Clear-Mindedness About Goldman

I agree with Fareed Zakaria. The Goldman scandal is nothing more than an emotionally clouded, knee-jerk reaction. In other words, more motivated by politics than by a long-term, well-thought-out plan to reform finance. But, then again, what else is new? Let the cycle take its course…

Let’s be clear: all the facts are not publicly available, and evidence may be presented in court that documents specific misrepresentations and false claims, proving Goldman Sachs’s guilt. But much of the public debate has struck me as guided more by emotion than careful analysis. Even if some Wall Street practices strike many people as dodgy, even unethical, that’s not the same as illegal. I want financial reform, but I also want our system of government to be characterized by fair play and equal justice—even for people making $10 million bonuses. [link]

Let’s hope, that at the end of it, we have more regulation, and in the right places. If it does happen though, it might be too little, too late. Right now though, it’s too early to tell.

There are, however, two possible advantages of the whole Goldman scandal: First, is the exertion of power by the SEC and the regulators. Maybe they will wake up and start taking responsibility, rather than sitting around watching porn. Second, just the act of going through the motions of prosecuting them (even if unsuccessful) might signal that no institution is Too Big To Fail, and will force the smaller banks to clean up their acts.

Again, too early to tell the outcome.

Be Sociable, Share!

If you enjoyed this post, make sure you subscribe to my RSS feed! You can also follow me on Twitter here.

5 comments for “Clear-Mindedness About Goldman

  1. April 27, 2010 at 8:36 am

    Got it! Sh*t is just an ‘asset class’ in search of a price. And market makers are the high priests of the exchange. Come on…this is a systemic disease; not political theater.

  2. April 30, 2010 at 5:41 am

    I am still trying to figure out what is illegal about Goldman’s action. Unethical, possibly?

    1. Goldman is an market-maker and it was just providing products to meet clients needs (Synthetic CDO’s in this case)
    2. IKB is a sophisticated investor and perhaps, they should know what they are getting into. Was IKB being greedy and bypassed due-diligence in the process?
    3. Did Paulson use any non-public information to act as an counter-party on the short-side? What if Paulson turned out to be wrong and his fund lost money because the housing market didn’t collapse in the right time?

    In my mind, this argument is in a way similar to Tobacco companies selling cigarettes to the public. They are not doing anything illegal by providing a product demanded by its clients. Unethical, possibly.

  3. April 30, 2010 at 1:22 pm

    Well, it would have been illegal if Goldman did something that was the equivalent of the tobacco companies claiming that cigarette-smoking was good for you. Oh wait.

    The flipbook for the deal at the heart of the current Goldman Sachs scandal warned that it might not contain all material information, offered no guarantee that the information was accurate, and said that there were “potential conflicts of interest” in the deal. It might as well have said “Don’t trust us.”

    This is not a big deal, Goldman has done nothing wrong illegal, and the whole movement is motivated by purely by politicians capitalizing on a currently fragile populace (particularly sensitive to the banking industry).

    Politics, however, can lead to even cigarette-smokers knowing that cigarettes are bad for you, smoking in spite of that, suing the tobacco companies, and then winning. So, you never know…

  4. Gordon Gray
    May 2, 2010 at 3:55 pm

    It’s one thing to act as an indifferent market maker, and a whole other thing to influence the creation of a financial product to knowingly perform in a particular way, then take a substantial position shorting that product (or helping buddies do the same), and then either stand back or actively sell others into a long position. I’m not saying that is what they actually did, but, if that is what it appears they did, then both the civil and the criminal case are warranted.

  5. May 2, 2010 at 4:03 pm

    I think that assuming that market makers will be indifferent in the absence of regulations is where the problem lies. They are in the business of making money, and they will do everything in their power to do so. Goldman is no better or worse than any other market participants, in that sense. Was it ethical? It depends. Was it legal? The jury is (literally) still out on that one.

    As I understand it, they were on the long side of the position. Which means they ended up paying Paulson when that portion of the synthetic CDO failed.

    Finally, did I mention that the investor (IKB) was in such a mess that they had to be bailed out twice? Sometimes bad investments go to those who deserve them.

Leave a Reply