This week’s theater of the absurd features Goldman Sachs appearing before the Senate Permanent Subcommittee on Investigations. When it comes to watching these two groups face each other, the moral high ground is an anthill.
The reason CEO Lloyd Blankfein and other Goldman employees, including the silver-tongued vice-president Fabrice Tourre, will be at the witness table is because the SEC has filed civil fraud charges over the Abacus 2007-AC1 deal. Goldman marketed the Abacus synthetic collateralized debt obligations to a bond-insurance company and a German bank, and allegedly told the bank that the bond-insurance company had selected the bonds that would be tracked. Instead, Goldman allegedly allowed John Paulson’s hedge fund to have significant input regarding what bonds were included. And Paulson’s bonds were allegedly designed to be lemons that Paulson could strategically bet against, on the other side of the transaction from the bond-insurance company and the German bank. Paulson’s hedge fund made over a billion dollars on the deal; guess who lost the billion? Oops.
I used the word “allegedly” three times in the last paragraph. This is never a good sign. It means that people who seem to have trouble telling the truth are on the loose again. One person who apparently cannot get enough of telling the truth is the above mentioned Tourre, who made a series of unfortunate comments in girlfriend e-mails, including referring to himself as “Fabulous Fab” who was “â€¦ standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstrosities!!!” In another note he indicated that he had “â€¦managed to sell a few Abacus bonds to widows and orphans that I ran into at the airport, apparently these Belgians love synthetic ABS CDO2!!!” He also indicated that he was “[n]ot feeling too guilty about this, the real purpose of my job is to make capital markets more efficient and ultimately provide the US consumer with more efficient ways to leverage and finance himself, so there is a humble, noble and ethical reason for my job. â€¦ amazing how good I am in convincing myself!!!” I think this is why the word “ironic” made it into the dictionary.
But Goldman has managed to hit the headlines twice, thanks to allegations that a member of their board of directors, Rajat Gupta, provided inside information about Warren Buffett’s intention to invest in Goldman in September 2008. Unfortunately, the alleged beneficiary of the information was Raj Rajaratnam, Gupta’s close friend and former business partner, and head of the very successful Galleon Group hedge fund. Or at least it was successful until Rajaratnam and others were charged in the biggest insider trading probe in decades and the fund collapsed. Mr. Gupta, the former head of consultants McKinsey & Co., has not been indicted, but he will not stand for re-election as a Goldman director. Federal prosecutors in the Galleon case apparently have phone recordings of everything but Mr. Rajaratnam brushing his teeth, including conversations with Mr. Gupta.
So CEO Blankfein gets to appear before Congress and try to explain his e-mail statement that , “Of course we didn’t dodge the mortgage mess. We lost money, then made more than we lost because of shorts.” Uh huh. There are many internal e-mails discussing being on both sides of these deals. These cases are never as cut and dried as Congress wants to make it appear, and bankers are easy to demonize. And it will be helpful for Blankfein and Goldman to have Tourre to point to as a rogue employee, though this may work to Goldman’s disadvantage in the courtroom one day soon.
Apparently, Goldman Sachs is willing to provide full information. The question is whether they are providing it to people who are actually the ones who ought to get it.
Categories: Bottom Line Ethics
What stood out to me the most in this article was the email from Tourre where he expressed he was â€œ[n]ot feeling too guilty about this, the real purpose of my job is to make capital markets more efficient and ultimately provide the US consumer with more efficient ways to leverage and finance himself, so there is a humble, noble and ethical reason for my job.” When we start rationalizing our actions, we are walking a slippery slope. Like we have discussed in class, I think people incrementalize their behaviors. I am sure Tourre didn’t start out with this belief of no remorse but little by little, decision by decision, we become desensitized to our conscience and began to give in to greater and greater temptations. How can you not feel guilty about deceiving widows and orphans? This is just scary to me how turned around someone’s thinking can become where they begin to make decisions with no regard to what is right and even talk themselves into thinking it is right!
Why is this issue just now surfacing? If the alleged actions took place in 2007, why the congress just now investigating there actions and decisions? Saying that, I do feel like Goldman definitely took a huge step over the ethical line. They let Paulson help create these bond packages, knowing that they were going to bet against them. They made lots of money by misleading people into buying the packages that they were betting against. I feel like you want to put your money in the same place that the people giving you the advise are putting theirs. I think the thing that makes it worse is that Tourre calls himself the “Fabulous Fab” without fully understanding the monster he has created and then claiming that he has a “humble, noble and ethical reason for (his) job.”
I followed a bit of this political banter yesterday afternoon and found parts of the exchanges interesting and at other times frustrating. What I find most frustrating about the Goldman testimony is the political theatre involved where the subcommittee members are looking to ostracize Goldman simply because they are the biggest baddest bank on Wall Street, when most the other banks are likely involved in similar dealings. Personally, I find nothing wrong with the positions Goldman took in betting against the CDO’s they sold to clients – unless they had the intent to deceive. I think the clients taking long positions on the CDO’s are responsible for doing their own due diligence on the complex securities and seeing what underlies them. I do not think Goldman has a fiduciary duty to clients they trade with (clients they advise is another story). Where one client is a buyer, Goldman is a seller and naturally they are on opposite sides of a trade. As I understand, Goldman was long housing in ’06-’07 and made a strategic move to short housing towards ’08 looking to manage risk exposure as housing markets became more volatile – net I think their PnL in regards to housing was minimal. Ultimately, Goldman is in the business to make money and just because they choose to go short while their clients are long does not make it wrong. I don’t think Goldman has to take the same positions on markets as their clients take. Now, if they are colluding and intending to deceive, I change my opinion.
