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What the heck happened at Goldman Sachs?
By Lauren | April 29, 2010
As the wars over the banking reform bill wage on in the Senate, it’s hardly surprising that our fearless leaders chose this week for hearings into the backroom shenanigans at Goldman Sachs. After all, one major point of the legislation is to keep greedy investment bankers reasonably honest. If Congress can prove that the financial wizards at Goldman made a lot of money by under-the-table betting against the investments they were recommending to (some of) their clients, it makes the case for the banking bill just that much more compelling.
Trouble is, Goldman and its peers are probably far less monolithic than one might imagine. There were undoubtedly a lot of financial advisors at Goldman who thought mortgage-backed securities were the most lucrative way for their clients to go; after all, a lot of people on Wall Street believed that. There were undoubtedly also some advisors who chose to buck the trend of pushing mortgage-backed securities, because for every investment fad there’s also a group of naysayers and it’s common practice for sophisticated investors to hedge their bets. Unless all of those people got into a room and agreed on a strategy, however, it’s going to be very difficult to prove that anyone at Goldman intentionally misled their clients into making bad investments.
Ultimately, the question that probably needs to be addressed is not whether Goldman advisors defrauded particular investors, but whether investment banks should be required to offer consistent advice to all of their clients. Such a requirement would undoubtedly make investment advisors bristle, because it would limit their ability to exercise independent judgment on a client-by-client basis. However, it might also eliminate the appearance that, at large investment houses, some clients get better advice than others.
Topics: Business Ethics, business communications, customer relations, ethics |