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Eric is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

At first glance, it seems that the spin cycle is cranking on high. Following the infamous New York Times op-ed piece by disgruntled ex- Goldman Sachs (NYSE: GS) employee Greg Smith, the High and Mighty are stepping up to defend the firm. No less a personage than New York City Mayor Michael Bloomberg expressed support for the investment bank, making a personal visit to its Manhattan headquarters the day the editorial was printed, then characterizing the investment bank as a “great firm.”  

Even the opposition rallied around Goldman. Morgan Stanley’s (NYSE: MS) CEO called into question the Times’ standards in running Smith’s editorial. Perhaps it wasn’t the strongest or most direct argument against the article, but it at least placed that company on Goldman’s side. Likewise with the brief email JPMorgan Chase’s (NYSE: JPM) CEO dashed off to his firm’s operating committee, in which he insisted that the JPM army not “seek advantage from a competitor’s alleged issues or hearsay.”

It’s unclear whether Goldman’s being advised through this incident by a PR company or an image consultant. It’s possible, as the company seems to be doing the right thing -- in other words laying low and waiting for this relatively minor storm to pass. All that’s been publicly released from the firm is a letter from its top brass to their troops, which is posted on its website. Like JPM and MS, the company didn’t quite attack the veracity of Smith’s assertions, choosing instead to detail the very happy results of an employee survey.

Obviously, and understandably, Goldman and its rivals are spooked… but should they be? Smith’s screed attracted a lot of heat, however it wasn’t a smoking-gun revelation. Investment banks are populated by short-sighted managers who only want to squeeze revenues out of clients? And they’re arrogant and often look down on the people that line their pockets? Gee, really? For anyone who’s ever been near an investment bank (particularly those of us, like this blogger, who’ve worked in one), the only shocking thing about Smith’s rant is that he found all of this shocking. A famous line investment bankers like to toss off about their profession is, “it ain’t the Red Cross.” They’re not there to feed hungry babies and save the world; it’s all about that bonus at the end of the year. How much can you sell to fatten that extra paycheck?

In the other camp, the ranks of people convinced that the Goldmans of the world are thirsty blood-suckers deserving of Occupation won’t find anything revelatory in what Smith says. They’re already convinced that investment banks and their ilk are the root of all financial misery, so they’re a lost audience already. No one will convince them that Goldman can do any good, nor should anyone try.

Investment banks have other things to worry about these days besides the seemingly permanent bad PR image they project to the outside world. Created and maintained solely to make vast piles of money, they haven’t really been doing so over the past few years. Goldman’s top line has been dropping steadily of late, from $45.1 billion in fiscal 2009 to $39.1 billion the following year to $28.8 billion in 2011. Not to be outdone, net profit is also rushing downhill at $13.4 billion, $8.4 billion and $4.4 billion in the same time frame. The firm even posted a quarterly loss in one instance last year. If it really is a “vampire squid” it’s not using its tentacles very well. Morgan Stanley’s also been struggling -- in its most recent quarter it booked a loss of $250 million on revenues that were more than 40% lower than the previous quarter.

For investment banks, another worry trumping bad press is the little fish nipping at their feet. Discount brokerages, unlike their big, negative-PR attracting competitors, have been performing better. They’ve also delivered more consistently. They aren’t as vulnerable to revenue and profitability lurches as are the giants because they take on a lower level of risk, acting chiefly as wirehouses facilitating trades. So a Charles Schwab (NYSE: SCHW), for instance, can post a year-on-year revenue increase and maintain profitability across quarters in spite of recent dips due to sluggishness in the market.

Criticism always hurts, but it doesn’t hurt as much as underperformance. Goldman’s response to the Greg Smith op-ed was appropriately mild and understated. It shouldn’t take that approach to improving its results.

Motley Fool newsletter services recommend Goldman Sachs Group and Charles Schwab. The Motley Fool owns shares of JPMorgan Chase & Co. Eric Volkman has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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