What I think does need to be addressed is the relationship between rating agencies and banks. How a bank can take a bunch of junk bonds and package them together to create a AAA+ security seems questionable. Sometimes it seems rating agencies become too cozy with the firms they are rating – be it the firm itself or the securities they are trading. I understood from yesterday’s hearings that rating agencies are paid by fees from the banks they rate (any insight Dr. Shaub?)- this seems to create a conflict of interest. I think we saw similar problems with Enron as analysts kept pumping up Enron stock at the urging of Skilling and Fastow.
Tourre keeps rationalizing that he is doing the right thing for Goldman Sachs and for himself when he doesn’t understand what he has created. He’s taking advantage of orphans and widows that don’t necessarily understand the complexity and risk associated with these bonds. How can he call himself ethical when he’s taking money from others and letting someone else bet against those bonds. Especially, since he is not being honest with the investors about the design of the bonds. It that this has been going on for some time and he’s been able to rationalize in his head that he isn’t doing anything wrong and doesn’t feel any guilt. I don’t understand how people think they can get away with fraud when over the years fraud I think the Senate subcommittee is going to try to make an example out of Goldman Sachs. People like Tourre are out to make money and don’t always think about the consequences of their actions not only to themselves but also stockholders and stakeholders. But why has it taken so long for the SEC file fraud charges against Goldman Sachs?
I agree with rjones that it was definitely crazy to see how easy Tourre was able to rationalize his actions. And not only did he rationalize them, but he found a way to convince himself that his actions were “humble, noble, and ethical.” In all of our discussions in class about all the occurances of fraud, not a single person who committed the fraud was able to rationalize it to this extent. It seems to me like most of the criminals knew what they were doing was wrong, but they found ways to rationalize because of certain pressures like needing more money, or feeling they deserved more, or thinking that it would turn around, or that they would pay money back….never did they say their actions were noble. This man seemed like he did these things just because he could. It’s scary to me that someone can convince themselves that deceiving anyone, let alone orphans and widows that already have experienced an incredible emotional loss, could be a humble, noble, or ethical act. What has been most apparent to me in our class is that it is very easy to lose sight of your values when money and greed becomes involved, and you can get yourself into a lot of trouble without even realizing it. I hope that I can continue to be aware of this when I am faced with difficult business decisions in the future.
I may be throwing a whole different wrench into this discussion’s gears here, but didn’t Goldman end up losing somewhere in the vicinity of $90 million on this deal? Of course they should be punished for allowing Paulson to manipulate this package, but is almost $100 million in losses not punishment enough? I totally agree with Austin here. If Goldman’s intent was to deceive, then by all means throw the book at them. Fabrice Tourre should no doubt lose his job and not be able to influence another deal of this magnitude ever again. But suggesting that Goldman as a whole is the criminal here is, in my opinion, a stretch. This seems like another way for Congress to “impress” the “Joe the Plumber” American public.
This is yet another classic example of why the “business world” just keeps frustrating me. HOW HARD IS IT TO BE A DECENT HUMAN BEING! I hear Chief Officer after Chief Officer say they are doing everything they do to help the company, help the investor, blah blah blah. I’m calling their bull! They want to keep their absurdly priced car or house and keep their kids going to private school. I find it impossible to believe that these people are as self-righteous as they TRY to present themselves as. Everything this economy is based on is trust, plan and simple. How in the world do they expect people to trust the market when we keep hearing about these things. I wonder how bad these individuals are really “suffering” from our hurt economy. Probably nothing compared to Joe the Plumber who can no longer sleep at night because he doesn’t know if he’ll have a home to live in a year, or a month, or a week. Disgusted, revolted, these words don’t do justice to the contempt I hold these people in. I would ask how can they live with themselves knowing full well what their true intentions are (and they certainly do know their own intentions, no matter what bogus junk they say).
I’m obviously biased, and I openly admit to my lack of knowledge in lots of these areas. But I have always followed my gut and my heart, and both tell me not to play with snakes, especially the deadly, vicious ones.
To me, it sounds like Tourre is taking advantage of an “ignorance is bliss” rationalization. It seems he’s not even letting himself fully understand the issue so that he can reassure himself that he is doing the right thing — not only the right thing, but a “humble, noble, and ethical” action. I agree with Cameron in that throughout all of our discussions and presentations in class thus far, no one has shown the ability to have rationalized more than Tourre. It is indeed scary to find how he let himself fall so deeply into this “ignorant” rationalization. Going along with Dr. Smith’s presentation in class yesterday, it seems Tourre has prioritized “popularity” to be his number one ambition in life. By calling himself the “Fabulous Fab” and referring to himself as “humble” and “noble,” he is showing that he weighs so much of his success on how others perceive him. He sacrificed his integrity through ignorance by focusing on what he had rationalized his image to be. This is a prime example why we should all prioritize “integrity” to be our highest ambition in life.
