Goldman Sachs fails the ethics challenge

The Senate held a ten-hour hearing yesterday on Goldman Sachs’s role in the financial crisis. The question for the committee was whether new laws were needed to reform the financial system; the question for me was whether Goldman Sachs—America’s most prestigious investment bank—was serious about ethics.

The hearing was long, the members were irritable, the subject was complicated, and the Goldman Sachs executives were evasive when asked such tough questions as whether they had any obligation to act in the best interest of their clients. But two exchanges tell us unequivocally about ethics at Goldman Sachs. First, Chairman Carl Levin (D-MI) and Goldman Sachs Chief Financial Officer David Viniar.

LEVIN: And when you heard that your employees, in these e-mails, when looking at these deals said, God, what a shitty deal, God what a piece of crap — when you hear your own employees or read about those in the e-mails, do you feel anything?

VINIAR: I think that’s very unfortunate to have on e-mail. [Laughter and groaning from the audience]

LEVIN: On an e-mail?

VINIAR: Please don’t take that the wrong way. I think it’s very unfortunate for anyone to have said that in any form.

LEVIN: How about to believe that and sell them?

VINIAR: I think that’s unfortunate as well.

LEVIN: That’s what you should have started with.

VINIAR: You’re correct. It is.

Levin later questioned CEO Lloyd Blankfein.

LEVIN ”You’re out there looking around for buyers of stuff, whether it’s junk or not junk, where you are betting against what you’re selling. You’re not troubled by that?”

BLANKFEIN: ”I’m not troubled by the fact that we market-make as principal … and that when somebody sells, they sell to us, or when they buy, they buy from us.

LEVIN:”Do you think they know that you think something is a piece of crap when you sell it to them and then bet against it, do you think they know that?”

BLANKFEIN: “I want to make one thing clear… the act of selling something is what gives the opposite position of what the client has. If the client asks us for a bid, and we buy it from them, the next minute we own it and they don’t… we can cover that risk, but the nature of the principal business in market making is that we are the other side of what our clients want to do.”

If there’s ethics at Goldman Sachs you couldn’t prove it by yesterday’s hearing. I’m guessing there just isn’t any.

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2 Responses to “Goldman Sachs fails the ethics challenge”

  1. Judith Ellis Says:

    Thank you, Bob, for this post and for your ethical voice. It’s always appreciated.

  2. Got ethics? Some investment bankers do. « Ethics Bob Says:

    […] year the Senate held hearings into Goldman Sachs’s role in the financial crisis. I wrote at the time that it appeared that Goldman Sachs, the most respected house on Wall Street, had no […]

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