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Greg Smith, the ex-vice president of Goldman Sachs who resigned last spring after publishing a scathing op-ed about his former employers in the New York Times, has a new book out (“Why I Left Goldman Sachs”) and appeared on “60 Minutes” last night to talk to Anderson Cooper about it.

Smith said Goldman, like other firms, started several years ago to use client information to bet with its own money, sometimes against its own clients. Getting an unsophisticated client, he said, became the “golden prize” because the “quickest way to make money on Wall Street is to take the most sophisticated product and try to sell it to the least sophisticated client.”

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.

Anderson Cooper: So they don't say to the client: the price you're paying for us to execute this trade is a million dollars?"

Greg Smith: That's a huge part of the problem. Not at all.

Anderson Cooper: How can it be that the client doesn't understand what the bank is making?

Greg Smith: These are very complicated derivative securities which takes a Ph.D. in physics or in engineering to understand. And there are pension funds and mutual funds that represent people's 401(k)s and retirement savings that are trading the most complex instruments out there without fully understanding them.

Anderson Cooper: So, did the people you work with want unsophisticated clients?

Greg Smith: Getting an unsophisticated client was the golden prize. The quickest way to make money on Wall Street is to take the most sophisticated product and try to sell it to the least sophisticated client.

Goldman rejects Smith's accusations that the company puts its own interests ahead of its clients and conducted an internal investigation aiming to disprove the charges. Smith really abandoned Goldman because his superiors refused to promote him to managing director and more than double his salary to more than $1 million, the company says. Blankfein this month that he's "not really concerned about the book's revelations."

Smith said he "absolutely" would have left Goldman Sachs told CBNCs even if they had agreed to his promotion and salary increase. With his book completed, Smith doesn't yet know what his next move will be. "I was not doing this in order to get hired at another Wall Street bank."

A full transcript of the "60 Minutes interview" is available here.

HSBC's Money Laundering Lapses, By the Numbers

by Cora Currier ProPublica, July 20, 2012

This week a Senate investigation detailed that HSBC had lax controls against money-laundering and often ignored warnings about clients with ties to drug cartels and terrorists.

The bank is also reportedly nearing a settlement with the Justice Department, which has two criminal investigations into whether HSBC was complicit in money-laundering and tax evasion.The federal regulator that should have been keeping tabs on all this, the Office of the Comptroller of the Currency, also came under fire for "systemic weaknesses" in its oversight of banks' anti-money laundering procedures.

The report reaches back more than a decade, and in testimony in front of the Senate this week, the bank apologized and vowed it has recently overhauled its anti-money-laundering efforts. The bank's head of compliance stepped down this week. But the Senate report notes that HBSC made similar promises of reform back in 2003 when it was cited by regulators for poor oversight of suspicious transactions. HSBC declined to comment further on the report or on the DOJ's ongoing investigation.

There are lot of blunders and blind spots detailed in the Senate's 335-page takedown. Here's a rundown2014in each instance, we've linked to the relevant page in the report.

17,000: The backlog of unreviewed, potentially suspicious activity alerts at HSBC's U.S. arm as uncovered by government regulators in 2010.

200: Number of compliance staff in bank's U.S. branch between 2006 and 2009, of which a smaller group was charged with making sure the bank was following anti-money-laundering rules. HBUS had millions of accounts, and more than 16,000 employees overall, and according to the report, kept compliance staff small as a cost-cutting measure.Members of the anti-money-laundering group told investigators that understaffing was a key problem.

85: Number of problems with the anti-money-laundering efforts at bank's U.S. arm red-flagged by the OCC between 2005 and 2010. That was a third more than the next-closest major bank.

0: number of enforcement actions the OCC took in that time period.

3: number of years, from 2006 to 2009, for which HSBC's U.S. branch didn't do any money-laundering monitoring for transactions with HSBC banks in other countries.

15 billion: Total value of U.S. dollar bills (as in paper money) the bank accepted as part of bulk-cash transactions from foreign HSBC banks during that period, with no anti money-laundering controls.

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When it comes to the vast, corrupting influence of money in politics, historian Thomas Frank has sounded the alarm loudly and often. In “It’s a Rich Man’s World,” one of his recent essays for Harper’s Magazine, Frank writes, “Over the course of the past few decades, the power of concentrated money has subverted professions, destroyed small investors, wrecked the regulatory state, corrupted legislators en masse, and repeatedly put the economy through the wringer. Now it has come for our democracy itself.”