The words that Tourre proudly said are a disgrace. â€œFabulous Fabâ€ who was â€œâ€¦ standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstrosities!!!â€ He is not making markets more efficient nor better for users. What he is doing is rationalizing. This is where our class discussions come into play. This gentleman was a regular guy who began doing little acts that crossed the gray lines of ethical conduct and now he is rationalizing his judgements in a light that is not “guilty.” I like Joe’s argument above and it even makes me weary to invest in today’s market.
I think Porter is spot on. This congressional hearing seemed more like a demonstration to rally supporters for the new financial regulatory overhaul that was being voted on. It’d be a stretch to say that the timing of these hearings could be written-off as mere coincidence. Goldman is a great scapegoat and it makes strategic sense that congress would target them to make an example while every bank on the street is engaged in similar trades. Additionally, I would agree with Blankfein that “shorting” securities has an unreasonable negative connotation in the press. For every trade there is a long side and a short side and neither is ethically superior to the other. When we hear buzz words such as “Goldman shorting the housing market” it leaves an unwarranted bad taste in people’s mouths. During Dan Sparks’ (a fellow Aggie) testimony, Carl Levin seemed to brush aside the fact that although Goldman had massive short positions in the housing market, these were mainly to offset the massive long positions they held leaving the firm with a negligible net profit.
Another issue that I think needs more clarity is a bank’s role as a market maker. Clients come to a financial institution for exposure to a certain type of risk. The financial institution will then trade with the client based upon what positions the client desires. During the hearings, Levin postulated a question that essentially asked, “Does Goldman wish to see securities that it sells to clients succeed?” This is a completely ignorant question. As a market maker, a bank doesn’t have any fiduciary duty to a client as far as how “successful” a security will be. The bank is essentially a dealer of risk and it is up to the client to do his own due dilligence before investing. This makes it completely irrelevant as to whether the bank has proprietary longs or shorts that are opposite that of a client’s positions. The story completely changes if the financial institution is an advisor to a client.
It still amazes me the blatant disregard for repercussions that some of these upper level business men portray. I personally am naive enough to believe there is good in everyone and I usually look for it in people and situations. Even if you allow that Mr. Tourre was free from personal ethics and any sense of moral fortitude, the stupidity is appalling. How could he be so arrogant as to believe he would not be caught. I guess anyone who makes jokes about basically stealing from old ladies and orphans isn’t a pillar of intelligence.
“managed to sell a few Abacus bonds to widows and orphans that I ran into at the airport, apparently these Belgians love synthetic ABS CDO2″[without feeling guilty]–that’s absolutely disgusting if this “alleged” comment is true. This is a really extreme example of allowing yourself to rationalize actions that leads to a slippery slope. Good rule: if you are putting conscious effort into finding a way to rationalize an action, it’s probably unethical.
Regarding the comment that they can paint Mr. Tourre as a rogue employee, I find it hard to believe that this can all be pinned on one person. Although I know very little about how everything works on Wall Street, this sounds to me like it could be another example of “the tone at the top” creating a culture that does not encourage ethical decision making, yet rather than accept responsibility the execs at the top want a scapegoat.
After reading many of my peers comments and listening to various news commentators, I’ve come to the obvious conclusion that this is a divisive issue. So rather than adding another opinion about whether or not Goldman is guilty or not guilty, I’d like to take a step back and focus on one implication this investigation has had on Goldman. In the midst of our government searching to place blame for the financial crisis on someone, they have found one scapegoat in Goldman Sachs. I 100% believe that if Goldman is guilty, they deserve to be punished to the fullest extent of the law. But what if Goldman is not guilty? What if it’s shown they have done nothing wrong? What are the implications of this investigation? One obvious implication is that Goldman’s reputation has been tarnished (only time will tell how much their reputation has been tarnished). This leads me to wonder if it’s fair and even ethical for our government to do this? Is it ethical to publicly bash a company and tarnish their reputation before there is any proof of that company’s guilt? I do not think so. I think our government is acting irresponsibly and this irresponsibility needs to be punished.
What stands out to me most here are the emails sent by Fabrice Tourre. When I look at them, it is obvious that something slightly “irregular” is going on. A red flag should automatically go up when you have to “convince” yourself that what you are doing is ok. I feel like this is just another example of someone engaging in self-justification to prove to themselves that what they are doing is actually beneficial to others. It is just to bad that we can’t see this silliness as we are doing it, and not just retrospectively.
Reading about scandals such as these makes me wonder if there are any good guys in business today? I know that typically in these situations the actions of a few ruin it for the masses, but I wonder if it is possible to have a company completely filled with good guys. By good guys I mean people who know what is right and follow up on this knowledge. The theme for most of the speakers and discussion in class has been on doing the right thing and treating people with honesty and respect. Clearly these two notions were lost on everyone involved in the Goldman debacle.
