Reflections on Wall Street and Why Greg Smith Left Goldman Sachs

I took a couple of long flights recently and was thus able to get in some junk food reading for which I usually don't have time. One of the books I read was Why I Left Goldman Sachs: A Wall Street Story by Greg Smith. It was published in 2012, but I think it's timeless in its description of Wall Street culture.

Greg Smith is from South Africa. He did really well academically and got a full scholarship to Stanford. He's also a championship ping pong player. Smith almost made the cut on getting a Rhodes Scholarship (he claims his love of the United States of America was unpopular with the selection committee because of the second Iraq war).

It's probably my own bias, though I don't think I've ever thought about it until I read this book, but throughout Smith's book I kept thinking, why is a smart, talented person like this doing working at a dump like Goldman Sachs and doing a seemingly brainless, menial job?

So much at Goldman (and other Wall Street places) is superficial. It began with the interviews, which Smith said were based mostly on appearance, personality ,and whether there was chemistry between the interviewer and the interviewee. All of my cousins work on Wall Street, and I heard the same story over the years about the various firms.

After being hired, Smith had to take and pass the Series 7 exam. He worried both about not passing and doing too well. Passing by a wide margin was almost as bad as failing, because it indicated that the test taker studied too much. And studying too much is not a good thing, apparently. This reminded me of one of my cousins not doing as well as he could in his college courses because, in his words, he "didn't want to appear like a bookworm" in front of his Wall Street interviewers.

Prior to passing the Series 7, both as an intern and then a new hire at Goldman Sachs, Greg Smith had to find ways to make himself useful, as he couldn't legally deal with clients. This involved fetching coffee and food. (He was creative enough to send "what you need to know" emails every morning about the current market situation.)

My cousins had the same experience, except they fetched other things as well, including alcohol and prostitutes for clients. I was surprised by this omission Smith's book. Perhaps Goldman had higher ethical standards, Smith was never put to the task and was thus unaware of the practice, or it was left out of the book on purpose. The progression of the book is how Goldman's culture, once all about having a great reputation and putting the client first, deteriorated to the point that a long time employee and "culture carrier" was driven to quit in disgust. Fetching hookers for clients doesn't fit into that narrative. (My interpretation is more along the lines of reality gradually smacking the idealism out of an enthusiastic youth who believed all the Goldman PR. Has the firm really changed all that much from when it ran a pyramid scheme that contributed to the Great Depression?)

After Smith passed the Series 7, he was basically a broker for emerging markets stocks. When this area stopped being fashionable and people started getting fired, he made a transition to the derivates desk.

Derivatives can be very difficult to understand, with lots of moving pieces, complex math, and nonlinear outcomes. That's not what Smith seems to have been involved in. Rather, clients called to place vanilla trades--calls, puts, and index futures--and he forwarded these trades to Goldman's people in the Chicago pits.

Smith's job was to answer the phone, take the derivative order, confirm the order (e.g., make sure the client wanted a 100 puts at x strike price and y expiration), then call the order in to Goldman's men in Chicago to do the trade. Although a lot of money was involved, this was no different than any fast food worker taking orders from customers. The only complex part was how to unwind a trade that was made in error, like when a customer wanted to buy puts but the Goldman rep accidentally sold them.

I was shocked that someone could have a base salary of $50k and make bonuses of ten times that amount to do what high school kids (in states where the minimum wage is low) are doing at McDonald's and Taco Bell. Perhaps I didn't understand what I was reading, or Smith omitted a few salient details to keep things simple, but it's mind boggling that a full scholarship recipient from Stanford that almost became a Rhodes Scholar did this for a living.

The chief difficulty of Smith's job was the volume of the calls. When his boss and only other call taker at the desk took a day off, Smith didn't even have time to go to the bathroom. Seriously? Why couldn't Goldman hire an extra two or three people, maybe someone with Pizza Hut experience? Better yet, why not have customers fax their orders (Smith emphasized the issue of misunderstandings between the client and Goldman) directly to the pit traders in Chicago? Why was there a middle man position in the first place?

Now, I understand a situation where the client wants to accomplish a certain goal (e.g., hedge its portfolio, bet on some event happening) and asking Goldman for advice on how best to accomplish it. Dealing with that all day would justify hiring someone with Smith's talents. But to the best of my understanding, that's not what his job was--that is something he described others doing poorly (perhaps criminally) and what was the last straw that made him quit.

Turning to that, during the last stages of Smith's career at Goldman, he was transferred to London. Smith claims that while Goldman's American offices also pushed what they called "elephant" trades (those trades that netted Goldman a million dollars or more), Goldman's London derivatives people were solely concerned with that. Smith recalls one of his coworkers bragging and calling his clients "Muppets."

And Muppets they were. Smith went through a few examples, but one that struck me was a client (an institutional investor, perhaps a pension fund) placed an options order. Then called back because she had made a mistake. She asked Goldman to fix it so that her boss wouldn't find out. The trouble was, this person didn't seem to understand anything about options. The mistake she made was in her firm's favor, and fixing it was to her detriment. Goldman took full advantage of this client, Smith relates. I wish I was surprised, rather than just dismayed, that incompetent people staff government entities and other institutions that invest for workers' retirement.

