Why Greg Smith's Critique Is Way Too Narrow

Portrait, Robert Reich, 08/16/09.
(photo: Perian Flaherty)

By Robert Reich, Robert Reich's Blog

17 March 12

reg Smith, a Goldman Sachs vice president, resigned his post Wednesday with a stinging public rebuke of the firm on the oped page of the New York Times - accusing it of no longer putting its clients before its own pecuniary goals.

But if Mr. Smith believes his experience at Goldman is something new, he doesn't know history. In 1928, Goldman Sachs and Company created the Goldman Sachs Trading Corporation, which promptly went on a speculative binge, luring innocent investors along the way. In the Great Crash of 1929, Goldman's investors lost their shirts but Goldman kept its hefty fees.

If Mr. Smith believes such disregard of investors is unique to Goldman, he doesn't know the rest of Wall Street. In the late 1920s, National City Bank, which eventually would become Citigroup, repackaged bad Latin American debt as new securities which it then sold to investors no less gullible than Goldman Sachs's. After the Great Crash of 1929, National City's top executives helped themselves to the bank's remaining assets as interest-free loans while their investors and depositors were left with pieces of paper worth a tiny fraction of what they paid for them.

The problem isn't excessive greed. If you took the greed out of Wall Street all you'd have left is pavement. The problem is endemic abuse of power and trust. When bubbles are forming, all but the most sophisticated investors can be easily duped into thinking they'll get rich by putting their money into the hands of brand-named investment bankers.  READ MORE