The Fabulous Fab, Tourre, is the most interesting piece of the story to me. Its obvious that the Fabulous Fab VALUES things far differently from most of the readers of this blog. The most important thing when looking at persons actions is knowing what they value. Think about it, if someone values money and fame, then they’ll act such ways to get it. It shouldn’t be a huge surprise when they do unethical things.
Employers should seek hard to discover what potential employees VALUE. In doing so, companies will reward ethical people and punish the unethical by hiring and firing them, respectively. I’m sure that Tourre’s superiors knew that Tourre desired fame and fortune. As employers they should have dropped him, before he had the chance to act on his skewed value system.
To compare apples to apples in an ethical dilema, you have to consider a person’s values.
Did you watch the testimony? I watched quite a few hours of it. Well the whole time I could not determine if they did anything wrong, either ethically or legally. Blankfein continually stressed that Goldman is a market maker and not an adviser to these institutional investors. He said they have advising that they offer to other people, but these institutional investors (which are the investors that bought the synthetic CDOs) are not advised and don’t care to be advised. Well, I would have to agree with him. I worked for the Teacher Retirement System of Texas (17th largest public fund in the world) and we never took bank’s advise or their pitches as anything but sell-side research. We knew they had their own agenda, which was to push their product, whether that is stock, bonds, or collateralized debt. So, if they weren’t giving advise on these products and they were simply facilitating the trade, then their only responsibility would be disclosure of the products. Dan Sparks (Aggie graduate) described how the sales people would walk the investors through every asset in the CDO, thus disclosing all relevant information. It doesn’t matter if Paulson thought the CDO would fail, because they only knew the same information that the other investors knew. Thus, it would just be a difference of opinion (which is why there are always buyers and sellers in the market). Now, if Paulson had known something that the other investors had known, this would be a different case and Paulson and Goldman would be indicted on securities fraud and insider trading (since the information was not broadly known to the market). But, those are not the charges. So where is the ethical dilemma? And if there is one, then why aren’t all broker dealers who facilitated trades for Lehman or Bear or Merrill’s stock indicted too? Didn’t these securities fail too, and wouldn’t the broker know there was someone wanting to sell on the other side?
I’ve been hearing about this off and on in the news lately. What strikes me the most are the emails from Tourre–talk about an unempathetic person. It amazes me how he has no trouble selling bonds to widows and orphans, and feels no guilt from it either. Instead, he twists his logic into thinking that he’s doing what’s best for the company. This man is seriously lacking an ethical compass. Unlike himself, I in no way find the way he does his job to be ‘humbling’ or ‘noble’. Tourre obviously cares more about money than much else, and therefore, I’m not too surprised that he would do almost anything to achieve it. Whenever people care solely about money, usually you can expect them to not be the most ethical person.
Thanks for clarifying the situation even more than you did in class. I’m anxious to see how all of this will play out. It’s funny to see how people forget that their email’s can come back to bite them. I’ll be very surprised if paulson’s name doesn’t get dragged through the mud some more before all is said and done, but the sad thing is most people will probably look past it, because in the end, the man does know how to make money.
This is not just now being investigated. They have been investigating since 2007 when the alleged actions took place and just now feel that they have enough for a case.
I agree with Ben. I’m a little confused why Goldman is being attacked to the extent it is when they ended up losing on the deal. Obviously Tourre is an agent of Goldman and so I guess the firm can be punished for his actions, but this doesn’t really seem like a company-wide (or at least executive-wide) conspiracy to commit fraud like some other famous cases. I don’t want to say that you should only be punished if the consequence of your action wasn’t punishment enough, but I kind of feel that way. Is that not fair though?
I have heard that Paulson has declared bankruptcy since this 2007 incident. To me, they seem like the equally culpable party (if not more so). It makes it seem like the government just wants to punish somebody so they appear to be fighting for main street against “big business”. Is that fair, either?
Great comments above. Obviously I stirred up a hornet’s nest with this one. The sociology of the Street has changed. But the tensions in the multiple roles assumed by firms like Goldman Sachs seem unsustainable. What the firms invite is regulation from people who don’t understand what they do. So blame who you want to, but this is just what the accounting profession faced a decade ago. Perhaps if there were not the ties to the bond raters, perhaps if the firms stopped trying to be advisers while also making markets, perhaps they couldn’t be so easily made a spectacle. Less than a decade ago accountants paraded before Congress and were made to look like greedy idiots complicit in client fraud. And what we got was a regulated profession thanks to Sarbanes-Oxley.
But the truth was that we could have done something about it ahead of time by self-regulating, as I wrote in my earlier blog. We were desperately clinging to the things that made us big money, even though they made us look like we were in bed with our clients and could care less about protecting the public. The AICPA fought for auditors to retain every single type of consulting, finally reluctantly agreeing to give up financial information systems design and internal auditing. Then World Com, then Sarbanes-Oxley, good night.
