Paul Volcker: Goldman Sachs Changed For The Worse

WASHINGTON, D.C. -- Former Federal Reserve Chairman Paul Volcker said on Wednesday that Greg Smith, the former Goldman Sachs executive director who dramatically announced his resignation in a New York Times op-ed, is right that Goldman Sachs has changed for the worse over the past decade.

Volcker, who served as an economic adviser to President Obama, said at The Atlantic's Economy Summit in Washington, D.C., that when Goldman Sachs went public in 1999, it "became a trading operation," which hurt clients and the economy at large.

"That changed the mentality, I'm afraid," Volcker said about Goldman Sachs. "It's a business that leads to a lot of conflicts of interest."

Smith wrote in his op-ed on Wednesday that he is quitting because over the past 12 years, Goldman Sachs has become too concerned with maximizing profits often at the expense of its clients.

At the conference, Volcker said that Wall Street's general shift toward speculation in the early 2000s damaged the economy.

"These were brilliant years for Wall Street from one perspective," Volcker said. "Were they brilliant years for the economy? Well, there's no evidence of that."

Volcker pointed out that as banks profited, workers did not become more productive, and there was "virtually no increase" in average household income when adjusted for inflation. This led to an "imbalanced economy," he said.

The existence of $60 trillion in credit default swaps globally to insure $6 trillion of global debt during the financial crisis "suggests there was something going on here that didn’t have a connection to the real economy," Volcker said. It was "like a casino," and "when the system came under pressure, it collapsed," he said.

The languishing of the economy during the early 2000s as the financial industry profited is evidence supporting the Volcker rule, the controversial part of the Dodd-Frank financial reform legislation that prohibits banks from trading with their own money, Volcker said.

"I hope reform will make a little progress and do a little rebalancing of incentives in the financial system," Volcker said. He hopes that financial reform will spur commercial banks to return to the "old-fashioned concerns" of taking care of customer deposits, he added.

This is not the first time that Volcker has spoken out about Goldman. A 1998 New York Times story about Goldman Sachs' making millions off the Russian government included this comment: "Today's bankers often don't have long-lasting concerns about customer-client relations,'' said Volcker, who was an occasional adviser to Russian government officials. ''You just do the deal and get out.''

Here are some reactions to Smith's op-ed:

Comments

[Kenz300]

08:59 AM on 03/17/2012

Too big to fail banks needs to be broken up into 2 or 3 smaller banks.

Big banks lend internationally. Move your money to a local bank.

Local banks lend locally. Move your money to a local bank, savings and loan or Credit Union.

Credit unions treat you better.

[AlanBannacheck]

06:08 AM on 03/16/2012

Way to state the obvious (assuming you were paying attention)

[builderman55]

12:04 AM on 03/16/2012

This is such a warning of the dangers of turning the country over to the wealthy class. At 57, I doubt if I will see this epic financial disaster cleaned up in my lifetime... And it certainly won't be unless some of the malefactors who caused it don't go to jail...

[Flight]

11:01 PM on 03/15/2012

Just goes to prove what everyone knows - the corrupt Wall Streeters can not, and will not, police themselves to keep the criminal element out of the industry.

[Kenz300]

08:59 AM on 03/17/2012

and the Republican party is still blocking Wall Street reforms.

[Tulka2]

05:27 PM on 03/15/2012

Since Money so clearly runs Washington D.C. you might think Wall Street would try to help D.C. re-institute laws that regulate the industry.  Recreating the wheel is not necessary.  We know what works.  Instead Wall Street sends her best and brightest to D.C. day after day, week after week, month after month, year after year since September 2008 to try to gum up the works.

You might think Wall Street might like to get back to the work of honest capitalism.  But no. 

Wall Street itself needs to have a summit.

[Domingo Cardoza]

11:37 AM on 03/15/2012

Is time to send those guys to prison. How many people's savings, jobs, homes, financial security, and national security were destroyed after the recession these A@# $%^les were responsible for. Seriously, off with their heads!

[Kenz300]

09:00 AM on 03/17/2012

Why are Republicans in Congress blocking Wall Street reforms?

[Lindytindy]

11:26 AM on 03/15/2012

I have yet to experience a corporation that is benevolent in any way. The capitalist myth that big corporations are not inherently evil is just that, a fairy story. They exist to make profit, period. That said, there was an era when corporations felt a tiny bit of self-serving social responsibility, now even that is gone. They need to be regulated to get them not to behave like serial killers.

