Goldmangate: too big for just an “I quit” op-ed

NEW YORK | Why has a letter in the New York Times sparked such a PR crisis for Goldman Sachs? In his ‘Why I am leaving Goldman Sachs’ article, Greg Smith, an executive director at the American investment bank, contended that the culture inside Goldman was “toxic” and that the bank routinely took advantage of its clients. This is powerful stuff, but the impact of the letter is way beyond just an opinion of one of 12,000 Goldman executives’ directors. Reactions have come from the highest levels, hundreds of hours of cable news and millions of web pages have been devoted to subject, and Goldman’s stock went down more than 3 percent that day, while overall bank stocks were higher.

It is like everybody was waiting for a Jerry Maguire-ish moment to expose the firm.

The problem is that a lot of people already distrusted the firm, and the letter seemed just another nail in the coffin of Goldman’s reputation. Its critics consider the bank as an epitome of all the sins in Wall Street, namely destructive greed. Also, the bank is widely known as Government Sachs for using profusely their contacts within the government to make business. An important amount of high level officials have been previously Goldman boys, and that includes Europe.

The critics go beyond antiwallstreeters. Officials and policy makers used this to point out that these kinds of problems are precisely the ones that the new Wall Street regulation, the Dodd-Frank Act, is meant to address.  Some suggested that the case is a clear example of why the new Volcker Rule is needed. The Rule prohibits banks that are backed by government guarantees from making speculative bets that don’t benefit their customers.

Of course not everybody joint this get-medieval-with-Goldman attitude. New York mayor Michael Bloomberg (who earns millions from Goldman and earned billions on Wall Street) went to the bank’s Manhattan headquarters in a show of solidarity. He charged against the news media for “piling on the bank”.

“Ridiculous isn’t even the right word,” he said about the coverage. “It’s my job to stand up and support companies that are here in this city that bring us a tax base and that employ our people.”

Some hedge funds managers defended Goldman with the argument that they are accused of increasingly being profit driven, yes, but so is every firm. Financial bloggers showed scepticism. The flogging will not abate any time soon.