A Warning From Inside Wall Street

Read This First


Read the news today and you will see a lot of negativity, particularly directed towards the
"haves", the big-time companies and their employees.  Message boards are littered with vitriol against the so-called "1%", with much "well, I don't see them giving back their huge bonuses" and "you should be ashamed of yourself".


Let's all take a minute to calm down and look at this from the other side.


As you can see in the article I linked, not everyone in the finance business is eating babies and deliberately plundering your life savings.  Do those people exist?  Yes.  (Well, except for the baby eating, I don't think there is much of that going on even on Wall Street.)  But the industry is also full of people doing their best to help their customers.  The conflict is between the desire to help your customers and a desire to make a profit.


Nowadays, "profit" has become a bad word.  It seems to conjure up an image of some greasy fat-cat with a cigar.  We have decided as a society that since some people are making a lot more money than other people, that anyone who makes money is bad.  Look around online, or ask around at the local pub, and I think you will find that a lot of people, particularly of the "blue collar" persuasion, think that "rich" people are generally bad.  Everyone wants to make money, but people will go out of their way not to drive a car that makes them look pretentious or let people think they are "rich".


When did this happen?  People talk about the "American Dream", the old mythical goal of "making it" and being set for life.  Now, if you achieve it, you have to take pains not to look like it, otherwise people will hold you in contempt.  Look at Mitt Romney for instance.  One of his biggest liabilities in a party that is known for celebrating the accomplishments of the individual and generally support "trickle-down" economic theories is that he makes "too much money".


We all seem to want to be rich, but not have other people think of us as "rich people".


Greg Smith, who wrote the article above, was an executive director of Goldman Sachs, one of the firms viewed as a prime villain in the recent recession.  As such, his compensation was probably in the millions of dollars per year.  Most people look at numbers like that and say "Wow, what a ridiculous amount of money, I can't believe  he gets paid that much."  Take a moment, however, and read the article.  He mentions that  "my clients have a total asset base of more than a trillion dollars".  Let's pause here, as there is a demonstrated and documented inability of humans to grasp the amount of money that represents.  He manages over $1,000,000,000,000 dollars.  Even if he is paid $10 million yearly, that is 1/100,000 of the amount of money he manages.  That is equivalent to someone making $40,000 per year being responsible for $4 BILLION.  If I told you I would hire you for those kinds of numbers, you would probably laugh at me.  So let's stop claiming he is overpaid.  In fact, most people in finance are compensated similarly.  They make a lot of money, but that is because they are responsible for ridiculously large amounts.  Even your local bank branch has millions of dollars in its care at any time.


Instead of "these people make way too much money", let's focus on the more important point that Greg Smith raises here:  "these people are far too callous with their customers".  This is the important part.  Reading the article, you can see a corporate culture that has changed to prioritize making money off of the customer rather than making money for the customer.  This is a fundamental change.  Goldman Sachs spent over 100 years as an extremely reputable firm.  They built their success and reputation by making their customers a great deal of money.  In the past decade or so they, along with many other financial institutions, seem to have transitioned to a point where they feel large enough that they don't need to worry about making money for their customers as much as making money for themselves.  This attitude has led to a number of irresponsible and unethical policies, and seems to have contributed a great deal to the economic downturn.  


I applaud Mr. Smith for his courage and principle in standing up, throwing back the curtain, and showing us the problems at the center of the system.  Many people, even in the comments on his article, are lambasting him for not leaving sooner, or implying that he should give the money back.  Let's not be ridiculous.  It is difficult enough to throw away your colleagues, associates, and friends that you have gained through 12 years at a company.  On top of that, he is giving up a very lucrative salary to blow the whistle.  Whether you make $20,000 a year or $20 million, it is not an easy thing to give up on principle.  Credit him for the integrity he has shown by coming forward, and demand more of the same from your banks and financial institutions.  


Is the system a problem right now?  Yes.  Is it hopeless?  No.  There are still people with integrity in the business, let's support them.  By vilifying the people who manage your money, you only give them more reasons to disregard your opinions.  On top of that, you will force the people who value your opinion out, leaving only the dregs.  Greg Smith did a very difficult thing, let's learn a lesson from it and try to improve the situation.