Tuesday’s Senate hearings on Goldman raised as many issues as they answered. Today’s thoughts on the status of Goldman Sachs’ current folly and the US financial industry:
- Goldman executives have no idea how angry the average American is at Wall Street in general and Goldman in particular.
- Nobody likes Ivy-league trained, arrogant, wise-cracking executives, least of all those who wear great suits and have great haircuts.
- In a work-related email, lack of discretion and caution can really return to haunt the writer. Thus, characterizing a deal as “shitty,” calling the securities “monstrosities,” doubting the sale of your product to “widows and orphans,” and not understanding the complexities of these products guarantees later problems to both writer and firm.
- When pressed on the use of the word “shitty” in the email, the correct response is not that it was an unfortunate use of words. Rather, explain whether or not it was a good or bad deal for the investors.
- To the average American, trying to justify a $9 million cash compensation package as “modest” will never work.
- If indeed the customer comes first at Goldman, it is impossible to duck questions on fiduciary duty to your customer.
- “I did nothing legally wrong” will only antagonize the SEC and other prosecutors. The court will decide what is lawful.
- As a corollary point, isn’t Goldman smart enough to stop its ongoing public relations releases attacking the SEC and proclaiming innocence? Nobody believes them.
I have made much of Wall Street’s casino atmosphere. The Senate should now focus on the following:
- Why are these types of securities even legal?
- What societal or economic good do they promote?
- How did Goldman and other firms prosper through the short-selling of their competitors’ securities (e.g. AIG, Bear Stearns, Lehman)
- Even if a security is marginally legal, is it ethical to sell it to customers without detailed and comprehensive disclosures?
- Since Goldman does not write mortgages, commercial loans or engage in other aspects of retail banking, why should it have a national bank charter?
- Since it is really a disguised hedge fund, why should it be able to borrow at the Federal Reserve’s discount window at zero percent interest?
- What is Goldman’s current level of leverage compared to leverage employed just prior to the financial crisis?
- How could overuse of leverage cause a second more serious financial crisis?
- Does Goldman (or any other firm) expect to be bailed out again if the crisis reappears?
- What has Goldman done or approved to assure the public of no more tainted securities and no second bailout? Personnel changes, managements controls, ethical standards, external oversight?
The press has given much coverage to these hearings. It is now time for some thoughtful reflection on Wall Street’s behavior: Is there excessive leverage? Favoring of certain financial institutions? Are we investing or gambling? Have we learned any lessons? Where are the regulators?
For a public with a short attention span and a Senate looking for quick financial reform, it is handy to target Goldman. Unfortunately, flogging their executives is merely peeling back one layer of the very large, smelly onion that Wall Street has become.
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Related posts:
- A Reputation as Good as Goldman Part II
- A Reputation as Good as Goldman? Part I
- Goldman and the Winner Take All Society
- Watershed Event in the Financial Crisis – SEC v. Goldman
- Random Observations
Tags: AIG, Bear Stearns, Financial Reform, Goldman Sachs, Lehman
