Goldman Sachs Mortgage Deals: Legal but What About Ethical?
Both sides of the saga have their merits. It doesn't help Goldman's case when emails surface from its reps about selling "shi***y" bonds, or from Fabrice "Fabulous Fab" Tourre boasting about unloading junk bonds to widows.
Then again, Wall Street is always about a gamble. (Insert Vegas or card-playing analogy here.) Wall Street lives in its own bubble. Is the real crime the disconnect it has with Washington? Didn't Gordon Gekko say in the movie"Wall Street," "Greed is good"?
As the legal storm against Goldman continued this week, including rumors of SEC plans to file criminal charges, the firm limply tried to defend its actions. During federal hearings, Goldman was accused of profiting from the collapse of the housing mortgage market from not one, but a series of complex deals.
According to the New York Times: "The claims suggested for the first time that the inquiries into Goldman were stretching beyond the sole mortgage deal singled out by the Securities and Exchange Commission."
A sea of new documents to back up the case has emerged from the panel, the Permanent Senate Subcommittee on Investigations, to set the stage for Tuesday's hearings.
Enter Goldman's chairman and chief executive, Lloyd C. Blankfein. He testified that Goldman did not have a substantial, consistent short position in the mortgage market. Read Blankfein's words on the SEC filing a civil fraud suit against Goldman:
"It was one of the worst days of my professional life, as I know it was for every person at our firm," Mr. Blankfein said. "We have been a client-centered firm for 140 years, and if our clients believe that we don't deserve their trust we cannot survive."
Blankfein's words contrast that of Carl Levin, the Democrat of Michigan who heads the Senate committee. He insisted that Goldman repeatedly put its own interests and profits ahead of the interests of its clients.
Levin produced a binder the size of two breadboxes, containing copies of e-mail messages, to back up the claim. The subcommittee's bottom line: Goldman put its own interests ahead of clients. As the titanic mortgage market began to sink, Goldman turned its back on clients who came knocking with older Goldman-issued bonds they had bought.
Unfortunately for us, both sides have a point. Banks and brokerages are in the business of making money, but they are also in the business of serving their shareholders. Wall Street, however, is not held to the same fair-dealing practices that we've come to expect in our consumer-driven society. Institutional investors knowingly take risks when trying to make money for their clients by creating opportunities.
Perhaps the real evil lies not in the practice of systematically betting against what is good for one's clients, but in blindly throwing more and more junk investments into our financial system -- and thus indirectly violating the consumerist ethics that Americans have come to expect.