In April 2012, Goldman Sachs’ employee, Greg Smith, announced his departure from the investment bank by writing a caustic indictment of the bank’s culture. The letter was published in broadsheets in the UK and the US and brought scrutiny and censure to the bank. A profound point was made in the letter about the nature of man. Rizwan Rahman contemplates this further and argues that falling into avarice is more likely in a culture which dehumanises the client.
“I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity. And I can honestly say that the environment now is as toxic and destructive as I have ever seen it”
These words are from Greg Smith’s noxious email against his previous employer, Goldman Sachs. It was hardly a death knell to the global megabank. But it did reveal a subtle, worrying psychosis that may pervade the institution. Commentators on Smith’s resignation letter published in the New York Times earlier this year were quick to focus on the supposed designation of clients as ‘muppets’ by Goldman Sach’s employees; mere objects from which to extract as much money as possible, even if it meant offering substandard products. Smith’s main contention was that the company culture had shifted from meeting clients’ needs with ‘integrity’ and ‘humility’ to encouraging an almost parasitic, money-grabbing ethos.
If his letter had been written pre-financial crisis, it is unlikely it would have caused a stir. Instead, in the ongoing recessionary environment, the letter provided added ammunition for the congeries of the disconsolate, contemptuous of the “profit maximisation at any cost” culture that triggered the global financial crisis. On the heels of the Occupy movement, the letter served to justify all that is wrong with Wall Street. Money was the goal; money at the expense of civility; money-making without conscience.
A public relation headache
Scrutiny fell upon Goldman Sachs. They became the poster child of greed and unconscionable behaviour. There were calls for the resignation of Lloyd Blankfein, the CEO, who many felt was responsible for the shift in culture. Banking was based on trust: the higher echelons had forgotten this. There had to be a rehaul, a change, a revival, a return to first principles, and a return to the words of John Pierpont Morgan that commercial credit was primarily based upon the character with money and property being secondary considerations.
Many would argue that the letter highlighted a culture which produced vultures, preying on the uninformed. Mr. Smith felt values at the bank had changed. However, the image of the rapacious bank, intent on profiteering is hardly new. Long before 2007, there was 1929, when financial market players were condemned for their profligacy (John Maynard Keynes had called the financial markets a ‘casino’). The 80s provided a characterisation of the yuppy, with expensive clothes and an oversized mobile phone, hurrying and scurrying in the trader’s pit, looking to exploit the differential.
However, for all intents and purposes, a bank’s purpose is to make money. Maintaining clients comes from generating at least normal profits, but hopefully, supernormal profits. Therefore, the bank will look at possible ways in which this can be accomplished. An esoteric problem of today’s financial system is that making money has become easier through the over-reliance of computers. Money-making can be facilitated through the manipulation of numbers. The focus will be on numbers and not on the ‘integrity’ of the client. They are rarely in front of you. When numbers on the screen determine the success of both the bank and the client, then from the beginning, the client is dehumanised. As soon as their ability to make profits is inhibited, the demand will also fade. All clients really need is respect when spoken to and healthy returns but any invective behind closed doors does not necessarily lead to a collapse in fortunes for the company.
Greg Smith’s indictment, and similar accusations, are a public relations headache. It is the responsibility of PR departments to ensure that a good image is constantly portrayed of the company. For customer-facing institutions, selling tangible goods and services with many storefronts, such as Apple, Mcdonald’s, etc, is a daily concern. Customer attraction, satisfaction and loyalty will be dependent on many things, from the quality of the product, the level of services, the behaviour of the employees, the interior design, etc Opaque financial institutions such as Goldman Sachs, have to worry about this less. They may need to advertise, and ensure they are known, but maintaining client satisfaction is by and large limited to deriving a sufficient level of profits.
Consequently, there is every opportunity of corner cutting and slight exploitation provided the end result is met. Only when the company or clients are losing money will serious questions be asked. The financial crisis in part stemmed from sub-prime mortgages, inherently flawed and consequently exploitative of buyers. CDOs rushed through the system, even though there were obvious structural problems. But users were blindsided by the profits it was generating. When the floor collapsed, questions were asked but one must ask why these questions were not asked before.
“…greed, for lack of a better word, is good. Greed is right, greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms; greed for life, for money, for love, knowledge has marked the upward surge of mankind”.
“Greed is good”
To answer that question, it would be expedient to consider the words of the fictional character Gordon Gekko, the antagonist in Oliver Stone’s 1987 film “Wall Street”. The film is a morality tale depicting the conflict between the working class and the rich, ambition and loyalty, ethics and success, power and corruption. Gekko, respected in the financial markets for his shrewdness and success, delivers an emphatic monologue to an audience of shareholders:
‘Well, in my book you either do it right or you get eliminated. In the last seven deals that I’ve been involved with, there were 2.5 million stockholders who have made a pretax profit of 12 billion dollars…I am not a destroyer of companies. I am a liberator of them! The point is… that greed, for lack of a better word, is good. Greed is right, greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms; greed for life, for money, for love, knowledge has marked the upward surge of mankind”.
