Several of the nation’s biggest banks have gotten themselves into hot water for their inability to get homeowners into sustainable loan modifications. Bank of America, for instance, routinely lost homeowners’ paperwork, dragged the modification process out for months, and even foreclosed on one homeowner just days after approving him for a mortgage modification. And this was when the bank wasn’t intentionally denying homeowners federal mortgage aid.

Adding to the list of horrors, ProPublica found that Litton Loan Servicing, which was owned by Goldman Sachs at the time, denied many troubled homeowners mortgage modifications after sending their paperwork to India and losing it:

When homeowners faxed their documents, they didn’t go to Litton, [former employee Chris Wyatt] says. They went to India, where a low-cost company scanned and filed the documents — but often misfiled or lost them. Wyatt says Litton routinely denied modifications because homeowners had not sent their documents when, in fact, they had.

In a process internally referred to as a “denial sweep,” Litton’s computers would automatically generate denial letters for every homeowner who, according to Litton’s records, hadn’t sent their documents. But untold numbers of those documents had been lost on another continent. Wyatt complained about the practice in multiple meetings with senior management, he says, but managers were chiefly worried about reducing the overwhelming backlog.

Behavior of this sort is part of the reason that the Obama administration’s mortgage modification programs came up so woefully short of their goals. The programs depended far too much on providing incentives to the banks to modify mortgages, despite the shoddy state of those banks’ modification processes, and therefore only a fraction of the people at whom the programs were aimed actually received any help.

Former Goldman Sachs manager Greg Smith set Wall Street on fire last week when he used an editorial in the New York Times to announce his resignation and blasted the firm’s “toxic and destructive” culture that led traders to mislead customers in an ever-present quest for profits. The reaction from Wall Street was predictable — Goldman mobilized a massive smear campaign against Smith, saying he was upset with the size of his bonus and lack of promotion, and its claims were amplified with anonymous accounts filtered through the financial media.

Now, however, another former Goldman employee is speaking out. Jacki Zehner, who was the youngest woman and first female trader to make partner at the firm, left Goldman in 2002. On her own blog, Zehner wrote that Goldman suffered a cultural change that led it to promote employees who were “commercial animals/jerks” over those who were consumer oriented, as the Washington Post’s Suzy Khimm noted:

These structural changes ended up changing the culture of these firms as well, which was one of the reasons Zehner ultimately left Goldman. Colleagues who were “commercial” — e.g., pushed for the firm to profit over other considerations — were being promoted over those who were customer-oriented, she explained, decrying the “commercial animals/jerks” at the firm. “I sat and listened to arguments about how commercial people HAD to be promoted despite being poor team players, downright jerks or much more. That really pissed me off,” Zehner writes.

Zehner also acknowledged that one side effect of that culture change was the creation and sale of “so much junk” in the form of subprime mortgages, mortgage-backed securities, credit default options, and other complex financial instruments that ultimately led to the collapse of the housing market and the subsequent financial crisis. Like herself, Zehner says other customer-first Goldman employees left the firm because they couldn’t “sell the crap they were being asked to create“:

So much junk was created that should never have been with disastrous consequences and that will be a black mark on the whole industry for a long time, as it should be. That in and of itself is testimony to the industry in general having lost its way. When you create toxic waste and market it as if it is was not, you are indeed harming your moral fiber. I know many people who were in ‘that business’ who quit because they could not in good faith sell the crap they were being asked to create and market.

Goldman Sachs, of course, disputed Smith’s characterization and likely isn’t fond of Zehner’s either. CEO Lloyd Blankfein has said the firm is “doing God’s work,” and in responding to Smith’s editorial, said, “We will only be successful if our clients are successful.” That, however, doesn’t sound like the Goldman Sachs Smith and Zehner describe, the firm whose employees chortled about the “shitty deals” they were selling to consumers, or a part of the Wall Street culture a JPMorgan Chase whistleblower described when he said that exploiting customers was “the purpose of the banking organization.”

