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Joe Guzzardi Why this resignation letter published in the New York Times gave me a hearty laugh

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Joe Guzzardi

Posted: Saturday, March 24, 2012 12:00 am

Greg Smith's resignation letter to Goldman Sachs, published in the New York Times on its op-ed page, gave me a good laugh. Smith's sub rosa message was that at long last he had seen the light about Goldman's ways and wanted out to live a more satisfying — if less well-paid — life. Suddenly getting religion must be easy after earning tens of millions in salary and bonuses for 12 years, as Smith did.

For those who view Smith as a folk hero for labeling his employers as greedy and insensitive to the adverse impact their avarice has on their clients, take a close look at Smith's title. Smith was the executive director of Goldman's European-based equity derivatives department.

Derivatives are the reason your home lost 50 percent of its equity since 2006 and why the federal government had to bail out Goldman and the rest of Wall Street with your money. Smith profited immensely from derivatives; you suffered.

Years ago, when I worked on Wall Street for Merrill Lynch, we considered Goldman to be our chief rival for investment banking business. Accordingly, we watched their movements closely to see if we could gain some slight advantage. Merrill, a retail-oriented firm that specialized in selling common stock to individuals, was just emerging as a banking power. Goldman, on the other hand, had an established reputation as the banker of choice for the nation's gold-plated corporations.

One of those blue chip companies was Penn Central Transportation, which in the late 1960s operated more than 20,000 miles of track in 16 states and two Canadian provinces. Not only was Penn Central crucial to the northeastern U.S. hub, it also held vast parcels of prime New York real estate along Park Avenue.

For years, Goldman sold Penn Central's short-term money market notes which it classified as a prime investment. Behind the scenes, however, Goldman knew that Penn Central was on the verge of collapse. Indeed, in 1970 Penn Central filed for bankruptcy, the largest ever at that time.

During the months leading up to its official bankruptcy filing, Goldman continued to sell Penn Central's notes for 100 cents on the dollar, even though it knew that when they matured they would be worthless.

A Securities and Exchange Commission investigation later found that Goldman was in "possession of material adverse information" which "it did not share with its customers."

Importantly, Goldman held none of the notes in its own portfolio and therefore did not lose any of its own money. In those days, Goldman was a partnership and it would have been the partners' personal capital at risk.

Naturally, the customers involved in this filed lawsuits. One claimed that he had been victimized by Goldman's "fraud, deception, concealment, suppression and false pretense." The trials also hung out much more of Goldman's dirty laundry.

Unlike the derivatives fiasco from which the nation is still reeling, the Penn Central case had a happy ending. Goldman was ordered to make full restitution to the customers involved in the case.

At Merrill, we hoped that with Goldman exposed, Fortune 500 customers would abandon it and flock to the "Thundering Herd."

That's not what happened. Merrill's business grew, but so did Goldman's. But in a more ruinous development, Goldman executives eventually held prominent positions in the Clinton, Bush and Obama administrations. We all know how poorly that worked out for common folk under Henry Paulson, Treasury Secretary and former Goldman Chief Executive Officer.

While I agree with Smith's valid criticism of his former employer, I prefer how journalist Matt Taibbi described Goldman Sachs. Taibbi wrote that Goldman is a "great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money."

Having closely observed Goldman and its operatives for more than 40 years, I can find no fault with Taibbi's summary of its agenda.

Joe Guzzardi retired from the Lodi Unified School District in 2008. He lives in Pittsburgh. Contact him at

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