, most Wall Street books written by so-called “insiders” turn out to be by low-level functionaries. The definitive book in this genre, Michael Lewis’ Liar’s Poker, is an account written by a guy who I’m told was perhaps a couple of rungs up from clerk at Salomon Brothers. What we never got was Salomon CEO John Gutfreund’s side of the story. When he got the boot, he kept his mouth shut, took his money and left the firm.

Smith was in an area where the opportunity for ripping off clients was circumscribed, so he wasn’t likely to have real dirt. If you listened to the 60 Minutes video, what Smith says, in essence, is that the best profit opportunity lies in selling a really complex product to a naive client. After seeing Jefferson County, German Landesbanken, and Australian town councils as world famous stuffees, this should comes no surprise. Smith does provide further confirmation in hinting hard that client who are so trusting that they “don’t know how to ask questions” are well represented in Goldman’s top 25 clients (by profits) list.

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