Why I Left Goldman Sachs - a review

Finally, dear readers, I can bring you my thoughts on Greg Smith's Why I Left Goldman Sachs (currently number 1 bestseller on Amazon in Finance.) Having followed the Greg Smith saga since his NYT op-ed, and having read a wide range of other Wall Street and City books from the sublime Liar's Poker to the ridiculous Cityboy - Beer and Loathing in the Square Mile, I will endeavour to tell you how Greg's book stacks up against the competition, whether it's worth a read and how it may be seen in the context of Goldman Sachs, the 2008 financial crisis and today's battle against the 1%.


The book plots the path of Jewish South African table-tennis star Greg Smith, joining Goldman Sachs as an intern in June 2000 then being accepted as a graduate into equity sales. It is mostly told in the first person.

Comparisons with "Liar's Poker" are inevitable, and indeed apposite. Both Michael Lewis and Greg Smith entered their banks as fresh graduates, survived their gruelling graduate induction and steadily rose in the ranks of sales - Lewis in bonds, Smith in equities - to relative fame and fortune within the company. I would say that Smith has the edge in timeline; Lewis's book ends with Salomon Brothers undergoing upheaval and a hostile takeover battle even as he collects a large end-of-year bonus and decides to leave, whereas Smith takes us through the tumnult of 9/11, across the 2006 surge and through the 2008 financial crisis, then leaves in 2011 as the firm is still thriving but his doubts about the direction of the firm make him unable to continue in his role.

Lewis spends about half the book on charting the fortunes of and anecdotes about the mortgage department of Salomon; Smith spends very little of his time talking about matters other than him and the fortunes of those around and immediately above him, which may be less engaging than the characters described by Lewis (Lewie Ranieri, Mike Mortara, the Human Piranha, John Gutfreund) but makes one more willing to trust Smith's recounting.

Should Goldman Sachs be worried?

If I were Goldman PR, and had access to a draft of this book, I would be mostly positive about it. After all, although towards the end it is critical of Goldman Sachs' current direction (and of the culture in the London office in particular), Smith is very positive about the way the firm trained him, taught him to be a culture carrier, demonstrated concern for clients even at trading partner level -- see the anecdotes about Michael Daffey -- and how ex-Goldmanites like Hank Paulson more or less saved the American financial system in 2008.

Where Smith does nail Goldman to the wall is in its changing culture and reaction to the aftermath of the 2008 crisis, when he sees the long-term concern for clients' welfare thrown out of the window in pursuit of fees. He is particularly critical of the fetish for selling structured products to clients with a lot of money but relatively little sophistication, such as firefighter and police pension fund managers; the more opaque the product, the higher the fees and margin for Goldman, and the greater the likelihood that the customer will get screwed down the line.

Smith identifies four main categories of Goldman clients, mirroring the tale in the Haggadah about the Four Sons:

  1. The Wise Client: sophisticated investors with a lot of money and experience in dealing with Wall Street, such as many hedge funds. These guys get good rates out of Goldman.
  2. The Wicked Client: smart clients who sail a little too close to the wind, and sometimes end up paying very large fines or even jail time.
  3. The Simple Client: unsophisticated people in charge of a lot of money, "perfect prey for Wall Street." Can be obnoxious, often part of bureaucratic organisations like pension funds.
  4. The Client Who Doesn't Know How To Ask Questions: like the Simple Client, but worse because they're trusting. Often get exotic products offloaded on them, pay through the nose for it and then get blown up further down the line.
Not terribly edifying for the Goldman Sachs client relations folks - or the clients, come to that - but educational.

Smith doesn't pull his punches on the regulators either. On the subject of the 2010 SEC lawsuit:

My immediate reaction: this must be a witch hunt. The SEC has been asleep at the wheel for the last two years and now it needs to show the public that it's doing something?

The famed "muppet" quote, when given context, explains why Goldman Sachs' email search for the term yielded nothing. Smith is talking about early 2011, when he moved to London to take on the equity derivatives business there, and finding any number of hapless (and moderately clueless) clients referred to as "muppets". But note that this is less than a year after the SEC prosecution where "Fabulous" Fabrice Tourre had his (personal) email displayed to all and sundry. Any banker with the sense that the good Lord gave gravel would know not to write anything even slightly demeaning in email. All major banks by now were using email snooping products like Orchestria to spot emails that contained confidential, suspicious, illegal or otherwise undesirable material.


It would be a lot to compare Greg Smith and "Why I Left Goldman Sachs" to the seminal Michael Lewis and "Liar's Poker". And yet, Smith does not fall as far short in the comparison as I had expected. The book is compelling, reasonably well-written, describes crucial times in the life of the author, the financial system and Goldman Sachs, and does so with good lucid explanations of the issues involved. An example is the 2007 August blow-up of quant trading algorithms:

The problems were twofold, and they were massive: First, the out-of-the-way securities that the computer models had chosen to unwind were illiquid. Second ,since everybody's model was saying the same thing, there were few buyers.
It was as though somebody had yelled, "Fire!" in a crowded theater and the exits were blocked.
Smith is very clear on the modern attitudes at Goldman Sachs which eventually caused him to leave. The focus on large profitable trades, with little regard for the way they would benefit clients; transitioning from the traditional Goldman "long-term greedy" to "let me just get this year's bonus"; the firm promoting the big money pullers rather than the culture carriers. He's not keen on Lloyd Blankfein, or London co-heads Michael "Woody" Sherwood and Richard Gnodde whom he regards as being asleep at the wheel as Goldman veered off course, and his criticisms are well-argued even if you may not agree with some of the details.

If you want to know more about how modern banks work, how we got into the mess of 2008, and the problems that still exist in the banking system today, you could do a lot worse than "Why I Left Goldman Sachs". If you enjoyed "Liar's Poker", you should read this book as well.

But, dear Lord, couldn't Grand Central Publishing have come up with a snappier title?

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