If we had banned multiple consulting services for the auditors, revenues would not have changed for the big firms–clients would have just rotated to other firms. But we were convinced we had the inherent right to do all these things, that people relied on us for them, and we were the best equipped to do them. We said it was silly to give them up simply because people thought it might violate our independence or we might do it purely out of self-interest, and people were just not smart enough to understand.
We all know that the conflicts of interest in this case are not the only conflicts of interest in Wall Street banks. But the banks could structure things so that they minimized these conflicts, and maximized disclosure where they existed, instead of just saying “these are sophisticated investors.” I do not know what was revealed of if there was selective disclosure. I don’t know if any fiduciary duties were ignored. That’s why you go to court (or, more likely, settle it out of court).
But it might just be time to rethink how we divide these roles on the Street. Anyone who has been in my class knows that I am not a fan of more regulation. But if you don’t self-regulate, this week on Capitol Hill is what you get.
Let me speak about Dan Sparks, as Drew and Robert above are not the only ones to remind me that he is an Aggie. Mr. Sparks and I don’t know each other, but everyone who knows him speaks about the quality of person he is. His testimony has been seen by all as reasoned and balanced. The Wall Street Journal grades it as Aa2.
In fact, Dan Sparks was never mentioned in the blog. It seems to me he gave the kind of testimony that you give when you do your job well for many years in a top Wall Street firm. You tell the truth, recognize that you might change some judgments in hindsight, and speak your heart, that you did not feel badly about anything done at that time. I would love for him to tell his story in my classroom, and I am hopeful that he will one day.
But we should not blame Congress for being opportunistic. They are ALWAYS opportunistic. I don’t like watching it, but it is as much a part of life as the sun rising in the east. Part of our responsiblity is to make sure we are not convenient foils for them, and sometimes that is done by exercising a little self-control–by self-regulating.
Because of the insider trading by one of Goldman’s board of directors concerns me that there might be a lot more going on. It reminds me of the corruption on Enron’s board of directors, but hopefully this does not prove true. They say you â€œcan’t always judge a book by its coverâ€ â€“ not sure if that relates to Goldman… only in time will we know I guess.
First of all, I just want to point out how dumb it was for Tourre and Blankfein to say what they said in those emails. I think I learned in about junior high that anything you write down doesn’t go away and can come back to bite you. I’m sure they never thought they would be investigated, so no one would ever have cause to go back and bring these email to the surface, but I mean come on. If you want to brag about being evil and taking advantage of widows of orphans (just plain wrong), then do it in person; don’t put it in writing. Also, it amazes me that people can do things like this, Enron, and WorldCom and think that they will just get away with it. It makes me wonder how many times major frauds and illegal transactions take place and no one gets caught.
If they ever make a movie about Goldman a good title would be “The Smartest Company in the World.” I believe these people at Goldman knew exactly what they were doing, but they calculated the risk and thought it was worth it. It’s still questionable if they were doing anything illegal at all (my guess is no) but I agree that it was wrong.
Following is a great link to an accounting blog I periodically check regarding the Goldman situation.
Does anyone else out there ever read going concern or retheauditors.com?
I find it interesting that Paulson has yet to be charged in this case. They knowingly created bad investments, convinced Goldman to sell them to investors and then profited by betting agaisnt their own securities and selling them short. The SEC hasn’t charged them, I’m assuming, because selling short isn’t against the law. However, being a sound and moral business doesn’t always mean simply following the rules. As we’ve discussed many times in class, being ethical requires doing more than the law requires. I wouldn’t be surprised if the SEC creates some sort of rule that will elimiate problems like this in the future. It’s really unfortunate that our regulations are reactive instead of proactive.
It seems as though what Goldman and Paulson have done is probably not illegal. In these situations, where certain unethical/dishonest acts are not legally restricted, the government is leaving it up to self regulation. Obviously this did not work in this situation. Like akoranek mentioned above, it seems like they calculated the risks and determined it was worth it. I think a lot of the times when self regulation fails it is a direct result of a consequentialist calculation (possibly blinded by greed or pressure).
As Dr. Shaub has stressed this semester, people are generally not very good calculators. They probably did not consider the extent of the negative press and public relations that could come from it. Or the fact that a lot of times it costs way more to settle these issues than they actually would make on it. Regardless of their calculation, it does not change the fact that they had duties that should have overrode it. They had duties to their clients, their companies, their families and more. There should have been something that should have triggered these guys to realize that what they were doing was not right.
I think they did realize, though (hence, the consequentialist calculation). It’s interesting that we get to see at least some of the process that Tourre went through to rationalize what he was doing. It seems like none of these people were very careful to keep quiet about what they were doing and I’m looking forward to seeing a lot more come out on this.
The part of the article that I focused on the most, was the part of Tourre’s email that read “â€¦ amazing how good I am in convincing myself!” How much Tourre experienced inner turmoil or discomfort about the transactions he was involved with, I guess we will never know. At some level however, the ability to say that you are good at “convincing yourself” that what you are doing is an ethical thing, should be a giant red flag. It is interesting someone, not excluding myself, can rationalize something that we know isn’t the best decision, when that situation has the potential to be personally beneficial. I wonder what would would if we as individuals had the strength of mind and power to convince ourselves, in situations like the one described above, to act in a way that was in the interest of the public, rather than ourselves.
