Greg Smith, the ex-vice president of Goldman Sachs who resigned last spring after publishing a scathing op-ed about his former employers in the New York Times, has a new book out (“Why I Left Goldman Sachs”) and appeared on “60 Minutes” last night to talk to Anderson Cooper about it.
Smith said Goldman, like other firms, started several years ago to use client information to bet with its own money, sometimes against its own clients. Getting an unsophisticated client, he said, became the “golden prize” because the “quickest way to make money on Wall Street is to take the most sophisticated product and try to sell it to the least sophisticated client.”
Greg Smith: So what Wall Street will do is, they will approach one of these philanthropies, or endowments, or teachers' retirement pensions funds, in Alabama, or Virginia, or Oregon, and they'll say to them, "We have this great product that is gonna serve your needs." And it looks very alluring to these investors. But what they don't realize is that up front, they're immediately paying the bank two million dollars or three million dollars because of their lack of sophistication.
Anderson Cooper: So they don't say to the client: the price you're paying for us to execute this trade is a million dollars?"
Greg Smith: That's a huge part of the problem. Not at all.
Anderson Cooper: How can it be that the client doesn't understand what the bank is making?
Greg Smith: These are very complicated derivative securities which takes a Ph.D. in physics or in engineering to understand. And there are pension funds and mutual funds that represent people's 401(k)s and retirement savings that are trading the most complex instruments out there without fully understanding them.
Anderson Cooper: So, did the people you work with want unsophisticated clients?
Greg Smith: Getting an unsophisticated client was the golden prize. The quickest way to make money on Wall Street is to take the most sophisticated product and try to sell it to the least sophisticated client.
Goldman rejects Smith's accusations that the company puts its own interests ahead of its clients and conducted an internal investigation aiming to disprove the charges. Smith really abandoned Goldman because his superiors refused to promote him to managing director and more than double his salary to more than $1 million, the company says. Blankfein this month that he's "not really concerned about the book's revelations."
Smith said he "absolutely" would have left Goldman Sachs told CBNCs even if they had agreed to his promotion and salary increase. With his book completed, Smith doesn't yet know what his next move will be. "I was not doing this in order to get hired at another Wall Street bank."
A full transcript of the "60 Minutes interview" is available here.