(Brendan McDermid/Reuters)

First, the repeal of Glass-Steagall in 1999 eliminated the division between commercial banking and investment banking, making it much more common for firms to place proprietary bets for their own benefit rather than their clients’. That’s the backdrop for Zehner’s first observation of how the Street has changed, which she posted on her blog:

First, how has the business changed? I believe there is, in general, a climate of greater suspicion. Firms like Goldman and others have large proprietary positions that can never, in my opinion, be divorced from providing liquidity for customers. This is not in and of itself a negative, as it can be argued that having large positions can help facilitate large customer trades. On the other hand, traders can use customer information to do things like ‘front run’, which is unethical.

Secondly, Zehner believes that clients have become much larger and have themselves gamed Wall Street firms, which in turn has prompted banks to become more secretive — a cycle of distrust that’s broadened the gap between banks and their clients:

Another major change over the past 10 to 15 years is that customers have become huge and do huge trades. In my day, a $100 million trade was big; now trades can be in the billions. Many customers are much bigger than the firms they trade with ... It is not uncommon, I am told, for a trader to be asked to sell a large block of bonds, hundreds of millions, only to learn that many other dealers were asked to do so at the very same time resulting in instantaneous losses ... Such ‘customers’ are not innocent victims but the opposite ... Is it right for that trader to no longer be transparent with that customer? Yes.

Finally, echoing many observers of the recent financial crisis, Zehner believes that Wall Street has created and used complex financial products to dupe their customers:

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.

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. “The Goldman Sachs I joined in 1988 was not the same one I left in 2002 from a culture perspective. That is one of the reasons I left too.”

Some supporters of Dodd-Frank believe that new regulations can tame the structural problems that have warped Wall Street’s incentives, issuing their own defenses of the law in the wake of Smith’s op-ed. Goldman, for its part, has since vowed to review internal conflict-of-interest rules that are meant to ensure that its dealmakers don’t hoodwink their clients.