Bill talks with Frank about the power of concentrated money to subvert democracy.

Frank’s book, What’s the Matter with Kansas? was a best seller and his latest, Pity the Billionaire, asks how Tea Partiers and their allies can make heroes of the rich and mighty who ran us into a ditch.

BILL MOYERS: And there's more. One of Senator Johnson's former staffers is now one of JPMorgan's chief lobbyists. And the chairman's present top assistant used to be a lobbyist for a law firm that worked for JPMorgan. I mean, this wasn't a hearing. This was a reunion of the Gambino family.

THOMAS FRANK: Well, look, this is what we call in Washington the revolving door, okay. And this, if your viewers haven't heard of this they need to learn about it right away because this is how Washington D.C. works is that people go back and forth from, typically from Capitol Hill staffs to working for lobby firms or directly for these, you know, the clients of the lobby firms that have to do with the interests that they used to work on when they were on Capitol Hill.

And then they go back and lobby to their former boss, right, and convince him or her to vote one way or the other. And that's how you get ahead in lobbying is you start out working for someone on Capitol Hill, a powerful senator on a given committee. And then you go and essentially sell that expertise, sell that, you know, the fact that your friends with that guy to, you know, to a lobbying firm or to a bank or to whoever. That's totally how it works.

BILL MOYERS: It's an interlocking cartel and it's serious business. How can we claim to have a representative government when they really are representing the people who bought the campaigns and not the voters who voted for them? It's a serious question.

THOMAS FRANK: Well, there are people who, I'm going to get cynical on you here, Bill. There are people who believe that the more money we have in politics the closer we become to a democracy. They think it's better for there to be more money in politics.

Why do they think that? Because they think that the market is a democracy, that markets are democracy and that government is, when government interferes in the economy it's illegitimate by definition. And so the more money we get in there the more it allows entities like JPMorgan to defend themselves against the sort of, you know, the heavy-handed meddling of some, you know, Washington bureaucrat.

Full transcript available here.

Goldman Sachs is searching for Muppets.

Via Reuters:

Goldman Sachs Group Inc has begun scanning internal emails for the term "muppet" and other evidence that employees referred to clients in derogatory ways, Chief Executive Lloyd Blankfein told partners in a conference call this week, according to people familiar with the call.

The company-wide email review comes after an executive director named Greg Smith resigned last week in a scathing op-ed column in the New York Times in which he said he saw five Goldman managing directors refer to clients as "muppets," at times over internal email.

In the United States, "muppet" brings to mind lovable puppets such as Kermit the Frog, but in Britain "muppet" is slang for a stupid person.

On the conference call with partners this week, Blankfein said the company was taking Smith's claims seriously and was conducting a review of his assertions, including the email scan, according to these people.

Goldman Sachs should also scan for Bert, Ernie, Elmo, Kermit the Frog and Miss Piggy. If they think the word "Muppet"is the issue, well then they just don't get it.

An interesting op-ed in today's New York Times is written by a Goldman Sachs executive, who announces his resignation in the opinion piece titled "Why I Am Leaving Goldman Sachs."

You know things are bad when the quitting employees refer to the "Vampire Squid."

How did we get here? The firm changed the way it thought about leadership. Leadership used to be about ideas, setting an example and doing the right thing. Today, if you make enough money for the firm (and are not currently an ax murderer) you will be promoted into a position of influence.
...
Today, many of these leaders display a Goldman Sachs culture quotient of exactly zero percent. I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients. It’s purely about how we can make the most possible money off of them. If you were an alien from Mars and sat in on one of these meetings, you would believe that a client’s success or progress was not part of the thought process at all.

It makes me ill how callously people talk about ripping their clients off. Over the last 12 months I have seen five different managing directors refer to their own clients as “muppets,” sometimes over internal e-mail. Even after the S.E.C., Fabulous Fab, Abacus, God’s work, Carl Levin, Vampire Squids? No humility? I mean, come on. Integrity? It is eroding. I don’t know of any illegal behavior, but will people push the envelope and pitch lucrative and complicated products to clients even if they are not the simplest investments or the ones most directly aligned with the client’s goals? Absolutely. Every day, in fact.

The author, Greg Smith is - for a few more hours today - Goldman Sachs executive director and head of the firm’s United States equity derivatives business in Europe, the Middle East and Africa.

Goldman Sachs is already fighting back, and denying Mr. Smith's claims in where else but The Wall Street Journal.