For Gekko, greed is good because it drives mankind forward and thus it ‘works’. Progress is achieved by having the desire to have, be it money, love or knowledge. Success is begotten by achieving what you are greedy for. Yet, conventional ethics rails against this concept. In Catholic theology, greed was considered one of the seven deadly sins and a slippery slope to hellfire. Dante’s allegorical poem, “The Divine Comedy”, personifies greed as a purveyor of selfishness. He exhorts “O avarice! What canst thou more, who hast subdued our blood so wholly to thyself, they feel no care of their own flesh?
The inference here is that greed consumes the person/s to the point where compassion for kin disappears. As is common with poems and prose with a moral message, exaggeration, metaphors, bathos and other narrative tools are precisely to make the reader ponder as to his own flaws. For moralists, the concern was always the well-being of society but the root of any deterioration was the flawed individuals. Making the flaw consensual and systematic in society, it begins to fester. The moral foundations of society are then weakened and eventually, society disintegrates. In a quite remarkable passage in the Quran, it states “ God does not change the condition of a people until they change what is in themselves”.
Gekko’s ultimate philosophy was a single-minded focus on the accumulation of money. Having an un-wilting determination to achieve any particular goal is a praiseworthy personality trait but the impact of such ambition on third parties cannot be ignored. A pursuit for money in financial institutions suffers especially as there is little consideration for the asset from which the wealth is being created. Casino-like behaviour in the financial markets has effectively created a financial system dependent on numbers building on numbers. Making the number larger then becomes a primary concern.
Thus greed in the financial markets can be thoroughly egregious, self-indulgent and domineering. If one’s goal is to only build profits, with no real attachment to a tangible product, then the potential to circumvent the rules and exploit the customer increases. The culture of Goldman Sachs is about making money. Why should it come as a surprise that they regard the customer as an avenue of exploitation?
What is of greater concern is that only a nominal concern for the Shari’a rules can dilute the spirit of the law. In such a situation, the industry becomes a parody of the complex structuring found in the conventional market. It is a slippery slope.
Islamic finance is about the real economy?
An inordinate focus on making money can lead to strange outcomes. The credit crisis revealed how complex financial products can be traded but not fully understood. The products still managed to exchange hands as the buyer could only see the potential profits that could be derived. They had failed to see on what tangible asset the product was ultimately based upon. Subprime mortgages rested upon poor buyers looking for housing. A consideration of this would have been mitigated if not avoided the crisis.
Would it be correct to say that the ignorance of this boiled down to greed? Was there any real concern as to the effect of the debt on the person? For the bankers involved, was it all about the numbers on the screen? This is a question that is being posed by critics of the Goldman Sachs Sukuk. At first glance, the product is seemingly compliant with Shari’a and a boon for the industry as a leading global megabank will be issuing the product. However, critics have argued that the structure stipulated in the prospectus is a ruse. The returns the sukuk holder receives is not generated by the structure but rather from ribawi transactions, and therefore forbidden activities, undertaken by Goldman Sachs. Moreover, since the sukuk can be listed, the problem of riba is extenuated as certificates begin to be traded not on par.
In such a situation, critics are scratching their heads, wondering about the essential nature of the product. A much more pertinent question is what is the intention of the parties? Is it to only make money by attracting Shari’a-sensitive investors though purporting to be compliant? These are questions that are not limited to the Goldman Sachs Sukuk. Islamic finance in general has been contending the law vs spirit dichotomy for as long as it has been in existence. There is an inherent tension between the need to comply with the formalistic elements of Islamic law while at the same time being practically relevant. The fundamental paradox for Islamic finance is that irrespective of the diatribes against the ribawi capitalistic system, its framework has been successful both in profitability and minimising risk. Many are asking: has Islamic finance offered a better alternative? The credit crisis could be considered as evidence of the failure of capitalism but the causes of the crisis were not so much the system, but more so the players within the system. They exploited the flexibility given to them. A desire to exploit then rests upon the choices of the individual. In Islamic finance, many would argue that there is no harm in utilising commodities to constitute an Islamic finance product. However, if the intention is only on deriving profits, then just as with the CDOs, there is an opportunity for an unexpected failure. Those who structure the product according to Shari’a may become less stringent in the application of the law. What is of greater concern is that only a nominal concern for the Shari’a rules can dilute the spirit of the law. In such a situation, the industry becomes a parody of the complex structuring found in the conventional market. It is a slippery slope.
Conclusion
Gordon Gekko was a fictional character but he was a composite of a number of Wall Street traders, looking for that quick buck. Greed for money has always been a vice. It is borne from selfishness and narrowness in perspective. One aggrandizes his own worth, and the end goal becomes the only goal. Concern for those around him becomes less of a concern. Systemising this view in culture can lead to devastating consequences. It is difficult to conclude that the culture of Goldman Sachs is as pernicious as Greg Smith alludes. However, the point is in any profit-making institution the potential for greed for money is great. Once embedded, it can lead to undesired consequences including creating strange, complicated financial products. Ultimately, the complexity will unravel.
