It was my misfortune some years ago to be part of a team that was hired to write advertising for Lehman Brothers. Of course, we quickly discovered the firm didn't actually want any advertising. The senior bankers turned their noses up at the idea in much the same way as a Gourmand would if offered KFC.
It turned out they simply needed someone to produce what were known as the "Tombstone ads" they ran at the conclusion of every financial year. These ads simply listed, in little tombstone shaped boxes, hence the name, all the major "deals" the bank had been involved in during the previous year.
We thought they might let us advertise their philanthropic efforts - maybe use that to give the bank a more likeable public face. But no. They did not want to draw attention to how much they gave away each year because people might then realize how much they were making! You know, conversations like, "Well, if they can donate 20 million dollars, that means 20 million is nothing to them."
Well, as I was reading Greg Smith's incendiary resignation letter in the New York Times yesterday in which he lists his reasons for leaving Goldman Sachs after twelve years, I was reminded of my brush with the investment banking industry and also of a book I was encouraged to read at that time. The book was published years earlier and explained the internal battle that almost ripped Lehman apart years before its eventual demise.
When I read Smith's comment that Goldman Sachs should “Make the client the focal point of your business again. Without clients you will not make money. In fact, you will not exist" I realized nothing has changed.
The duality that challenged Lehman all those years ago is still causing untold damage. And it has survived even the financial crisis and the bail-out of the banks by the American taxpayers.
What is that duality? Well, as Ken Auletta's great book explains, deregulation allowed these banks to do what they had always done - advise their clients on financial matters such as mergers, acquisitions etc. - but also to trade - buy and sell stocks in their own name with their own money. But there's the rub. These banks quickly realized they could make much more money trading than acting as financial counsellors. And often they were trading with their clients money, not "theirs" in the true sense.
This is what Greg Smith meant when he encouraged his now ex-employer to refocus on guiding its clients rather than seeing clients as "Muppets" who simply buy whatever crap the bank is selling - the proceeds of which fuel the bank's own trading, where the real money is made.
Greed is destroying the financial foundation of this nation. And it's time to reinstate regulations that make giving financial advice and trading two quite seperate businesses that cannot co-exist in the same bank. Anyone is free to gamble on the stock market but it should never be with other people's money or with the proceeds of tricky financial deals like the selling of mortgage based derivatives and the like.
Margin Call, the movie, does a pretty good job of explaining the fall of Lehman. But if you want a clearer image of the ego trips and internal battles that are still raging in our financial system I suggest you go back to this book, published in 1985. You'll see how little has changed since then - and how badly change is needed RIGHT NOW. Greg Smith has his critics - almost predictably being accused of biting the hand that has fed him (and no doubt made him quite wealthy) for the past 12 years. But I admire what he has done. Truth from the inside will always trump any third party investigation. And I do believe he is telling the truth.
Read his full piece here.