Model this (the Goldman guy)

Everyone is talking about the Goldman guy who quit, he wrote this (reactions here):

I truly believe that this decline in the firm’s moral fiber represents the single most serious threat to its long-run survival. It astounds me how little senior management gets a basic truth: If clients don’t trust you they will eventually stop doing business with you. It doesn’t matter how smart you are.

Without clients you will not make money. In fact, you will not exist. Weed out the morally bankrupt people, no matter how much money they make for the firm. And get the culture right again, so people want to work here for the right reasons.

This strikes me as economically naive.  Is it at least possible that the culture at Goldman has changed (I am not myself committing to any assessment here of GS) because profit maximization dictates such a shift?  What are a few possible models?

1. Income from trading has risen in importance, relative to income from clients, and if you can do well trading you will make money, whether or not you are a jerk.

2. Greater competitiveness lowers levels of service quality for efficiency wage-like reasons.  GS can no longer play the role of high mark-up, precommit to high-quality, monopolist.

3. We have moved to the “used car” equilibrium.  You know they are screwing you over, or trying to, but leaving for the guy next door simply replicates the same basic incentives so you stay put and fight back best you can.

4. The current interest rate spread means they don’t have to try too hard.

Anything else?  Those are possible mechanisms, not factual claims about the world.  In any case, I am suspicious of his impulse to blame it all on a sudden shift in the moral propensities of the people he was working with.

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