A Goldman Sachs executive resigned today, decrying the toxic culture of his firm in a sharp op/ed rebuke in The New York Times. The accompanying news story explains how they are all pretty much the same on Wall Street:
The shift in incentives has followed the evolution of the business itself, industry insiders and other observers said. Partnerships, where the leaders of the firm had their own fortunes on the line, became publicly-traded giants. Proprietary trading evolved into a Midas-like source of money, challenging investment banking and client relationships. And with a free hand thanks to Washington, investment banks could take on ever more risk, amplified by debt.
“When these firms changed from partnerships to public companies, the ethos changed dramatically,” said Charles M. Elson, a professor of corporate governance at the University of Delaware. “The notion of client loyalty went out with the old structure. And as these became public companies, clients looked for the cheapest deal, and the firms looked for as many clients as possible.”
With the rapid growth of proprietary trading beginning the 1980s, as firms used their own capital to make bets, a short-term mentality came to dominate firms, according to Mr. Elson. “You make a much bigger buck on a transaction than on the long-term relationship,” he said. “You have profiteers as opposed to advisers.”
Compensation followed. Before 1990, pay for the chief executives of financial firms were on par with those of chief executives of the largest traded companies, or even slightly lower.
By 2005 the pay was roughly 250 percent bigger on average, said Ariell Reshef, a professor of economics at the University of Virginia. Broadly speaking, between 1980 and 2005, bonuses and salaries in finance increased 70 percent more than average pay elsewhere.
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