Financial Times Editorial Comment: Goldman’s ethics

Financial Times Editorial Comment: Goldman’s ethics
Copyright The Financial Times Limited 2010
Published: April 28 2010 20:22 | Last updated: April 28 2010 20:22
http://www.ft.com/cms/s/0/1278658e-52f8-11df-813e-00144feab49a.html


It was not in the end a decisive showdown. While the US Senate’s grilling of Goldman Sachs was both lengthy and pitiless, there was no “aha” moment. The proceedings will not still the debate about whether the bank did anything legally nefarious when it sold complex mortgage related securities to investors. That remains for the courts to decide.

But if the senators failed to land a killer blow, Goldman did not come out well. The bank offered a masterclass in legalistic hair-splitting and obfuscation. Among other things, this involved senior bankers pleading ignorance of a well-known mortgage product. The most toe-curling moment came when Goldman’s chief financial officer, David Viniar, was asked if it was appropriate for a banker to refer to investments the company was selling as “shitty”. Amid derisive laughter, he appeared to say that what was wrong was to express such a thought in an e-mail. Mr Viniar was obliged to clarify that it was the thought, not the medium, that was wrong.

The impression given is that Goldman does not get it. To the man on the street, the synthetic CDO business seems like something from a parallel universe. It bears no resemblance to traditional banking. The idea that Goldman and its hedge fund clients made money from this necromancy by selling duff securities to banks that then had to be bailed out is what infuriates the public.

Goldman has said thank you to the taxpayer for rescuing it. It believes the banking business should be more tightly regulated. But in its public statements at least, it seems blind to the ethical dimension. The CDO case is not the first time it has faced such questions. It was criticised for selling Greece derivatives that helped the country massage its public debt figures. It later sold Greek bonds to its own clients.

The bank’s failure to engage with the “how it looks” problem could, if not resolved, threaten its franchise. Clients may conclude that it does not really put them first. The bank needs to show it understands these concerns. Goldman used to say that its approach was to be “long-term greedy”. Showing humility about the ethical question would show it to be long-term smart.