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Excerpt: "If Mr. Smith believes his experience at Goldman is something new, he doesn't know history."

Portrait, Robert Reich, 08/16/09. (photo: Perian Flaherty)
Portrait, Robert Reich, 08/16/09. (photo: Perian Flaherty)

Why Greg Smith's Critique Is Way Too Narrow

By Robert Reich, Robert Reich's Blog

17 March 12


reg Smith, a Goldman Sachs vice president, resigned his post Wednesday with a stinging public rebuke of the firm on the oped page of the New York Times - accusing it of no longer putting its clients before its own pecuniary goals.

But if Mr. Smith believes his experience at Goldman is something new, he doesn't know history. In 1928, Goldman Sachs and Company created the Goldman Sachs Trading Corporation, which promptly went on a speculative binge, luring innocent investors along the way. In the Great Crash of 1929, Goldman's investors lost their shirts but Goldman kept its hefty fees.

If Mr. Smith believes such disregard of investors is unique to Goldman, he doesn't know the rest of Wall Street. In the late 1920s, National City Bank, which eventually would become Citigroup, repackaged bad Latin American debt as new securities which it then sold to investors no less gullible than Goldman Sachs's. After the Great Crash of 1929, National City's top executives helped themselves to the bank's remaining assets as interest-free loans while their investors and depositors were left with pieces of paper worth a tiny fraction of what they paid for them.

The problem isn't excessive greed. If you took the greed out of Wall Street all you'd have left is pavement. The problem is endemic abuse of power and trust. When bubbles are forming, all but the most sophisticated investors can be easily duped into thinking they'll get rich by putting their money into the hands of brand-named investment bankers.

Moreover, finance has become so complex that investors don't even know when they're being taken for a ride, and so can't possibly hold a brand-name bank responsible for their losses - or for gains that are a fraction of what they might otherwise have been.

That's why we have regulations. After millions of investors lost everything in 1929, the federal government stepped into the breach with the Securities Acts of 1933 and 1934 and the Banking Act of 1933, sponsored by Senator Carter Glass and Congressman Henry Steagall.

But starting in the 1970s and 1980s, Wall Street made sure these and the regulations issued under them were steadily watered down - which contributed to the junk-bond and insider trading scandals of the 1980s, the dot-com scams of the late 1990s and early 2000s, the Wall-Street enablers of Enron and other corporate looters, and the wild excesses that led to the crash of 2008.

Wall Street's shenanigans have convinced a large portion of America that the economic game is rigged. Yet capitalism depends on trust. Without trust, people avoid even sensible economic risks. And when they think the game is rigged, they're easy prey for political demagogues with fast tongues and dumb ideas.

The Street has only itself to blame. It should have welcomed new financial regulation as a means of restoring public trust. Instead, it lobbied intensely against the new Dodd-Frank Act and refused to resurrect Glass-Steagall.

The cost of such cynicism has leached deep into America, finding expression in Tea Partiers and Occupiers and millions of others who think the Street has sold us out.

Robert Reich is Chancellor's Professor of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. He has written thirteen books, including "The Work of Nations," "Locked in the Cabinet," "Supercapitalism" and his latest book, "AFTERSHOCK: The Next Economy and America's Future." His 'Marketplace' commentaries can be found on and iTunes. your social media marketing partner


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+91 # Chipsr 2012-03-17 19:36
Why hasn't anyone in Wall Street been arrested and tried and put in jail???
+44 # Stephanie Remington 2012-03-18 01:12
Because there is virtually no line between Wall Street and the federal government. Wall Street bankers pour a fortune into political campaigns and their grateful recipients rig the game in their favor by setting rules that legalize previously illegal acts, and blocking investigations and prosecutions even when bankers step so far over the legal line that they can't even see it with binoculars. Then they get out the biggest rug they can find and start sweeping.
+25 # 4yourinformation 2012-03-18 08:12
Because they are rich, typically white and typically male, and like sexual harassment is on the Rush Limbaugh show...capitali st crimes are graded for success...not punished.
+14 # globalcitizen 2012-03-18 10:17
Answer: Because Obama,Bush, democrats , republicans, Congress, Nato, Israel are all being protected from prosecution of their criminalitty, War crimes, part of a larger paradigm of class history, where the West has produced duplicity, corruption, State terrorism, Corporate Fascism, as a global Fascist MATRIX.

