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Were Goldman Sachs’ investment products too complex to regulate?
By Lauren | April 19, 2010
The SEC’s claim that Goldman Sachs defrauded investors with a complex series of mortgage deals is certainly food for thought. Goldman denies the charges and, until a court finds otherwise, has to be presumed innocent. But stock values have taken a dive in the wake of the SEC’s announcement that it’s going after Goldman, and many on Wall Street are wondering how far the investigation will go.
Personally, I’m wondering whether this will prove to be another instance where corporate creativity has generated products that were too complicated to regulate in any meaningful way. The mortgage-backed securities that tanked the U.S. economy were nothing if not complex, seemingly designed to look like better investments than they were. And, as we heard when Wall Street crumbled over a year ago, shortcomings in SEC staffing were partly to blame. The “best and brightest” could make a lot more money creating and selling exotic investment products than they could by working for the SEC, so they understandably chose Wall Street over Washington. The SEC had a lot of lawyers on its staff and precious few financial geniuses. Lawyers understand the law, but they may not be mathematically talented enough to comprehend the weaknesses of complex financial instruments.
Don’t get me wrong - I’m all for innovation, especially when it supports the public good. But when brilliant people start getting creative, they can do a lot of damage without appropriate oversight. We heard recently that NASA is sending rocket scientists in to analyze alleged defects in Toyota’s cars. Maybe a couple of them ought to drop by and volunteer at the SEC.
Topics: Business Ethics, Risk Management, Social Ethics, corporate responsibility, ethics |
April 23rd, 2010 at 4:23 am
Lauren,
I have no idea how public agencies like the SEC are suppose to keep track of everything those wall street bankers dream up.
An incredible challenge.