We reported earlier today on Whitney Tilson’s defense of Goldman Sachs Group, Inc. (NYSE:GS) . Tilson has sent ValueWalk another letter where he scales back a bit. Tilson thinks that Greg Smith’s op-ed will help the firm. He still thinks that Smith is exaggerating the situation at Goldman. Finally Tilson states that he hopes Goldman returns to the days where it ” did the right thing 99.9%” of the time for both shareholders and employees.

Below are Tilson’s comments:

A few additional thoughts, upon further reflection: we think Greg Smith’s op ed will ultimately prove to be a good thing for Goldman Sachs and, to a lesser extent, the investment banking industry.  Here’s why: every company and industry has a certain percentage of people who regularly do the wrong thing, especially when it results in making a quick buck.  Our long experience in the hedge fund and investment banking industries leaves us with no doubt that such people are overrepresented in the financial sector, where there are ample opportunities to make a lot of money quickly by screwing others.


There are plenty of such people at Goldman – we don’t think Greg Smith is making them up – but we are quite certain that he paints a grossly distorted picture of the firm: based on everything we know, the people and behavior he describes are nottypical of the firm.  But to the extent they exist at all, this is bad news both for shareholders like us, as well as the tens of thousands of hard-working, high-integrity employees at the firm.


To put some numbers around it (which we’re making up, but you get the idea), in the old days we’d guess that Goldman people did the right thing 99.9% of the time, which means the “ethical error rate” was a mere 10 basis points.  Then, after the company went public and as sheer greed and insanity gripped the entire industry, Goldman probably slipped to only doing the right thing 95% of the time.  This might sound okay, but it’s not – the 50x increase in the ethical error rate led to horrible consequences, both for the firm and our country, especially when the rest of the industry was doing similar things – or much worse.  So where is Goldman today?  We’d guess that it’s rebounded to 99%, a big improvement – but still a lot worse than it was in the old days.


We would like to see Goldman get back to 99.9%, and think that Smith’s op ed, however unfair, will help that happen.  It has created a shock wave that is reverberating through Goldman – and, hopefully, the entire industry – that will likely remain in everyone’s mind for a long time to come, making it more likely that no-one at Goldman will go anywhere close to any ethical lines.  In other words, Smith’s article was bad for the small number of people doing the wrong thing at Goldman, and very good for shareholders and the vast majority of Goldman employees.