So long as the Patriarchal class mechanism and its deforming class hierarchies mass produce sociopathic, even psychotic class politicians, war mongers, who blackmail (Spanish) judges not to prosecute Bush , Wall Street criminals, threatening, co ercing all state prosecutors to go along with non prosecution of Wall street criminals, we will have CLASS LAWS, property rights despotism, instead of SOCIAL LAWS based on human rights.

Just listened to Radio: Connect the dots, with Lila Garret talking to local resistance to gas Fracking that has deep implications. Community, towns are organizing against the paradigm of class laws, corporate Fascism, with social laws of towns and cities confronting the failed Enlightenment and Fascist Capitalism to become INDIVISIBLE, INDEPENDENT of class hierarchies, and its corrupt JUDICIAL FASCIST JUDGES, who put corporate tyranny above the democracy, demands of whole communities.

When judges, Congress, President Obama can protect War criminals, Wall Street criminals, lying for the Fascist Pentagon, locking up journalists through blackmail, IT IS TIME FOR ENDING CLASS HISTORY
+29 # jwb110 2012-03-18 10:57
Quoting Chipsr:
Why hasn't anyone in Wall Street been arrested and tried and put in jail???

My grandmother was born in 1900. I remember the day she told me, I was just a little kid, "The only thing you have to know about America is that rich men don't go to jail for their crimes." I have never forgotten that piece of wisdom because over 100 tears later it has proved to be true time and time again.
+15 # Chipsr 2012-03-17 19:53
Also "Aftershock ..." by Wiedemer et al
+35 # Cdesignpdx 2012-03-17 22:23
Now i'm on to read MattTaibbi's, Bank of America: Too Crooked to Fail, which I am guessing means, they won't, we might.
+35 # stonecutter 2012-03-18 00:19
Short, best exposition I've read of the malignancy at the core of this galactic mountain of shit. Greed may or may not be "good", a la Gordon Gekko, but trust is vital. Without it, all relationships are doomed, including the one between John Q. Citizen and whatever overarching authority he's supposed to believe in and follow. Any wonder while the country drip, drip, drips down the tubes, the campaign reminds us of "The Gong Show", in all its glorious sideshow tone and lack of substance? These people spell trust F-E-A-R. Sadly, millions of Americans have the trust of dogs when it comes to "brand-name" banks. Despite the revelations about these "sausage factories" of finance, their stock prices rebound and they continue their quaint "shenanigans" unabated, while Eric Holder continues his impersonation of the Invisible Man; NOT what Ralph Ellison had in mind.

If I had a dime for every voter who has no effing idea who Holder is or what Goldman does, let alone thinks Africa is a country, the Queen runs the Brit government or Palin would make a great president, I'd be able to buy 10,000 shares of Citigroup. If by now you're not a hard-wired cynic about it all (which means you're likely also a Goldman shareholder), either you're in a coma, you're a toddler, or you're an ill-informed, gullible "mark", "pigeon", "sucker", pick your label, a sheep waiting to be sheered by the likes of Bank of America or Chase.

To paraphrase Reagan, "No trust, but stupefy".
+6 # AndreM5 2012-03-18 11:30
Wait, you forgot about us "muppets!"
+8 # Observer 47 2012-03-18 11:36
OUTSTANDING post, stonecutter.
+24 # williamgaia 2012-03-18 00:52
Professor Reich's article is right in its scandalous facts, the headline is plainly wrong. Mr. Smith rightly blew the whistle on present foul play not past tomfoolery. It is up to our political leaders to educate themselves, hopefully under professors such as Reich, and prevent the highway robbery so characteristic of the leaders of the financial industry. However, the breed of humans who seek power over the rest of us are not known for humility and a willingness to learn. Dean Carl Dolce at NC State, in the 1970's for example, invited all the legislators of that state to a seminar on recent research bearing upon educational policies. Guess how many responded. Not one. The most eminent of all of North Carolina deans of education was totally ignored by the political class. If Professor Reich offered to explain the history of chicanery of Wall Street guess how many senators and representatives would show up.

Thus we have have to find a way -- perhaps the character and hero tests recommended by Plato -- to select our leaders. The present crowd are unworthy of a great people.

+13 # gtigerclaw 2012-03-18 04:39
What I'm anxiously anticipating is the "Great High Frequency Trading Catastrophe." The speed of light pile-up and nanosecond crash of the Global stock markets.

