Unstructured Finance

By Lauren Tara LaCapra

There’s an interesting article out today from Bloomberg, which accuses Goldman Sachs of skirting the yet-to-be-defined-or-implemented Volcker rule, and accuses its top executives, including CEO, Lloyd Blankfein, of being a hypocrite.

Bloomberg reporter Max Abelson has done some good work on the subject. His article is well written and well sourced—he spoke to at least 20 people and got many of them to go on the record about their former employer and describe how Goldman continues to place bets with the firm’s own money.

Abelson concludes “Goldman Sachs has worked around regulations curbing proprietary bets at banks. “ But what the article really points out is that Wall Street will keep finding new ways to move the goal posts in its favor when it comes to defining and clamping down on prop trading.

For those who aren’t well-versed in Volckerdom, all you really need to know is that it’s named after former Federal Reserve Chairman Paul Volcker and it’s intended to prevent Wall Street firms from making the kind of big bets that could ultimately put taxpayers on the hook. But critics complain the rule, as currently envisioned, has been so watered down that it allows a lot of interpretation for what constitutes prop trading, and gives banks a lot of latitude to keep doing what they have always been doing.

Banks, for instance, will still be able to act as market makers, buying and selling securities on behalf of clients, and they may still be able to make long-term investments. All of this gives rise to questions of whether it’s still OK for banks to make a strategic investment in another company and for how long? And how do you know if a hedge trade is really a hedge?

Greg Smith, the ex-Goldman Sachs salesman who stunned the investment bank with a scathing public resignation in March, is now on the defense.

Smith, whose book, “Why I Left Goldman Sachs” hits bookstores today, has been facing the wrath of Goldman, media critics, and online commenters since last week, when bits and pieces of his book began to leak out and Goldman quickly jumped at the chance to characterize him as an undistinguished ex-employee with an ax to grind.

Goldman said Smith quit because he didn’t get the raise or position he wanted. It has also tried to cast doubt on the veracity of his claims by making other current and ex-Goldman employees available for media interviews to dispute Smith’s characterization of events in his book anecdotes.

By Jennifer Ablan and Matthew Goldstein

Goldman Sachs’s chief executive Lloyd Blankfein and his likely successor, Gary Cohn, issued a formal response today following a scathing op-ed in the New York Times from Greg Smith, who announced his resignation from the investment firm.

Smith, a banker who worked in Goldman’s equity derivatives group, asserted that several Goldman managing directors had referred to their own clients as “muppets.” In Britain, where Smith is based, “muppet” is used as a derogatory term to describe someone who is regarded as being ignorant.

You can read his list of complaints below.

For their part, Blankfein and Cohn wrote: “We were disappointed to read the assertions made by this individual that do not reflect our values, our culture and how the vast majority of people at Goldman Sachs think about the firm and the work it does on behalf of our clients.”