March 19, 2012
Wall Street shock wave in rear-view mirror
On the day after his op-ed piece appeared in The New York Times of March 14, 2012, Greg Smith, a midlevel executive in the London office of Goldman Sachs had generated 19 million entries on Google. By three days later, that number had risen to 134 million.
Smith’s announcement of his departure from the storied firm whose culture he describes as “toxic and destructive” set off a shock wave heard round the world. It was brutally criticized as naïve, but far more frequently praised as courageous, an “unprecedented revelation” of the distortions that have come to characterize Wall Street’s behavior. There’s been much discussion of greed, which appears to be the principle lubricant of the financial industry, and debate between those who think greed is inherent in the market system and those who believe it can and should be expunged — or, at least, somehow contained. My own view is that what we are talking about here is not greed; it is avarice, in which all sense of proper proportion is lost.
But relax: I am not about to launch into a disquisition on derivatives and credit swaps and the other arcane arrangements that led to the world financial crisis of 2008 and that have yet to be adequately addressed. Truth is, my own interest in the Smith saga is quirkily more parochial, particularly piqued by Smith’s inclusion among the proudest moments in his life his having won a bronze medal (in table tennis, aka pingpong) in the Maccabiah Games in Israel. (Full disclosure: I am an undefeated pingpong champion of Eilat, having defeated the army corporal who’d been the local champion back before Eilat was a city, when it was just a lonely army base. I retired immediately.)
The Maccabiah Games, together with the fact that Smith hails from South Africa, set me searching — and, sure enough, Smith graduated from the famous King David Schools in Johannesburg, schools whose mission statement says they aim to deliver “an excellent general education together with the study of Hebrew, Jewish Studies and the living of the Jewish calendar” and to produce “graduates who are menschen, confident and equipped to pursue any opportunity they wish to, who are proud of their Jewish heritage and its traditions, who have a love for learning, and a determination to contribute to their society.”
One for our team, I thought. A noteworthy one, since the number of insiders who have volubly called public attention to the endless excesses that characterize the financial industry is tiny. Award-winning journalist Michael Hirsh, author of the much-praised “Capital Offense: How Washington’s Wise Men Turned America’s Future Over to Wall Street,” writes of the “very small group — an absurdly small group — of truth-tellers” who have come forward to bear personal witness to these excesses. He names just two others: Frank Partnoy, who, says Hirsh, described the Morgan Stanley of the 1990s as a “furious profit machine . . . mainly involved in speculation and scamming, using arcane derivatives and complex new packages of debt obligations and interest-rate payments that Morgan foisted on customers who barely understood them,” and one other, “a former Moody’s managing director [who] revealed in congressional hearings in late 2009 that even into the year after the financial crisis, the firm continued to deceive investors by inflating ratings on dubious securities.”
The Internet is so handy. I tracked down Partnoy, now George E. Barrett Professor of Law and Finance and co-director of the Center on Corporate and Securities Law at the University of San Diego and widely recognized as one of the world’s leading experts on the complexities of modern finance and financial market regulation. He worked in derivatives at Morgan Stanley and CS First Boston during the mid-1990s and wrote “F.I.A.S.C.O.: Blood in the Water on Wall Street,” a best-selling book about his experiences there. (His more recent books include “Infectious Greed: How Deceit and Risk Corrupted the Financial Markets” and “The Match King: Ivar Kreuger, The Financial Genius Behind a Century of Wall Street Scandals.”) And yes, he grew up in a Conservative synagogue in Kansas City.
I’ve not yet managed to communicate with the Moody man Hirsh mentions, but I did watch a Chris Hayes show on MSNBC devoted to the Smith affair and its larger context, in which all the panelists compellingly called for tougher regulation of Wall Street — and when I say “all the panelists,” I include Ezra Klein, Noam Scheiber, William Cohan, Alexis Goldstein, Jared Bernstein and Dan Dicker. It is hard to avoid the conclusion that a responsible social ethic is in our DNA.
Hard to avoid, that is, until we are reminded of Wall Street titans such as Richard Fuld (Lehman Brothers), and Bob Rubin and Lloyd Blankfein (Goldman), whose DNA seem quite differently composed. Jews are, in other words, a mixed multitude — saints and sinners, Nobel laureates and fraudsters, wise sons and wicked sons. Some day, perhaps, once sequencing of the individual human genome becomes routine, we may be able to map such differences. In the meantime, the work of bending the arc toward justice — and truth, its handmaiden — awaits. So, too, real regulation.
Thank you, Greg Smith et al.
Leonard Fein has written and advocated for progressive Jewish causes since the 1960s. In 1974 he founded Moment magazine, the journal of Jewish ideas, and in 1985 he founded MAZON: A Jewish Response to Hunger.