Advocates for tough implementation of financial reform are saying that a head-turning op-ed from a former employee of Goldman Sachs proves the need for strict rules on the financial sector.
In a blistering piece published Wednesday by The New York Times, Greg Smith announced his resignation as an executive director at the firm, while offering a lengthy takedown of what it has become. He argued that under current leadership, Goldman had placed its own profit-hunting ahead of the well-being of its clients, who he said were called "muppets" behind closed doors.
Groups pushing regulators to employ strict rules for Wall Street used the op-ed to reiterate their case, especially as it pertains to one of the most controversial aspects of the law.
Americans for Financial Reform issued a statement saying Smith had "laid bare" problems that "remain pervasive at our largest banks." The proper prescription? Tough implementation of the "Volcker Rule."
That key piece of Dodd-Frank is intended to prevent "proprietary trading" by banks, which are trades made purely for the profit of the firm and not at the behest of clients. And AFR says it is "aimed at precisely the problems Mr. Smith describes at Goldman Sachs," calling on regulators to issue a strong proposal implementing it.
"Mr. Smith’s statement today, along with the mountains of evidence from the financial crisis, demonstrates yet again how much we need a Volcker Rule that works," the group said.
Regulators have been swarmed by interested parties looking to pull them one way or another on the rule, which could reshape how many Wall Street firms do business. The rule-writers are struggling to come up with a detailed approach that curbs the risky behavior targeted by the rule while still permitting legitimate actions intended to maintain a healthy market.
That tall order was made apparent when regulators took an original crack at drafting the rule. The proposal offered in October spanned more than 300 pages, and asked the public to weigh in on roughly 1,300 different questions how about the matter should be handled.
The public took that request to heart, inundating regulators with more than 17,000 comments. Several regulators have said that hefty volume likely means the rule will not be finalized by the July deadline laid out in the law.
Goldman was one of a litany of financial firms to provide its opinion to regulators, warning that the existing proposal could hinder markets and needed to be fundamentally reworked so the bank can continue to meet its clients' needs.
"Without substantial revisions, the proposed rule will define permitted market making-related underwriting and hedging activities so narrowly it will significantly limit our ability to help our clients," wrote John F.W. Rogers, Goldman Sach's chief of staff.
Smith offered a different take in his op-ed regarding Goldman's treatment of clients.
"It makes me ill how callously people talk about ripping their clients off," he wrote.
The liberal Public Citizen used the op-ed to push back against "a barrage of self-serving industry comments," noting that Goldman alone sent two separate letters and visited with regulators six times.
"Regulators should put Smith’s candid and brave words on the top of any analysis about how best to reform Wall Street," said Bartlett Naylor, a financial policy advocate for the group.
For its part, Goldman heads responded to Smith's claims by saying they "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."
"In a company of our size, it is not shocking that some people could feel disgruntled," wrote chief executive Lloyd Blankfein and President Gary Cohn in an internal memo to employees that was published in The New York Times. "But that does not and should not represent our firm of more than 30,000 people."