|Greg Smith's GS Bio (via DealBook)|
Greg Smith: Goldman Sachs, and other firms on Wall Street, started learning how to use the information they were getting from their clients, in order to bet with their own money. At times, betting against their clients. And you know, that's a real changed mentality from how do we do what our client wants to do? Not how do we take advantage of what the client's doing to make money for ourselves?
Greg Smith: So what Wall Street will do is, they will approach one of these philanthropies, or endowments, or teachers' retirement pensions funds, in Alabama, or Virginia, or Oregon, and they'll say to them, "We have this great product that is gonna serve your needs." And it looks very alluring to these investors. But what they don't realize is that up front, they're immediately paying the bank two million dollars or three million dollars because of their lack of sophistication.
Greg Smith: Within week one, I met a junior guy who was 24 or 25 years old and the first thing he told me was he'd just traded a sophisticated derivative with a Muppet client who paid the firm an extra million dollars because the client was so trusting that he didn't check the price with other banks. Now you could think to yourself, "Is this some rogue guy who's just talking callously about clients?" But his boss, who's a managing director, was sitting right next to him nodding and chuckling along. And--
Put over-the-counter derivatives and debt securities on exchanges to fix all of these problems. There needs to be more transparency in these internal bank markets.