This last incident, among a few others, spurred Smith to write an op-ed in the NY Times, titled the same as his book. He quit the day the op-ed was published.

But really? Even at the beginning of the book Goldman Sachs stank. The interview process with all the phony people and all stupid hoops one had to jump through.

Then the dump of a work space during the internship and real job. Every Wall Street movie portrays this--a floor crammed with adjoining desks and grimy people shouting profanities into their phones. Then the interns, in the middle of this zoo, carrying little stools around so they can sit by one of these screamers and be "useful." But there's never enough stools, so each morning it's a race between the interns not to be the last one in. Maybe this only seems like hell to me because I'd have washed out immediately (if I somehow made it through the interview process.)

Only a few of the interns make it to the actual job, because that involves being liked by one of the heads of the many desks on the chaotic floor. Once you have your own chair and a two year contract, one of the big bosses comes around and puts his (what I imagine to be dirty) foot on your desk and his inner thigh (Smith doesn't mention balls, but they're right there) in your face, asking you about how it's going. A tad vinegary, sir.

Then you're on the phone all day with idiot customers. And you're always fretting about your job being cut, so you're kissing the butt of everyone who might advance your career, but you can't make it too obvious because no one likes a brownnoser. All the while people around you are being called into glass offices where you watch one of the higherups fire them. Then comes bonus day, a happy occasion, right? Bonus day is the only day of the year at Goldman, Smith says, when you won't be penalized for going home early to cry.

Then there are all of the late night social gatherings, in the middle of the week. Where you're supposed to drink enough to keep up with your boss, but not get so drunk as to say anything embarrassing. You're also expected to show up on time the next morning, usually around dawn. Then there are the obligatory trips to strip clubs, much the same as the above, except you also have a huge bill because one of the bosses likes you and invites you to the VIP area. Then there's the time when you're in Vegas, sitting in a hot tub with a beer in your hand, next to a naked stripper and a couple of your bosses, wondering if you should bring up to one of them that he drunkenly gave you a thousand dollar casino chip the night before and whether you should return it.

What a great place to work!

And what swell people work there.

The one of two consistent descriptions Smith has of Goldman employees and interns is that they are tall. Not one person he mentions stands under six feet. I can attest to this with all the hedge fund people I've stood next to. Maybe the interviews are a complete sham, and all they're really doing is measuring prospects' heights.

The other consistent description (although this one is implicit and almost certainly unintentional) is that pretty much everyone at Goldman is a vapid jerk. Also, for some reason, everyone addresses everyone else as "dude." As in, "dude, you've made a mistake" or "dude, you're being fired."

I'm leaning toward this being part of Smith's writing style rather than how Goldman employees talk. Regardless, the people just seem so empty, so fake. They act like stereotypes, and all their actions are based on how they will look to others.

Smith's own tone, and his descriptions of how he interacts with his girlfriend, parents, and others, makes him sound like a sanctimonious jerk.* So maybe it's just him and the lens through which he presents Goldman. I doubt it though, because he's identical to one of my Wall Street cousins and many of their associates. Or maybe that's how most people are and I'm on awkward the tail of the social bell curve. I guess it's a certain type that is drawn to and makes it on Wall Street. (Incidentally, I've met many of these same people in law school--also big drinkers.) I think of them as the jocks from the Revenge of the Nerds movies, but with good grades.

The above rant is long on accusations and short on examples (because I am having trouble recalling specifics and have already returned the book to the library), but that's my overall impression.

One episode that I do remember is it being close to Rosh Hashanah, the Jewish new year. Some sort of political event is coming that will move the markets (the TARP vote, I think). Smith must decide whether he should go to the airport to fly to his family, or stay at work. He seeks out an observant Jewish (one with a skull cap) colleague to ask for advice: Dude, should I stay at work or go do this family/religious thing that might be important to me, but I don't know. Which will look better?

Then he does what his colleague suggests. Does Smith not have his own priorities? He seems to be concerned only with how his actions will appear to others.

But back to Goldman Sachs. Every firm has workplace politics and internecine fighting. But Goldman has a nastier variety. Not only do people sabotage each other (the interns' musical chairs was a hint, I guess), it seems it's okay for a higher up (nicknamed "the black widow") to transfer 15% of her underlings' sales to herself, which boosts her bonus and lowers theirs. Granted that Smith experiences the latter towards the end of his tenure, there is so much that is rotten and nasty at Goldman from his first interview, let alone when he starts working there.

All throughout, Goldman lurches from scandal to scandal. It treats its employees like communist leaders treat their people, like disposable worker ants. At least ants don't connive against each other. Then again, ants don't get huge bonuses.

I'd have titled the book "Why I Never Should Have Worked at Goldman Sachs."

* The tone is remarkably similar to that of the anonymous author in A Warning. Maybe they have the same ghost writer?