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This past Wednesday, London based Goldman Sachs Executive Director Greg Smith stepped away from his 12 year relationship with the firm. Upon his departure, Smith composed a very personal and revealing resignation letter which was published Op-ed in the New York Times. In it, Smith expresses how deeply disheartened he’s grown with the direction the company’s carried itself throughout the years; particularly in the manner it’s clients are being treated.

“I am sad to say that I look around today and see virtually no trace of the culture that made me love working for this firm for many years. I no longer have the pride, or the belief,” Smith says in his letter.

In fact, it was this drastic change in Goldman’s culture that prompted him to sever ties to the establishment that gave him his start. When Smith first began as a summer intern while attending Stanford, the company’s morals centered around a completely different ideal: putting the interest and well being of the client before all else.

“It revolved around teamwork, integrity, a spirit of humility, and always doing right by our clients. The culture was the secret sauce that made this place great and allowed us to earn our clients’ trust for 143 years,” reflects Smith.

Today, he observes that not a trace of that culture exists in the firms current environment. A few key realizations culminated Smith’s opinions on Goldman, which essentially led him to his final decision. One of these revelations came when he reached the point where he could no longer look students in the eye and honestly tell them what a great place it was to work.

The next was when he watched the facet of Goldman advising that he was once proud to embody – directing clients in a way most beneficial to them – reach its untimely demise. Smith explains how the notion of counseling clients in such a way, even if it meant making less money for the firm, was quickly declining in popularity.

His final thought on the company revisits in depth the focal point of his piece, which is of course the former executive directors dismay with the way clients are treated.

“I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients. It’s purely about how we can make the most possible money off of them,” Smith states.

He goes on to explain the way clients are currently regarded amongst the company’s inside culture and compares it to how it was when he began. During this time, Goldman advisers made it their job to get to know their clients, determine how they defined success, and work to help them achieve it.

One of Smith’s lines says it best: “If clients don’t trust you they will eventually stop doing business with you. It doesn’t matter how smart you are.”

This proves true in any business and Goldman Sachs apparently is no exception. Perhaps Smiths letter will contribute in some way to restoring the culture of one of the worlds leading investment banks back to what it once was.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

Author Bio

The so-called ‘fiscal compact’, as advocated by Europe’s policy makers towards the end of last year, is virtually certain to be subjected to intense debate in the days and weeks ahead as the Irish referendum nears.  Unfortunately, the latest plan to save the fragile monetary union is the wrong solution for the wrong crisis.

The EU’s leadership continues to view the crisis through the narrow prism of lax fiscal policies and excessive debt accumulation among the euro-zone’s periphery and, insist that painful fiscal austerity is the appropriate course of action.  Indeed, the new ‘fiscal compact’ approved by the European Council strengthens the Stability and Growth Pact (SGP), which was barely enforced during the single currency’s early years.

The new plan establishes a target for debt reduction – a 1/20 reduction of debt in excess of 60 per cent each year – and, sets a stringent target for the structural budget deficit that must not exceed one half of one per cent of GDP.  The latter measure does not preclude cyclical variations in the deficit, but such variations are to be capped at three per cent by the existing Excessive Deficit Procedure.

Surveillance procedures are to be significantly stepped up to support the new measures with the European Commission being granted a greater role in inspecting national budgets.  Those countries found to be running an excessive deficit will be required to submit an economic partnership programme that details reforms that will be implemented to correct the fiscal position.

This new treaty is not required in the current environment given that financial markets and the associated increase in government borrowing costs has already forced countries to take corrective action.  More importantly, it does nothing to address the crisis and could further undermine confidence in the medium-term, since it severely limits the ability to implement counter-cyclical fiscal policy at times of economic weakness.

It is important to appreciate that the euro-zone’s member states surrendered their monetary sovereignty upon admission to the single currency.  They became currency users rather than issuers and lost the ability to set their own monetary policy and exchange rates.  They did retain fiscal policy flexibility insofar as investors remained willing to absorb new issuance at reasonable rates but, the ‘fiscal compact’ will virtually eliminate this option and, in the absence of federal transfers, stability is likely to be eroded even further over time.

Europe’s policymakers refuse to accept that most of the troubled countries in the euro-zone’s periphery face not just one, but two major problems – excessive public debt alongside unsustainable levels of external debt.  Indeed, the availability of low-priced credit from banks in the eurozone’s core following the launch of the single currency more than a decade ago, allowed the periphery to run large and persistent current account deficits that sparked a disturbing increase in the level of external debt, both public and private.

Policymakers consistently argued that intra-regional trade imbalances were not relevant in a monetary union, but this belief proved to be embarrassingly wide of the mark once the ‘Great Recession’ prompted a dramatic reassessment of risk premiums.  Previously, the periphery had depended upon the willingness of member states with current account surpluses to fund their external deficits at reasonable rates of interest, but once the financial crisis struck, this source of capital evaporated and the buyers’ strike left the troubled countries with little option but to seek official assistance to fill the gap.

Harsh fiscal austerity programmes were imposed by the troika upon Greece, Ireland and Portugal, while the IMF continually advised that the said countries should cut nominal wages in order to restore international competitiveness.

Lower incomes and higher tax rates virtually ensured a sharp drop in domestic demand, but it was hoped that an improved external position would reduce the economic pain.  Unfortunately, most of the improvement in the trade accounts of both Greece and Portugal to date has been a function of falling imports rather than a buoyant export sector.

Importantly, fiscal austerity across almost the entire euro-zone as envisaged by the new plan is likely to reduce aggregate trade activity and, as a result, the periphery will be unable to export their way back to health.  Thus, the ‘fiscal compact’ could well contribute to no improvement in either the currently excessive public debt ratios or the unsustainable levels of external debt found in most of the periphery.

The so-called ‘fiscal compact’ is set to be put to the public vote in Ireland.  The Irish have little option but to vote ‘yes’ because financial support from the European Stability Mechanism is conditional upon the plan’s ratification.  Close analysis however, reveals that the new measures are bad policy and could well contribute to further instability in the future.

Previously posted on www.charliefell.com

Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.