[Scurvydog74]

11:00 PM on 03/15/2012

Any semblance of social responsibility on the part of a corporation is an investment in good will at best. It's also usually a bribe to get some "philanthropic" congressman to vote in a new tax break in return for making a tax deductible contribution that makes the congressman look good at home. They ARE serial killers. Google Shell Oil or Bhopal sometime.

[wheeljc]

11:14 AM on 03/15/2012

The BIG Question over at 1600 PA Ave, is "WILL THEY CONTINUE TO GIVE US MEGA BUCKS??"

http://www.ology.com/post/56131/goldman-sachs-whistleblower-will-hurt-obama-administration

[american-dolt]

10:06 AM on 03/15/2012

Thanks Volcker, we never would have known. Why don't we do something about? Because the own you and us, and it makes me fighting Mad.

[Kenz300]

09:01 AM on 03/17/2012

How about because Republicans are blocking any Wall Street reforms.

[Sigger]

09:43 AM on 03/15/2012

At the end of the day, if you're not an insider at any of the major corporations, you're just a Muppet. You say you need more tax credits, more loopholes, lower tax rates, no accountability, and no regulations - OK.

[iquitthegop]

09:06 AM on 03/15/2012

time too btake them up into tinny little peices

[Sigger]

08:53 AM on 03/15/2012

When I graduated from college, Arthur Anderson CPAs was the most respected of all the Big 8 accounting firms and was the epitome of ethics and the highest of standards. I've talked with employees who described their take on the reasons for the decline of the company, culminating with the Enron accounting scandal where Anderson was both auditor and consultant. The result was mega lawsuits and the complete dissolution of Anderson and their reincorporation as a Bermuda company.

Anderson lives on today as Accenture and is probably the largest consulting firm in the world. But, in my opinion, if one lives and works in America, serving American companies, one should pay American taxes - not those of Bermuda or Ireland. So much for supporting America, even though the company gets all the benefits, without paying US for them.

[Ppossom]

04:53 PM on 03/15/2012

Anderson not only audited the "Special Purpose Entities" that allowed Enron fraud, but, as you say, Anderson also provided consulting for setting up these fraudulent entities at Enron, and Anderson partners were members of the Emerging Issues Task Force (EITB) that set standards of accounting for such entities which were loose enough to allow Anderson to opine favorably on the fraud they created as "consultants."

I wish that I could believe that the giant accounting firms have reformed since Enron times, but the financial incentives that drove these firms to crime are unchanged.

[Scurvydog74]

11:03 PM on 03/15/2012

What changes a corporation? Like any living thing, as it ages, it loses innocence and becomes bold and viscious and greedy.

[bowloforanges]

08:45 AM on 03/15/2012

At Last, Some Decency on Wall Street
By Robert Scheer

By the time you read this, the PR hacks of Goldman Sachs will be vigorously pressing their efforts to destroy the reputation of whistle-blower Greg Smith, a former Goldman executive director whose exposé in Wednesday’s New York Times Op-Ed page was so devastating that the 143-year-old firm might actually, finally, be held accountable.

Smith, a wunderkind who spent the 12 years after he graduated from Stanford University rising through the ranks at Goldman, has revealed the firm’s culture to be so fundamentally venal that were financial industry shenanigans not generally exempt from effective legal regulation, Goldman’s executives could have been rounded up Wednesday morning on organized-crime charges.

[walt1944]

08:31 AM on 03/15/2012

Is it any wonder why Goldman Sachs is called GOVERNMENT SACHS?????

[muck-raker]

07:29 AM on 03/15/2012

How Goldman Sachs Created the Food Crisis

Don’t blame American appetites, rising oil prices, or genetically modified crops for rising food prices. Wall Street’s at fault for the spiraling cost of food.

Demand and supply certainly matter. But there’s another reason why food across the world has become so expensive: Wall Street greed.

It took the brilliant minds of Goldman Sachs to realize the simple truth that nothing is more valuable than our daily bread. And where there’s value, there’s money to be made. In 1991, Goldman bankers, led by their prescient president Gary Cohn, came up with a new kind of investment product, a derivative that tracked 24 raw materials, from precious metals and energy to coffee, cocoa, cattle, corn, hogs, soy, and wheat. They weighted the investment value of each element, blended and commingled the parts into sums, then reduced what had been a complicated collection of real things into a mathematical formula that could be expressed as a single manifestation, to be known henceforth as the Goldman Sachs Commodity Index (GSCI).

http://www.agricorner.com/how-goldman-sachs-created-the-food-crisis/