A column on the opinion pages of The New York Times decrying a culture of greed and arrogance at Goldman Sachs, one of Wall Street’s most prestigious investment banks, has Americans asking: Has anything changed on Wall Street since the financial crisis?
Not really, observers say.
Three years after risky bank practices led the financial system to the brink of collapse, and with billions of taxpayer dollars spent on propping up major financial institutions, there’s little or no evidence of repentance on Wall Street, said Matt Taibbi, a contributing editor for Rolling Stone who once famously described Goldman Sachs in an article as “a great vampire squid wrapped around the face of humanity.”
“There is definitely more soul-searching going on in the business right now, and there are people on Wall Street who are good people and struggle with these issues and the difficulties posed by their work,” Taibbi said.
“But in my reporting I haven’t seen any evidence of contrition. The culture hasn’t changed. We are still seeing banks getting into trouble,” Taibbi said, pointing to a recent case where a number of big financial institutions settled with regulators over charges of rigging bids for investments in municipal securities.
“That’s not even a Wall Street crime,” he said. “That’s straight-up organized crime.”
Greg Smith, a former Goldman Sachs executive, explained in the withering newspaper column Wednesday that he was resigning from the bank because it frequently misled its clients, sold them financial instruments that it knew to be junk, and managing directors at the bank sometimes mockingly referred to its clients as “muppets.”
“It astounds me how little senior management gets a basic truth: If clients don’t trust you they will eventually stop doing business with you. It doesn’t matter how smart you are,” Smith wrote.
Goldman Sachs refuted the opinion piece in an official statement: “We disagree with the views expressed, which we don’t think reflect the way we run our business. In our view, we will only be successful if our clients are successful. This fundamental truth lies at the heart of how we conduct ourselves.”
Taibbi points out that little of what Smith alleged in his column Wednesday is new. It reflects the activities highlighted by U.S. Sen. Carl Levin’s report on the financial crisis, released last year, which found that Goldman gained at the expense of its clients and used abusive practices to do so.
Taxpayers have a right to expect better behavior from major financial institutions, he said, especially those, such as Goldman, which received billions of dollars in taxpayer-backed bailout funding after risky trading activities had brought the banking sector to its knees.
“It’s almost impossible not to make giant profits if you’re getting your money from the Fed,” said Taibbi. “So these banks have been subsidized by the government. Yes, they’ve paid the bailout money back, but they’ve made huge profits from it.”
The problem is banks haven’t had to face the consequences of their bad behavior, Taibbi continued.
“When everything blew up we didn’t take the banks over, or send anyone to jail; instead, we threw money at them,” he said. “So it’s inevitable that they wouldn’t learn a lesson and would carry on doing what they did.”
Another factor contributing to the toxic culture is the leadership vacuum on Wall Street, said William D. Cohan, a former Wall Street investment banker and best-selling author of “Money and Power: How Goldman Sachs Came to Rule the World.”
“The fact is nothing has changed on Wall Street (since the financial crisis), and to me that is incredibly sad,” Cohan said. “(JP Morgan CEO) Jamie Dimon or someone needs to step forward and declare that the industry needs to regain the trust of the American people, because this industry is too important to the way America works.”
The only way to change the negative culture on Wall Street is to change the incentive structure, Cohan added.
“Everyone who enters Wall Street is idealistic; they’re often honest people with integrity. But then they see what they have to do to succeed,” he said. “So we need to change the way they are incentivized. We have to send a message to Wall Street that it can’t act in a way we’ll live to regret.”
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