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The Buzz

Greg Smith explains why he left Goldman Sachs

By Cara Reichard on January 28, 2013

Greg Smith had an unusual way of resigned from his banking job: He lambasted his employer on the opinion pages of “The New York Times.”

In March 2012, on the day of his resignation, Smith authored an op-ed called “Why I Am Leaving Goldman Sachs,” in which he cited the “toxic and destructive” environment he had watched develop in the dozen years that he had worked with the bank.

“To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money,” Smith wrote.

Earlier this month, Smith came to Stanford to talk about his views on the banking industry and share his call for reform with the audience. His talk, called “Why I left Goldman Sachs,” was part of the Center for Ethics in Society’s Ethics of Wealth series. A crowd of undergraduates, business school students, and members of the community gathered in Cemex Auditorium to hear him speak.Audience watches on as Greg Smith talks about why he left Goldman Sachs

Quite a controversy arose from the op-ed. Critics wrote the whole thing off as a bitter retaliatory action against the firm for denying his request for a bonus. Other criticism focused on the results of investigations into the legitimacy of his claims, where some discrepancies were uncovered. Strong reactions also arose on the other end—reactions from people who felt that all of their worst fears about the banking industry were being confirmed.

“I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients,” Smith wrote. “It’s purely about how we can make the most possible money off of them.”

During his January talk, Smith emphasized that what he saw as the problem was not unique to Goldman Sachs, but true of the industry as a whole. “Free markets imply that the playing field is fair,” he said. “Capitalism as it is going on in the financial industry is no longer on an even playing field.”

According to Smith, the banking industry has changed drastically over the past decade. He explained this change in terms of a shift from a strategy of “long-term greedy” to one of “short-term greedy.” Long-term greed, which was dominant on Wall Street up until recently, is based on the idea that, by treating a client well, the bank will retain business will form a mutually-beneficial relationship.

The new short-term greed strategy, on the other hand, is all about making more money for the individuals at the banks. Investment bankers, using the information they have about their clients, place bets with the firm’s own money. This asymmetry of information allows the banks to make a lot of money quickly—but that is almost always at the client’s expense.

“In the early to mid part of my career, I saw this culture shift occur,” Smith said. “Banks started implementing their own bets.”

According to Smith, this new strategy arises from a diminishing sense of any duty owed to the client. Firms will advise clients to act in a certain way, when, if they had the same amount of information and understanding of the system, they probably would not choose to do. The firm, however, stands to make a big profit off of it.

“When someone is coming to you for advice, you owe that person the duty of tell them what is and is not in their interest,” Smith said.

Smith said that any action that has been taken so far to address the issues of the banking industry hasn’t been enough—this is a systemic problem that is far bigger than the government is generally willing to acknowledge.

“Banks still have an implicit guarantee that whatever they do, the government will support them,” he said. “People who do things that risk the systemic safety of the economy need to be held accountable.”



"The Buzz" is the McCoy Family Center for Ethics in Society's student-driven news portal. We review events and speakers and we feature initiatives that are of broad interest. Undergraduate Stanford students write the articles and the Center for Ethics in Society edits and produces the content so that the student writers learn to translate academic subject matter into accessible terms and strengthen the clarity and precision of their writing.