And lastly, I believe that many people do act in this way, it seems that only the ones that break the rules get attention in media headlines.
I, like most other commentors on this blog, am astounded by Tourre’s emails that show his true colors–greedy and uncaring of the stakeholders whom are affected by his actions. It is amazing how his greed went so far as to take advantage of orphans and widows. This is completely dispicable.
I also liked the connection that you made between the use of the word allegedly and liars. It is quite obvious that people are lying when allegedly is used, but it is a connection that I, and probably others, had never made.
In addition, like a group said in our ethical presentations this week, “history has a way of repeating itself.” I just hope that this is not another huge Enron-like fraud that costs many people their jobs and savings.
It’s stories like this that are the reason for the public’s distrust of Corporate America. I, like Stephanie, have been hearing about this on the news. This is the first I’ve heard about the e-mails and I am very surprised at how easily Tourre seems to justify his actions. Maybe it seems naive to want to think the best of people, but I have a very hard time believing that his parents raised him to think this way. I can’t help but wonder where he went wrong, and how he got to this point. It’s obviously a process, and to me this story shows how important it is to make sure that you have a certain amount of ethical accountability from the people you surround yourself with.
It is amazing what people write in emails. I think it will be interesting what actually gets said on the witness stand. Are we going to hear the WHOLE truth? Will Goldman be able to avoid trouble by making some generous donations to a specific Senator? Ethics is going to be stretched pretty far on this issue since there are some MAJOR players at stake. I just have a feeling that the punishment will not fit the severity of the crime unless some evidence comes out specifically indicating involvement at the higher ranks
WOW! This issue reminds me of an EAG’s presentation two days ago. How many people really trust corporate America? If guys such as Tourre seem to take rationalizations of wrong doings to the extreme, what is to say that there are not hundreds of others exactly like him? Obviously, this whole situation is full of secrets, like Shaub said, Goldman is ready to expose the truth, but to whom? Will we ever find out how this situation got so far as to steal from widows and orphans? Issues like this make me uncertain as to even go into a corporate work environment. I suppose all we can do is not let ourselves get caught up in scandals and stand up to those you are in the wrong.
I can’t believe Tourre sold these instruments to orphans and widows and then bragged about it to his girlfriend. Like someone above said, you are who you surround yourself with. Which leads me to believe that many of Tourre’s friends at Goldman Sachs are just like him. Also, what kind of girl is he dating? Because I doubt many good girls would put “stealing from orphans and widows” as their top characteristics when they are looking for a boyfriend. I hope Tourre gets jailed for this and gets fined severely. However, something tells me he will get off easily and that’s why there needs to be more regulation and stricter penalties.
First of all, I don’t think it is a good idea to accept an offer that a stranger presents you with in an airport, just as a personal rule. That seems suspicious.
ISecond of all, I am amazed that Tourre is so conceited that he would make such blatant statements in emails. Emails seem so attainable by an outsider. It seems like a majority of the evidence against him is from emails he sent. It makes me wonder if they would not be in so much trouble had they not been so transparent in their emails.
It will be interesting to see how this all plays out.
I never actually followed the story of Goldman Sachs until I got into this class. This story really surprises me because it shows how one can rationalize crossing the ethical line for self interest. It surprises me to see how Tourre could rationalize his actions of marketing these misleading bond packages and not feel any guilt. I want to know what his girl friend was thinking when Tourre wrote these emails to her and if she even tried or knew that what he was doing was wrong. According to Adam Smith, if people act according to self interest it creates an efficient market. Sometimes I wonder if there is that line that we can cross in which too much self interest would actually cause an inefficient market. It seems like the case after observing the current trends and events.
My biggest problem with this case is proving Goldman Sachs’ civil liability (For Abacus 2007-AC1). How will the SEC make these charges stick?
I wanted a little more information, so I spent the morning on Google, looking for an answer. The majority of the SEC’s case rests on circumstantial evidence and the emails you discussed. It looked like it would be difficult for the SEC to prove anything, because Goldman Sachs disclosed the entire contents of the mortgage pool. I was on the fence about their actual guilt until Erik Gerding at The Conglomerate pointed me towards this Princeton paper: http://www.cs.princeton.edu/~rongge/derivative.pdf
The paper, Computational Complexity and Information Asymmetry in Financial Products, proves that detecting whether bad mortgages are hidden in is an NP-Complete problem. Which means it is computationally intractable. Computers can not calculate whether there is a disproportionate number of bad mortgages in any reasonable amount of time. (Depending on the number of mortgages, years or even decades)
So either Paulson made a billion dollar bet on the mortgages failing without knowing much of anything, or Paulson at least had insider information about the composition of the pool of mortgages. This wouldn’t mean much in a criminal case, but in a civil case it is all you need.
It also swayed my opinion of Goldman Sachs, and not in their favor.
