A quick review of a piece on today’s NY Times’ op-ed page and, subsequently, just about every MSM business pundit’s blog, tells us that on his second, formal day on the job as head honcho for communications over at Goldman-Sachs, Treasury Secretary Tim Geithner’s just-departed, top p.r. counselor and Clinton administration press secretary Richard “Jake” Siewert, Jr. is undergoing trial by fire.
Kossack anninla published a post earlier, which I also strongly urge you to read and rec, about what has evolved into the hottest story on Wall Street today, with the title that corresponds with that of the NYT op-ed column, “Why I Am Leaving Goldman Sachs.”
I’ll let Rolling Stone’s Matt Taibbi tell us about this must-read story, as only he (has earned the right to do just that, IMHO) could, in his post from just three hours ago…
On Goldman Executive Greg Smith’s Brave DepartureTaibbi then notes that Goldman’s stock was down almost four points in the time it took him to write his blog post.
March 14, 11:06 AM ET
Wall Street is buzzing this morning about a resignation – a historic one. Greg Smith, the executive director and head of Goldman Sachs’s United States equity derivatives business in Europe, the Middle East and Africa, not only decided to quit Goldman, he decided to do it in the New York Times, eloquently deconstructing the firm’s moral slide in a lengthy op-ed piece.
The essence of Smith’s piece is devastating. He points to one simple, specific problem in the company: the fact that Goldman routinely screws its own clients. Anyone familiar with the report prepared by Senator Carl Levin’s Permanent Subcommittee on Investigations will recognize the jargon Smith points to in this line, in which he talks about what one has to do to become a leader in today’s Goldman:Execute on the firm’s “axes,” which is Goldman-speak for persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit.We heard about “axes” before in the tales about loser mortgage-derivative products like Timberwolf – that Goldman gave incentives to executives to unload its most toxic crap on clients. It was one thing to read about it in a Senate report, but here we have it from one of the firm’s own partners. He goes further, talking about the ways in which Goldman executives derided their own clients as fools and dupes:
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. Even after the S.E.C., Fabulous Fab, Abacus, God’s work, Carl Levin, Vampire Squids? No humility? I mean, come on.The resignation will have an effect on Goldman’s business…
Frankly (and unfortunately), seeing just how disconnected the market is from reality these days, it wouldn’t surprise me if Goldman’s share price moves the other way before the day’s over. I hope not. We’ll see soon enough.
If this NYT column by Smith is to have any effect upon the pervasive group-pillaging-think on Wall Street, as Taibbi notes it will, then the stock price will continue to plummet. Otherwise, as Taibbi puts it in his self-effacing best: “Because you can stack all the exposés on Goldman you want by degenerates like me and the McClatchy group, and you can even have a Senate subcommittee call for your executives to be tried for perjury, but that doesn’t necessarily move the Street.”
You really have to read the whole piece by Taibbi; it’s one of his better efforts (and for me to say that about Taibbi is, personally, quite strong); but more importantly, it provides us with the reasons why the timing of Smith’s column in today’s NYT is so critical.
Forbes Magazine’s Frederick Allen thinks so, as well, in: “To Save Goldman Sachs, Lloyd Blankfein Must Go.” And, here’s Forbes’ contributing writer Peter Cohan’s take on this: “Greg Smith Quits, Should Clients Fire Goldman Sachs?”
Reuters' Felix Salmon also has an excellent analysis of this, in “The ballad of Greg Smith.” In it, Salmon concludes that for Smith’s column to mean anything, considering its timing (with the article appearing on the tail-end of Wall Street’s bonus season), it’s all going to be based upon where the now-former Goldman exec ends up, career-wise. If he takes a job at a competing firm, all bets for real change on Wall Street are off.
As Taibbi points out…
This always had to be the endgame for reforming Wall Street. It was never going to happen by having the government sweep through and impose a wave of draconian new regulations, although a more vigorous enforcement of existing laws might have helped. Nor could the Occupy protests or even a monster wave of civil lawsuits hope to really change the screw-your-clients, screw-everybody, grab-what-you-can culture of the modern financial services industry.Yes, Jake Siewert certainly has his hands full today. Then again, he’s the one who crafted the White House spin, back in December 21st, 2000, when the Commodity Futures Modernization Act of 2000 was passed and signed into law, by President Clinton.
Here’s the first paragraph from Wikipedia on the travesty that is also known as the “CFMA”…
The Commodity Futures Modernization Act of 2000 (CFMA) is United States federal legislation that officially ensured the deregulation of financial products known as over-the-counter derivatives. It was signed into law on December 21, 2000 by President Bill Clinton. It clarified the law so that most over-the-counter (OTC) derivatives transactions between “sophisticated parties” would not be regulated as “futures” under the Commodity Exchange Act of 1936 (CEA) or as “securities” under the federal securities laws. Instead, the major dealers of those products (banks and securities firms) would continue to have their dealings in OTC derivatives supervised by their federal regulators under general “safety and soundness” standards. The Commodity Futures Trading Commission's (CFTC) desire to have “Functional regulation” of the market was also rejected. Instead, the CFTC would continue to do “entity-based supervision of OTC derivatives dealers.”  These derivatives, especially the credit default swap, would be at the heart of the financial crisis of 2008 and the subsequent Great Recession.As I noted in my post here on February 3rd, Siewert’s been training for his new job at Goldman-Sachs for many years.
Oh, the irony!
Let the cognitive dissonance begin…