Algorithmic programmers are making tranches of "Virtual Boxes and Baskets of boxes" of non-existent product, assigning a value to them, and trading them in the market as something of value. It's sort of like getting rich playing Farmville on Facebook.

These people also are doing millions of questionably legitimate transactions a second and stealing pennies of each transaction to the tune of "$billions a day.

Any moron still playing the game with these crooks and delusionary computer geeks deserves losing everything they have.

If the average schumck is willing to put up with being ripped off like that, then I have no empathy or sympathy if for them they wind up on the street.

The people at Goldmman Sachs were right in assigning monikers like "Muppets" and "elephants" to their clients, because that's exactly what they are. I don't think it was particularly insulting - if the shoe fits, wear it. People that stupid deserve to (Goldman Sachs speak) "Get their eyeballs ripped out."
+16 # cherylpetro 2012-03-18 06:07
One thing is that the Tea Party was MANUFACTURED BY THE KOCH BROTHERS to try and stop Pres. Obama,and also to try and stop anything that would help the American people, or the environment!
+6 # RLF 2012-03-18 06:38
Maybe it is time for investors to require a contract at the beginning saying "you work in MY best interests at all times or will be liable" Don't investors have organizations where some accountability could be required? Is it only the Corporations that are organized? If so then the investors deserve what they get...'a fool and their money.'
+7 # Observer 47 2012-03-18 11:40 ese contracts are part of standard operations for an investment firm. They hold them in the same regard you and I hold a gum wrapper.
+28 # Orion 2012-03-18 08:05
Goldman Sachs has an entire chapter in J K Galbraith's "The Great Crash". The book was written in the early 'fifties, and is a joy to read. At the end, he asks "will it happen again?' and answers "yes, for people will forget." The interlocking trusts of the time, which no one could understand, are analogous to the CDO and such "instruments" of our own time.
+19 # dick 2012-03-18 08:11
Reich conveniently left out that it was Clinton-Rubin-S ummers who repealed Glass-Steagall, & that Obama brought back Rubin & Summers. It was Obama who met with The Worst of the Worst of Wall St. & promised to protect them. Obama loyalists don't like to hear this, but they have no answer for why legal actions against Big Banks include Get Out of Jail Free cards, not indictments. If Bush were doing this, they would be openly OUTRAGED. NO support for Obama unless he indicts mafiosa.
-8 # charsjcca 2012-03-18 11:00
I have absolutely no intention to vote for Barack Obama in 2012, not even for dog catcher.
+16 # RMDC 2012-03-18 08:50
A long time ago I read a biography of John D. Rockefeller and another on Paul Warburg. They were pretty clear that stock markets and investment banks existed to suck wealth out of the hinterlands and into the finance capitals of New York, London, Frankfurt, and Hamburg. The simple means was to play on the ignorance of investors who could be quite easily made to believe that they would share in the wealth being "generated" by the investment markets. In short, investment banking is fraud. As Reich says, "If you took the greed out of Wall Street all you'd have left is pavement." I would add fraud too. Of course some small investors make money. They are needed to keep up the pretense that investments are a good place to send your money.

The robber barons of the early 20th century discovered that they needed government to protect themselves. In American history there was a brief space from the depression era banking laws to about the 1970 when regulations on banking and investing made markets moderately safe. Most Americans are still thinking of those days. But they are long gone.

The biggest marks are the biggest investors -- pension funds, 401k investment companies, and the like.