In response to tkfkd0921’s comment about Adam Smith, I think when he said if everyone does what is in their best interest it will lead to an efficient market place. I think list applies to making competitive business deals, not fraudulent ones. I’m not saying I think this situation is a fraudulent one. I do agree with you that too much self-interest will lead to an inefficient market place, especially with banks and public accountants. I feel these are two groups that without the public’s trust can throw the market into a tizzy.
Wow, I am in shock about this entire blog. I cannot believe some of the comments that were made by executives at Sachs. Their duty is to “make capital markets more efficient,” but how can you do that by lying to consumers. Efficient markets come from trust within the market and with all of the insider trading, lies, and deceit on their part, how can anyone really trust the market? This is very disturbing because I would hope that this is not the mindset of all corporate executives. After all we learned in this class, I feel very convicted to be a more honest person and to be a better person for corporate America. I hope that we can change peoples’ mindset towards corporate America and put trust back into the market.
The SEC’s civil fraud complaint on Goldman Sachs simply reveals an ugly fact on the Wall Street that a company would profit itself and some clients at the expense of other clients. With Goldman defending itself in front of the Senate and potential criminal charges looming on the heels of a civil lawsuit, Goldman’s image and trust from the investors was no doubt hit hard no matter those charges were true or not. The scandal has brought bad sentiment against Wall Street and would certainly urge the much-needed financial reform to better regulate the Wall Street when the market fails to do so.
It looks like this ethics class has a done great job in creating lively discussion around recent current events. The Goldman situation is very interesting to follow, and I also had the opportunity to watch part of the congressional hearing. It was interesting to see a reference to Texas A&M in a recent Wall Street Journal article prior to the hearing regarding Goldman and Dan Sparks. The article references a White Castle hamburger eating contest that was held every year to highlight Goldman’s competitive culture.
The article follows history in trying to paint all Wall Street banks as a picture of greed and arrogance. Wall Street is also a fixture of capitalism, which has often been overlooked given the recent financial times. I believe Dan Sparks has represented A&M very well throughout his career, and much of this recent controversy focuses around the nature of the business. Obviously, Mr. Tourre’s emails help with this negative press, as he appears self-serving and arrogant.
I think it is difficult to pass judgment against Goldman based on the facts. The competitive culture described in the article has always been a mainstay of Wall Street. Goldman is also a firm that continues to attract the best and the brightest because it is infamously known for rewarding employees based on a meritocracy. The congressional panel tried its best to paint the firm as one that operates with a hidden agenda in all of its business dealings. The panel also has a hidden agenda of its own, as it seeks to make an example out of Goldman Sachs in order to push through legislation regarding financial regulation. For now, it seems that the banks have lost their window of opportunity to exercise self regulation. The financial landscape will continue to look uncertain in the near future.
When I first read the blog last week, I wasn’t sure my stance on the topic. Tourre probably made himself sound dumb in writing those emails, but I don’t think it constitutes proof of anything. Though I think intentionally deceiving investors should result in charges, I don’t think Goldman or any or its employees committed fraudulent acts.
This weekend, I was able to listen to Warren Buffett’s stance on the Goldman topic (it was the first question posed to him at the shareholder meeting and the one question he took time to explain and answer thoroughly). What I found interesting, and never really thought of before, was the Dutch bank ABN Amro that backed (extended credit to) ACA’s 900 million dollars for a premiums of around 1.6 million. Why do not many people give them blame for the ordeal that went down? Extending someone 900 million dollars worth of credit for 1.6 million in premiums is potentially a gamble, and obviously it was a gamble that they lost. As others have pointed out, the institutional investors who went for the Abacus deal are some of the best and brightest in the field, and probably know more about investments than most people. They didn’t have to take the Abacus deal – they could have (and should have) chose to walk away from the deal, but they didn’t. I don’t think Goldman should be held responsible for ACA and ABN Amro making a miscalculated investing decision.
Another example Buffett gave was one of his own investing decisions that he used as an example of the similarity to the Dutch bank and the Abacus deal made by ACA. He was given a package of around 12 states that had sold bonds, and Berkshire Hathaway was suppose to insure these bonds. He chose to insure some states for more bonds, and other states for less bonds (ex – he ensured around 1.25 billion of Texas bonds but only around 600 million of California bonds). If a state defaulted on paying out bonds, Berkshire would have to pay out of pocket for the expense. Now the only way Berkshire would insure these bonds was if it was paid a high enough premiums on them. Buffett negotiated the price on the premiums and because it was satisfactory to him, he chose to take the deal. He said that if the premiums were not to his liking, he would have walked away from the deal without giving it a second thought. He also said that his company did its own research and assessed the riskiness of these bonds (Sure Goldman offers advising services, but if your company is in the business of making investments it sure should do its own homework and research on the topic). Another person could be on the other side of this deal shorting the bonds, but that has no relation to his stance. When someone makes an investment, they shouldn’t care who is buying the stock/bond or whether that person is shorting or longing the bond. The only thing that should matter is the own person’s position on the investment.
I also want to add in that I’m assuming Goldman didn’t intentionally deceive investors (this would change my stance). And I agree with the assessment that after losing a reputation, I’m interested to see how this case will turn out.