Greg Smith’s New York Times op-ed — in which he resigned from Goldman Sachs due to its “toxic and destructive” culture that’s focused on ripping off clients — has not prompted much in the way of soul-searching on Wall Street. Instead, Goldman and the nation’s other big banks have circled the wagons and smeared Smith, aided by the conservative financial press.

As we argued, Smith’s op-ed makes the case for the Volcker Rule, the regulation included in the Dodd-Frank financial reform law that limits the amount of money big banks can use making their own risky bets. The rule is meant to push such risky trading to firms that aren’t too-big-to-fail and backstopped by the federal government. And several Congressional Democrats agree with that assessment, according to Bloomberg News:

Lawmakers including Senators Carl Levin of Michigan and Jeff Merkley of Oregon, the Democrats who authored the Volcker rule’s ban on proprietary trading and conflicts of interest in the Dodd-Frank Act said the piece strengthened the case for restrictions on Wall Street trading.

Congress can’t “legislate the culture but I think the heart of this goes to why we needed the Merkley-Levin amendment,” Merkley, a member of the Senate Banking Committee, said in an interview. [...]

Representative Barney Frank, the top Democrat on the House Financial Services Committee, said the column serves as a rebuttal to bank arguments that restrictions in trading activities would result in increased costs for market participants such as pension and mutual funds.

‘‘What he does is to reinforce the notion that much of the benefit from what they do goes to them and not to the broader society,’’ Frank, who helped draft the law that bears his name, said in a telephone interview. ‘‘It doesn’t make it criminal, but it does remove one of the arguments against the new restrictions.’’

The Merkley-Levin amendment referenced by Sen. Jeff Merkley (D-OR) was an even stronger version of the Volcker Rule that never even received a vote during the Dodd-Frank debate. Not only was the Volcker rule watered down before Dodd-Frank was passed — thanks in large part to Sen. Scott Brown (R-MA) — but the financial services industry has been trying to weaken it by hammering the regulators crafting its final version. But Smith’s op-ed shows how vital it is that banks engaging in this sort of activity not receive federal backing, so that they can’t go right back to business if their risky behavior causes them to fail.

Greg Smith’s New York Times op-ed yesterday — in which he announced his resignation from Goldman Sachs due to the firm’s “toxic and destructive” culture — has garnered lots of reactions. But one of the most curious came this morning from Sen. Kelly Ayotte (R-NH), who told MSNBC’s Chuck Todd that Smith’s op-ed highlights why the government should not have intervened to rescue the American auto industry:

TODD: When you read this op-ed were you getting angry?

AYOTTE: Well, I get angry when I think about bailouts. Bailouts not only for the private sector but also, obviously, for the car companies. I don’t think that’s the right direction for us. And that highlights it, I think that’s what part of the anger was from the Tea Party movement, but also just anger about what’s happening here in Washington with the fiscal state of this country.

Watch it:

For starters, does Ayotte think that the American auto companies were not part of the private sector when they received government aid? But more importantly, does she not recognize the difference between rescuing a vital American manufacturing industry and bailing out banks in order to save the financial system, only to see them go back to the same practices that caused the mess in the first place?

Ayotte’s bizarre connection aside, Smith’s op-ed actually makes the case for the Volcker rule, a restriction on risky trading that’s included in the Dodd-Frank law. The financial industry has been pounding away on the Volcker rule, in an attempt to render it meaningless, which would allow the banks to simply go right back to all the pernicious practices that helped bring the economy to the brink of collapse.

A Goldman Sachs employee yesterday publicly resigned via an op-ed in The New York Times, in which he called the firm “toxic and destructive,” saying that Goldman traders consistently talk about how much profit they are making by ripping off their clients. Goldman quickly mobilized a smear campaign against the former employee, Greg Smith, with “people familiar with the matter” saying that Smith was just miffed at not getting promotions and receiving a comparatively small bonus.

