Of Muppets and Manhattan (Goldman Sachs' woes reflect the woes of New York City)

Goldman Sachs CEO Lloyd Blankfein woke to a headache yesterday. One of his vice presidents chose to resign via the New York Times opinion page, saying that he no longer wanted to take unfair advantage of the firm’s customers. But the people who should go to bed worried tonight are New York Governor Andrew Cuomo and Mayor Michael Bloomberg: Goldman’s PR crisis is New York’s fiscal crisis.

Goldman veteran Greg Smith wrote that he was leaving the company after nearly 12 years because its culture was “as toxic and destructive” as he’d ever seen. He claimed that Goldman’s business model is to wring money from clients in three ways: sell them investment products that Goldman knows aren’t very good; sell them products that are decent but way overpriced; or trade securities so complicated that it’s impossible for customers to see if they’re getting a good deal. Smith concluded that he couldn’t “in good conscience” work at a firm that calls its clients “muppets” and thinks only of how “to make money off them.” Plus, he says, “this decline in the firm’s moral fiber represents the single most serious threat to its long-term survival.”

It’s hard to overstate what a bombshell Smith’s resignation is. The news pushed Goldman’s stock down more than 3 percent in one day. London’s tabloids splashed the story on their front pages. Disgruntled bankers don’t come forward all that often. They’re well-paid in part to be discreet, and, if they don’t like the work, to leave quietly.

Yet Smith’s revelations aren’t surprising or even unique to Goldman. In 2008, Wall Street’s business model—packaging up loans and selling them to investors while reaping high fees in the process—collapsed. For two decades, that business model had generated record profits. To replace those profits, investment firms have to take huge risks with stockholders’ money, an approach not nearly as popular as it once was. The firms and their beleaguered employees are tempted to take advantage of the customers and investors they’ve got left. In the last few years, Wall Street firms’ multiple settlements with regulators and private investors show that there’s a grain of truth, at least, to Smith’s complaints.

The problem isn’t bad Washington regulation. Sure, President Obama’s new regulations are terrible, and they’re certainly not helping matters. But Wall Street’s core dilemma goes far beyond that: just as Detroit once sold bad cars, Wall Street is selling bad—well, whatever it sells—and it doesn’t seem able to fix the problem.

Don’t cry for Goldman and its peers. The firm may recover from the Smith debacle by massaging its clients, as it did after Blankfein’s damaging testimony before Congress two years ago. It can insist that Smith wasn’t a top player at the firm, and maybe it can spread some dirt to undermine his credibility. And if it has to pull back from aggressive selling for a while, Goldman can shrink further, letting thousands more people “retire” in their thirties and forties. If the firm falters, so what? Companies, including storied ones, succeed and fail all the time. Industries shrink and often grow healthier in the process.

Cry for New York instead. Over the same years that Wall Street firms were tending to their “muppets,” the state and city budgets grew dangerously dependent on tax revenue from financial-industry profits. Only through tax revenues from Goldman, its competitors, and their employees has New York been able to balance its budgets.

The party ended five years ago, but New York City and State have just now gotten around to doing something to prepare for a smaller Wall Street. The city’s public-worker pension and health-care costs now total $15 billion annually. New York State, which controls the city’s pensions, finally achieved a measure of pension reform today—but it only applies to future workers, and Bloomberg still must negotiate with the unions on a better health-plan deal for taxpayers. New York has much more to do to put its fiscal house in order, and it needs to get started now. Otherwise, if Bloomberg and Cuomo hope to balance their budgets without the type of draconian cuts that could drive New Yorkers away from the city, they’ll need Greg Smith’s clients to keep on being muppets.

-- Nicole Gelinas is a City Journal contributing editor and the Searle Freedom Trust Fellow at the Manhattan Institute.

Smith concluded that he couldn’t “in good conscience” work at a firm that calls its clients “muppets” and thinks only of how “to make money off them.” Plus, he says, “this decline in the firm’s moral fiber represents the single most serious threat to its long-term survival.”

Puh-Leeze. Why did it take this dope 12 years to figure it out?

This has been true of much of the front-office of the entire industry - of which GS is only one part - for decades. Where was his conscience before?

Oh, I see. He had to save up enough to live on for a while, until he nailed a book deal, because his chances of ever working again were dramatically reduced by his kiss-and-tell game.

This guy knows too much about G/S's insider workings.

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THE G/S CHRONICLES G/S insiders all go on to bigger and better things (/snix).

Take G/S head Jon Corzine---he went on to buy two elected offices for some $125 million---Corzine was a US Senator and NJ governor. When Corzio was tossed out as Gov, he and several G/S cronies went to MF Global and looted that company of some $1.2 billion.

<><> Corzine is a well-rounded G/S operator. As Governor, he left the state of NJ $8 billion in debt. $8 billion went missing from the bogus "schools construction" agency....other agencies like UI and the Transporation Trust Fund went bankrupt with no explanation why. The $82 Billion state pension fund lost about 25%.

<><> OBAMA-CORZINE CONNECTION Right before Corzio’s reelection, Obama sent $17.5 Billion stimulus to NJ-—which promptly vanished. VP Biden is on record as having asked Corzine for financial advice----Biden has a son and a brother involved with the Stanford offshore fraud (Stanford was just convicted of running a Ponzi)

<><> MF Global principal Brad Abelow was Corzine’s appointee as NJ Treasury Secy——controlling ALL NJ assets. Gov and Secy started an investment business——but the two “financial geniuses” said they did not know this was illegal.

<><> MF Global principal Chris Flowers handled Sen/Gov Corzine’s “blind assets.” Flowers led the takeover of a Japanerse bank for Sen Corzine——Sen Corzine passed a bill giving the bank a US tax break......

<><> Jonny said "he did not know" the Senate bill benefitted him. Insider trading on Capitol hill could also be involved---Congress-rigged to get the Corzine bill passed.

<><> Corzine registered three corporations in super-secret financial haven——Delaware——BEFORE buying public offices.

<><>Bradley Abelow, an MBA from Yale School of Management, served as chief of Staff to the Governor of New Jersey in the Cabinet of Gov. Jon Corzine.

<><>Corzine first appointed Abelow Secy of the Treasury. Abelow and Corzine were top executives at Goldman Sachs. Abelow was MF Global Chief Operating Officer; Corzine was MF's CEO.

<><> G/S crony Chris Flowers controlled Corzine's "blind trust" while Corzine was in public office.

<><><><> Corzio, Flowers and Abelow are all G/S cronies.

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G/S CHRONICLES --- TRUE STORY I was in an electronics store buying computer equipment----the clerk apologized--said he just got the job and was not too helpful. I asked the clerk where he worked last----he said "Goldman Sachs."

I musta looked shocked. He said he was not a G/S banker---worked in the computer division.

G/S got rid of him about a year ago----when the feds made a big show of "investigating" G/S. My guess is this guy knew too much about their EFT's.

“this decline in the firm’s moral fiber represents the single most serious threat to its long-term survival.”

Granted, he has been complicit in this himself for 12 years. But this is the major factor, often ignored, in the decline of America. If you can make $10 mill by producing domestically, or $12 mill producing internationally, then shit can the domestic staff. Nevermind that many of them might also be customers who can not longer afford your product. Next thing you know, EVERY business is doing this and then they wonder why they can't sell as much.

But hey, on paper, that extra $2 mill is awesome. Too bad you have smashed your avenue for future growth by doing such, with all the other businesses.

I expect some folks here to claim what I am saying is BS, but many folks know in their heart of hearts that I am correct.

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