Goldman manifesto echoes past questions about bank

By Daniel Wagner

Associated Press

Published: Thursday, March 15 2012 12:00 a.m. MDT

People come and go from Goldman Sachs headquarters, Wednesday, March 14, 2012 in New York. An executive resigning from Goldman Sachs, the powerful investment bank, said in a blistering essay that the company had lost its "moral fiber."

Mark Lennihan, Associated Press

The young banker whose dramatic public resignation stung Goldman Sachs this week joins officials from every corner of the government in questioning whether the august investment house deals honestly with all its clients.

In separate cases, judges, lawmakers and regulators have suggested the bank ignores conflicts of interest and sells to its clients investments it knows are weak, all in the pursuit of profit.

The resignation Wednesday by Greg Smith, a 33-year-old banker for Goldman in London, was a shot from within Goldman's ranks. In an Op-Ed article for The New York Times, Smith said the bank sells financial products "that we are trying to get rid of."

"It makes me ill how callously people talk about ripping their clients off," Smith wrote.

The essay was widely circulated online, and Smith became a trending topic on Twitter. But his charges were only the latest embarrassment for Goldman, which has built a sterling reputation over 143 years on Wall Street.

The bank paid $550 million in 2010 to settle civil charges that it misled investors while selling them investments in the U.S. housing market as the bubble burst — even as Goldman reaped hundreds of millions from its own bets against housing.

A congressional committee recommended that law enforcement authorities look into a series of deals that Goldman sold while executives derided them in emails as "junk," ''crap" and another profane adjective.

And last month, a Delaware court nearly blocked a merger between Kinder Morgan and El Paso, two energy companies, because Goldman had ties to both companies, raising questions about a conflict of interest.

"This is the latest entry into a long-running narrative that they don't put their clients first," said Michael Robinson, a former official with the Securities and Exchange Commission. "If your business is built on trust, that's not going to fly."

Robinson, who now works for Levick Strategic Communications, a public relations company, said regulators, Congress and prosecutors are almost certain to look into Smith's claim that Goldman sold investments to clients that it wanted to get rid of.

The SEC, the FBI and federal prosecutors in Manhattan declined comment. A spokesman for Goldman also declined comment.

Legal experts said the bar for proving wrongdoing by executives at the bank would be high. The real danger for Goldman, Robinson said, is that clients will lose faith and abandon it.

"Whether what they're doing is legal or not, it sure is going to keep them in the headlines — and remind people that they can't always trust what they're hearing from their banker," he said.

On Wednesday, as Smith's essay was read millions of times on the Times' website and circulated by countless others online, Goldman's leadership suggested he had not portrayed the bank's culture accurately.

"It is unfortunate that all of you who worked so hard through a difficult environment over the last few years now have to respond to this," Goldman CEO Lloyd Blankfein and President Gary Cohn wrote in an open letter to employees.

Blankfein, 57, has been at the helm of Goldman through one of the most trying times for the bank. He was named CEO in June 2006 and was at the helm during the financial crisis in 2008, when Goldman took $10 billion in bailout money.

He is regarded as an intelligent and hardworking banker, though not the most charismatic among his peers. A published report last month suggested Blankfein was considering stepping aside this summer, though Blankfein has not said so publicly.

Michael Farr, president of the Farr, Miller & Washington investment firm, which owns Goldman stock, predicted Blankfein would "weather this just fine."

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