The phrase that describes what goes on in investment banking is the one that George H. W. Bush says his "daddy" taught him -- Other People's Money. Prescott Bush told young George, never invest your own money. Always use other people's money. And that is what they do.
+32 # Marco 2012-03-18 09:00
During the S&L meltdown of the late 80ies, over 600 people went to jail, led by Michael Milken and Ivan Boesky. There was still some ACCOUNTABILITY. Unfortunately, over the last 30 years, there has been a group of individuals, on BOTH side of the aisle, that have moved back and forth between the private and public sectors and back again. Everytime these grey men would move to the public sector, they would weaken regulations. Then, they would go back to the private sector and get their PAYOFFS. This has happened at EVERY level of our government, Fed, Treasury, Defense, FDA, EPA, etc. In pure dollor terms, we have the MOST corrupt government in the world! So, wether it is Billy Tauzin walking the Prescription Drug Benefit bill through the house and then resigning to become the chief lobbyist for Big Pharma at a salery of $2,000,000.00, or Rubin and Summers taking out Glass-Steagall and then getting their fat payoffs, or the retired generals serving on the boards of defense contractors while at the same time cheerleading for wars as paid network news on-air experts, or lobbyists for the mining industry being put in charge of the mine safty department in OUR government, and on and on. "We the People" has just become a punchline! Beyond sad!!!
+7 # charsjcca 2012-03-18 10:59
Trust went out the window the evening before the Founders assembled at Independence Hall in Philadelphia, Pennsylvania, in 1776. They could not spell slavery.
+7 # reiverpacific 2012-03-18 11:06
As I've said many times and Dr. Reich states here, the language of economics in general and "brand name banking" in particular, is so complex even most of the dealers don't understand it.
Reich is only stating the obvious and at least tries to take the wanton "mystique" out of it for the rest of us -but still the perpetrators walk free.
Could it be that it would cost so much to hire prime specialist lawyers or law firms and take so long to prosecute them JUST BECAUSE of the foregoing complexity, which may also be a deliberate "c'mon then, prosecute us if you dare and can figure it out!" built in anti-accountabi lity structure, that the government would rather use their "legal" power to go after and bully smaller fish, like Cindy Sheehan or you and I?
I also seem to remember that J. Pierpoint Morgan was so wealthy and powerful in his time (1900's to 1930's) that he was able to threaten and even bail out the feds -and name his conditions.
Just some thoughts from street level.
+8 # Floridatexan 2012-03-18 11:38
"...millions of others who think the street has sold us out." There is NO DOUBT whatever that ordinary Americans have been ROBBED blind by the combination of corporate greed and government corruption. And, Republicans, however much you'd like to BLAME IT ON THE DEMOCRATS, both the Gramm/Leach/Bli ley bill of 1999 and the Commodity Futures Modernization Act of 2000 were written and sponsored by REPUBLICANS...m ost notably the illustrious and notorious Phil Gramm of Texas. Gee, I wonder if that was JIT* for the Bush boys to STEAL the election (no, really, I don't wonder). *JIT (just in time)...a method of production and marketing that saves the cost of inventory by manufacturing the product when it's ordered.

Keep educating the people, Professor Reich. Your short and sweet illustrations are clear and concise. There are numerous parallels between the Great Depression and the current state of affairs, but they're "banking" on the element of time to make people forget. We won't forget this time, and we'll make sure our children and grandchildren understand and guard against this type of corruption.
+9 # afrizunk 2012-03-18 14:15
Until the boards of directors of these financial companies are prosecuted under RICO laws, little redress will happen. The boards are responsible for allowing the excesses.
+2 # 666 2012-03-18 15:30
While I respect Reich, he's still a spokesman for the problem-creator s, to quote: "millions of others who THINK the Street has sold us out."

The problem is that Reich doesn't believe the street has sold out anyone. It's just a problem that could use a little democratic-part y tweaking, and it's off to the races again...

The problem is capitalism. It's ridiculous to say capitalism is based on trust (or it's accurate IF your vision of capitalism coincides with PT Barnum's suckers). Lying, cheating, & stealing ARE capitalism. If not, then why has contract law been at the heart of capitalism's advance since the 17th century???! And the problem with contract law is that it ALWAYS works for the big guy and against the little guy. You are free to contract your labor with an employer -- but not to unionize to leverage better terms than starvation. You are free to invest, but not to expect the investor to honor his responsibilitie s when he squanders your investment.

Capitalism will always seek the path of least regulation in order to exploit trust. It's always about ripping people off. There can be NO such thing as well-regulated capitalism. Even the far right will agree with that. Come on out of your ivory tower Rob and deal with reality.
+2 # fcvnyc 2012-03-19 04:44
Like always, professor Reich is right on target by pointing to history and the deregulation battle of Glass/Steagall. However, I think we have to take Smith’s oped and Reich’s statement a step further by seriously discussing the what, why and how of a credit-based financial system where only the public sector creates money as indicated in the Lincoln 1865 Senate document and advocated by quite a few organizations today. In final instance, the International Institute for Monetary Transformation thinks we have to evolve a carbon-based international monetary system as proposed in The Tierra Solution: Resolving the Climate Crisis Through Monetary Transformation to be published in April 2012.
0 # wleming 2012-03-20 15:48
mein gott mann, the guy comes clean, and one of the only fat cats to do it.. and you think his "critique" too narrow. the fat cats lost 2.1 billion in value... that seems rather un narrow, after his op ed piece. please mr. reich you can do better than this,

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