No more walking between the raindrops at Goldman

Nothing like this has ever happened before anywhere and for it to happen on Wall Street, to us, is almost unbelievable,” one shocked Goldman Sachs banker told me yesterday. “We used to be peerless. Now we’re looking perilous.” It was, said another, “a toxic dagger to the heart”.

Those are some of the private views of bankers who woke up yesterday morning to discover that Greg Smith, a departing vice-president, had written in the New York Times that there was a “toxic” culture at the Wall Street bank. Smith claimed executives “ripped off” clients whom they described as “muppets”. The London-based head of the firm’s US equity derivatives business in Europe said Lloyd Blankfein, Goldman’s boss, had “lost hold of the firm’s culture” and was responsible for a “decline in the firm’s moral fibre”.

There are few articles of faith in a world where Mammon rules but, from day one, bankers learn never to speak in public, nor to question the working of the system that makes them filthy rich. Goldman takes that credo one notch higher, creating what many describe as a secretive cult where bankers genuflect at the altar of free market capitalism.

So, for a Goldman executive to have a Jerry Maguire moment is all the more shocking. It has left everyone in the City and on Wall Street asking the same questions: why did he write what he wrote and is he right?

To answer these questions you have to understand the best cash-making machine global capitalism has ever produced. Goldman likes to hide behind the tidal wave of money that it generates and sends crashing over Manhattan, the City of London and most of the world’s other financial capitals but, for a few weeks at the height of the financial crisis in 2009, I spoke to most of the key players in the bank in London and New York for a Sunday Times Magazine cover story.

The first thing you notice about Goldman Sachs bankers is that they are smart. Really smart. Ask them a simple question about, say, the bank’s balance sheet, or the latest market figures or trends and they reply, rat-tat-tat, with the precise numbers. And if they can’t, they’re out. Every year, staff are put into one of four quartiles by the Human Capital Management Department. Note the “capital”. At Goldman, people are money. The fourth quartilers are fired. It’s up, or out.

Despite being whizzo brains, Goldman bankers do their best to appear “ordinary”, or as ordinary as it is possible to appear when you take home more money in a single year than many of us earn in a lifetime. The firm’s Manhattan offices are ordinary, bland even. There are none of the $87,000 hand-made rugs or $5,000 waste paper baskets of Wall Street lore. There’s no sign of irrational exuberance. Only bad coffee.

Goldman’s finest even try their hand at humility. Blankfein told me he understands that “people are pissed off, mad and bent out of shape” at what bankers did before the credit crisis and how they have profited from bailouts of taxpayers’ money. Goldman accepted $10 billion from Washington’s Troubled Asset Relief Program (TARP). He insisted he had learned from the mistakes of 2007 and 2008. “If we didn’t understand the limits of unfettered capitalism before, we sure do now.”

Goldman, he insisted, always puts the needs of clients first, in keeping with the first of its 14 founding principles, set out in the 1970s.

It all sounds compelling. These are the good guys of finance. The only problem is, it’s not true. Their hearts are not in it. What really gets Goldman bankers going is not clients, not making capitalism safer. What they like is money, money, money, with more money on top.

Just listen to what Blankfein says about why it’s important to pay multi-million dollar bonuses packages, like the $68 million he trousered in 2007. “Is it possible to have too much ambition? Is it possible to be too successful? I don’t want people in this firm to think they have accomplished as much for themselves as they can. I don’t want to put a cap on their ambition. It’s hard for me to argue for a cap on their compensation.”

Goldman bankers privately confirm that dirty cash trumps every other consideration. “I was like a donkey driven forward by the biggest, juiciest carrot I could imagine,” says one. “Money is the way you define your success, the way you keep score. There’s always room for more. If you are not bringing in more cash, getting a bigger bonus, buying a bigger house or a bigger boat, you’re falling behind. It’s an addiction.”