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Stephen R. responded to yesterday’s column:
"There is sometimes a difference between doing what is legal and what is ethical. Goldman Sachs seems to believe that you can do anything that is legal, even if unethical. Thus, they set up AIG to fail. They help Greece defraud the European Union. They sell products into the marketplace and then bet on them failing, when they knew they would fail in the real world.
At some point in time people recognize that they are dealing with unethical, immoral charlatans and they stop doing business with them. If you know your business associates are crooks, eventually you go somewhere else."
I couldn’t agree more. And I also think it is clear why firms like Goldman continue to attract business. It’s greed. I remember when the Bernie Madoff scandal broke. Some of his investors confessed that since his reported returns were so consistently above average, they figured he must be gaming the system. And that actually attracted them, because they wanted a piece of the action, too.
A similar dynamic is in play with Goldman Sachs. Of course, when you play with fire…
If you haven’t read up on how Goldman helped Greece fudge its books to gain entry in the European Union, here’s an op-ed piece from Bloomberg that describes it pretty well.
I have to admit, I disagree with the author’s conclusion that Goldman "…is innocent in Greece’s swap crimes."
This paragraph, in particular, is cause for concern:
"The trick Goldman Sachs employed to help Greece massage its debt figures hinged on using historical, rather than prevailing, currency rates in a series of swap transactions. While that undoubtedly comes under the heading of fast-and-loose, it’s not illegal; swaps are over-the-counter contracts between consenting adults, so no matter how divorced the values are from reality, it really isn’t anybody else’s business."
As I write today’s Daily Profit, the Dow Industrials is down 158 points. Part of the reason stocks are selling off is that investors are worried about the debt issues in Greece. I, for one, don’t want to hear that swaps Goldman helped Greece employ isn’t my business. When investment banks knowingly act in a way that destabilizes the global economy just to make a buck, it absolutely is my business.
As Stephen R. pointed out, sometimes there is a difference between legal and ethical.
Oh, and did you know the Fed is now investigating Goldman and other investment banks for using swaps to bet that Greece would default on its debt? It’s like accepting payment to help a bank robber escape, and then calling the cops to report the robber’s hideout and collect the reward.
Zero Sum Game
Yes, Charlie Munger is right. The state of investment banking and finance is depraved. And the thing is, ultimately, it’s a zero-sum game.
I certainly hope that the emergence of Paul Volcker’s "back to basics" regulatory approach bears fruit, because we certainly can’t take much more of the status quo.
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