Financial prognosticators on cable news, of course, were quick to take Goldman’s claims and run with them, mocking Smith and saying that he should go start a media firm with the characters from Sesame Street. And today, Fox News’ Charlie Gasparino took on a new target, The New York Times itself, saying that the column was a “political hit job” by the paper of record, and an attempt by the Times to garner credit with the Occupy Wall Street movement:

GASPARINO: I don’t think we can underplay the political significance here. This is different than the New York Times business staff going out and doing an investigate report on what this guy said, you know, using it to develop anecdotes…This is The New York Times, as an institution, this is an op-ed, raising its gun and pointing it at Goldman Sachs. And there’s a political issue here, I believe, many people believe on Wall Street, that it’s playing up to the Occupy Wall Street people, the President’s class warfare rhetoric. This is a political hit job, in many ways…You have to ask what The New York Times’ motives are. This is a political hit job…And remember, what has the New York Times been on a roll about? Occupy Wall Street. Class warfare.

Watch it:

Gasparino also claimed that Smith was merely angry that he wasn’t promoted. “He’s never made managing director, that’s a big thing,” Gasparino said. “There’s a little bit of sour grapes here.” Yesterday, Gasparino tweeted that some Goldman employees were disparaging Smith’s views because “he never made more than $750,000 a year.”

In his public resignation letter in today’s New York Times, former Goldman Sachs executive Greg Smith said that one of the fastest ways to get ahead with the firm is to persuade clients “to invest in the stocks or other products that [the firm is] trying to get rid of because they are not seen as having a lot of potential profit.” He lambastes a firm culture where colleagues openly boast of “ripping their clients off.”

The sad thing is, this sort of shady behavior might well have been on the way to being curtailed if not for the actions of Sen. Scott Brown (R-MA). After Brown was elected to the senate in 2010, he threatened to join a Republican filibuster of the Dodd-Frank Wall Street Reform and Consumer Protection Act, using that threat to significantly water down the bill. Among the industry-favored concessions he extracted was weakening of the “Volcker rule,” which was meant to curb risky speculative investments that do not benefit customers.

Thanks to Brown’s maneuver, the final bill upped the amount of risky trading big banks like Goldman could engage in, increasing the amount of gambling they’re able to do by billions of dollars. Since then, financial industry lobbyists have been hammering away at the the rule in an attempt to render it completely meaningless.

The financial sector, of course, has repaid Brown with a flurry of campaign contributions. Between contributions from the firm’s leadership PAC and contributions from company employees, Brown has already received more than $40,000 in campaign cash from Goldman Sachs this cycle.

Former Goldman Sachs employee Greg Smith’s scathing New York Times editorial, in which he announced his resignation from the firm and decried its “toxic and destructive” atmosphere, has sparked a host of reactions in the United States, where Goldman was at the center of the financial collapse that engulfed the economy in 2008.

But Goldman also has an extensive business portfolio in Europe (Smith was based in London), and this morning, two members of the British Parliament slammed the bank for the practices outlined in Smith’s piece, the London Evening Standard reports:

Former Liberal Democrat Treasury spokesman Lord Oakeshott said: “We all know in the City that Goldman help themselves before they help their clients — here is the proof. Greg Smith says you get promoted there if you are not an ‘axe murderer’, and the people of Greece and the rest of the eurozone (sic) are paying the price.”

Labour MP John Mann, a member of the Treasury select committee, said: “At last somebody has come out and exposed what has been really going on. There is a real challenge to the Government to sort this out and make sure the banking industry is properly focused on its customers.”

As Oakeshott noted, the Eurozone, and Greece in particular, are paying a hefty price for their dealings with Goldman Sachs, which organized a debt swap deal with the Greek government in 2001. Goldman made hefty profits — on the day the deal was finalized, Greece already owed the bank $793 million — while Greece eventually plunged into a debt crisis that has spread across Europe. The deal was so complex that Greek officials weren’t aware of how bad a bet they had made until years later.

Members of Parliament weren’t the only ones set ablaze by the editorial. Speculation has spread that Smith’s expose could cause Goldman’s clients to flee the bank. It’s stock price dropped three percent this morning, and Rolling Stone’s Matt Taibbi, who has written extensively about Goldman Sachs, wrote that the editorial might be exactly what is needed to cause “real change” on Wall Street. And despite the bank’s best efforts to quell the criticism, others have mused that the fallout from the editorial could even lead to the ouster of CEO Lloyd Blankfein.