Thanks to Rod Dreher for pointing out this NY Times Op Ed by a Goldman Sachs executive publicly decrying the moral collapse of his firm, and resigning in consequence. It’s a heck of a statement.

And yet, it’s missing something. What it’s missing is a narrative: how did the culture change? Why did it change? How did Goldman go from being one of the more trusted firms on the Street, with an exceptionally strong culture, to being a vampire squid.

The simple answer – and the one that Michael Lewis goes with at the end of The Big Short – is that the corporate structure changed. Not just at Goldman, but across Wall Street, investment banks that were once private partnerships are now subsidiaries of money-center banks that are public corporations. So, where once the goal was partnership, which required playing a long game of loyalty to the firm (and hence a long game of cultivating client relationships), and which required prudent risk-taking with the partner’s capital, now the goal is a big bonus, which requires racking up big numbers in a single year.

That may be part of it. But on the other hand, one driver of the new Wall Street culture is competition for talent with hedge funds, which are private partnerships.

But let’s look at the three ways our ex-Goldmanite says you can make it big these days:

What are three quick ways to become a leader? a) Execute on the firm’s “axes,” which is Goldman-speak for persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit. b) “Hunt Elephants.” In English: get your clients — some of whom are sophisticated, and some of whom aren’t — to trade whatever will bring the biggest profit to Goldman. Call me old-fashioned, but I don’t like selling my clients a product that is wrong for them. c) Find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym.

The author of the piece, Greg Smith, worked in equity derivatives, which I worked in for the earlier part of my Wall Street career, and I think that’s significant. Because none of these three ways of making money make sense outside of the derivatives world.

A firm “axe” is a position the firm is trying to liquidate (sell if it’s a long position, buy back if it’s a short position). In a flow business – selling bonds or stocks, for example – you don’t deliberately try to hold inventory. Indeed, you’re usually sharply penalized by risk-management for holding inventory for any length of time. So your “axes” are, generally, fleeting. Good sales-traders can work out of axes efficiently, losing as little of the bid/offer spread as possible in a short time period. It’s a basic market-making skill.

But derivatives products are not liquidated; they are hedged. And there is considerable discretion for how to hedge them, because the “proper” hedge is the output of a theoretical model bearing only partial resemblance to the behavior of these products in the real world. In effect, every derivatives position is a proprietary trading position, and hedging it is the art of trading around that position to maximize profit. Some derivatives axes will look similar to axes in flow business – you’ve got too much long exposure to the market, say – but these will generally be the simplest axes to hedge, and therefore the least-likely to require working with a client in the first place. If you’ve gotten to the point where you’re structuring something for a client specifically to work out of an axe, you’re already in a profoundly adversarial relationship.

His second is “hunt elephants.” Now, if you’re in M&A, everything you do is hunt elephants – big deals with large profits that don’t come around terribly often. But while on one level these deals are complex, on another level they are very simple – your client is buying a business. And if you’re a municipal bond trader, elephants are few on the ground. But in the derivatives business, you can construct an elephant, by inventing a product that is sufficiently opaque that price-discovery is difficult. Sometimes elephants are constructed for a particular client, to suit that client’s needs. That sounds like customer-service, but it’s rather like custom cabinetry or bespoke tailoring: you’re paying for that service, and you can’t easily tell how much. But one of the extraordinary things about the decade of the CDO is that Wall Street managed to hit on a mass-produced product that was as opaque as these customized products usually are. And priced accordingly.

Which brings us to his third, “trade any illiquid, opaque product with a three-letter acronym.” Now, back in normal times, trading illiquid products was a hardship assignment. Nobody on the block desk wants to take down an order for a chunk of stock that never trades – because if it never trades, you can’t trade it. They want to take down enormous orders of liquid stocks – and then try to make money versus estimates of how much it will cost to trade out of it in an orderly fashion. But on the derivatives side of things, illiquidity is a function of product design. It means the customer can’t tell what the price ought to be, can’t properly compare like for like with competing products. Just as Apple has an incentive to make a product that you can’t hack into (because this locks you into their product line long-term), derivatives structurers have an incentive to put together products that are difficult to reverse-engineer.

But derivatives themselves have been around since the 1980s. They go through their own cycles. In the early 1990s, exotic interest-rate derivatives products were all the rage, and Bankers Trust was the lead firm in putting them together. Then Greenspan hiked rates sharply, a bunch of clients lost much more money than they thought they would, and the business shrank sharply as clients shied away from exotic products, focusing on the simplest, easiest-to-value solutions to their needs. So why should the most recent cycle have destroyed the culture of venerable Goldman Sachs?

To answer that question, you need to recognize just how much money we were talking about in the middle of the last decade. The numbers are difficult to comprehend in the aggregate, so I’ll give a tiny example. I remember a fellow, one of the best sales-traders on the listed options desk, who moved over to become a marketer of CDOs. His first trade, he placed ten million illiquid bonds – not a big trade in nominal terms, but a big trade for that kind of asset. He was pleased with himself: he could play this game. Then he learned the margin on the trade: nearly twenty percent on the face. He’d made the firm nearly two million dollars. From one trade. That’s two orders of magnitude more money than he could make for the firm on a typical listed options trade. At this point he wasn’t pleased – he began to wonder whether he hadn’t been played for a sucker for his whole career until this point. And whether he wasn’t being played for a sucker still – whether he was going to be paid adequately for the insane amounts of money he now understood he’d be making for the firm.

Why there was so much money to be made, why the game went on as long as it did, and the bubble got as big as it did, is the subject of another post. My point here is just this. It takes discipline to say, “let’s take care of the customer, and think of the long term” when you’re talking about normal amounts of money. When the amounts of money become as staggering as they were in the mid-2000s, the game – at best – becomes “how can we convince ourselves that we’re taking care of the customer.” Because what if the only way to take care of the customer is to get out of the game? Which was certainly the case with sub-prime-mortgage-backed-CDOs by the mid-2000s. How do you turn off the machine that is responsible for the lion’s share of your firm’s profits? And if you don’t, then what exactly do you mean when you say you’re taking care of your customers?

The financial crisis should have led to a dramatic, wrenching shrinkage in the size of Wall Street. The businesses that were at the center of the crisis – mostly derivatives and structured products businesses – should have shrunk to tiny fractions of their former size, both in response to greater regulation and in response to customer’s shunning the products. But finance as it had come to be practiced had become not only too big to fail, but possibly too big to shrink, in any meaningful way, and our political response was not merely to fend off collapse – that was necessary – but to nurse the industry back to something resembling its former health – which not only wasn’t necessary, but was actively dangerous to our political and economic future.

If you talk to people on Wall Street now, they talk about the job market still being tough, particularly for new entrants, but they have no idea what tough would really mean. The industry is still enormously too big, enormously too profitable. We can’t fix the culture of a firm like Goldman so long as it’s still doing the same kind of business. Long term, the only way to fix Wall Street is to finally break it.