I am in shock about how long this has been going on. One reason it probably took so long for charges to be filed was because of the amount of evidence needed to prove Goldman Sachs had done something wrong. The SEC must prove that they didn’t just sit back and let people invest in these bonds, they need to prove that Goldman Sachs gave investors the wrong impression. The materiality of the information not released is also important in this case because they need to show that an investor’s decision would have been changed or affected by this information. This is hard to prove in any case and highly subjective.
I am also in shock about vice-president Fabrice Tourre selling Abacus bonds to “widows and orphans that [he] ran into at the airport.” These people did not know much if anything about how these bonds worked. People need a good understanding of where their money is going and how it will be taken care of for a ethical exchange to take place. He then goes on to rationalize this exchange by saying the real purpose of his job is to “make capital markets more efficient… so there is a humble, noble and ethical reason for [his] job…” I can’t believe that he actually believes that taking money from people who don’t understand where it is going is justified because it will help more people and that is what his job is.
Perhaps what Goldman did is technically legal, but ethically and PR wise terrible. The company has a fiduciary duty to its stockholders to provide them the most return on their investment. And in the past month GS has lost 10% more compared to industry. The firm’s inability to realize its decisions affects its stockholders and long term profitability.
I have been sort of paying attention to the Goldman Sachs situation in the news and have learned alot more about it during our classes. I think the situation is very sad because a few men have managed to tarnish the entire company’s name.
This weekend I was at a family reunion in Fredericksberg and we were all sitting around the dinner table when my aunt brought up Goldman Sachs. My cousin’s new husband works for Goldman in New York (they couldnt make the reunion). As we started talking about it my grandmother piped in asking if Caleb was involved in the scam, saying things like “I cant believe he would do something like that.” Of course Caleb had nothing to do with it, he is way too far down the totem pole to have been involved in this particular sitation but it was just a sad statement that even a grandmother does not trust her new grandson simply because what she saw in the news. She blanketed the Goldman Scam to everyone in the entire company. I fear that many people are doing this, and honest people are getting lost in the mix.
I wonder if those men involved in this situation know they have tarnished the name of everyone who works with them.
Laura Ryan’s comment is a really good one. When the Sage of Omaha speaks, I listen, too. His example makes sense. But he also made a $5 billion investment in Goldman, so it would be hard to expect him to be fully objective. It would make no sense to pile on and pound down that investment. In today’s article on page C1 of the WSJ, his partner, Charlie Munger, blames the government, referring to them as “the idiot tiger keeper” who should get blamed if the tiger gets out.
Berkshire Hathaway also used Senator Ben Nelson (of health care reform fame) to try to get their derivatives an exception from putting up collateral under derivatives reform. The original provision has been shot down for now. But BH is not incentive-free.
BH does its own homework and keeps its own counsel, and it has a long string of success to show for it. I respect Warren Buffett’s business decision-making a lot. The losers in this situation can learn a lot from following BH’s example.
But, as Robert Gordon says above, Goldman’s decisions have had at least a short-term impact on their share price. And while I think it is likely they prevail in both civil (if they don’t settle) and criminal (I think an indictment is unlikely and the criminal investigation is mostly for leverage) actions, it doesn’t mean that what they have done is what they ought to have done.
The whole situation is just sad to me. I’m sure that some or even many of Goldman’s employees probably conducted themselves in a manner that was inappropriate. However, at the same time, it bothers me that government employees are always so quick to take the moral high ground. In the first place, how qualified are these members of congress to be questioning people about business transactions? I do not claim to know the credentials of these congresspeople, but I do assume that these transactions were probably quite complex, and these people always seem to be trying to draw clear cut lines about situations which they probably do not fully understand. The question then, is who should be appointed to keep businesses accountable. I wish there was another party other than politicians known for “political behavior” to do this job. Maybe these executives should report to their mothers at the end of the week, submitting all of their emails, a log of deals they have conducted and people whom they have met with. This seems a little funny, but maybe it might actually work.
The big issue I take with this event is the lack of responsibility of investors. While it’s definitely unethical to mislead potential investors and withhold information, it is still the responsibility of the investor to do their homework. When you purchase anything from a salesman, you have to understand that their incentive is to close the deal. If you don’t understand exactly what you’re investing in, you not only shouldn’t invest, but you shouldn’t be able to complain when you go broke. I’m not arguing that Goldman wasn’t in the wrong and shouldn’t suffer the consequences, because their intent seems to have been to mislead investors. I’m only pointing out that the investment community today is not always held accountable for their lack of due diligence.
I would have to agree with others in that I find it astounding how Tourre rationalized his actions. Everything he said in those emails was outrageous. He knowingly took advantage of other people to make a profit; his actions were clearly not â€œhumble, noble, and ethical.â€ It is interesting to see how far people will go to rationalize their actions, even when they must know it is off the wall. Tourre had to have some idea he was acting very unethically which is why he had to go so far to rationalize his actions.
However, it seems that it was not technically illegal what Goldman and Paulson did but clearly unethical. The odd part I find is why is Goldman the only one the SEC charged, why didn’t they charge Paulson as well? They both played a part in it, so why give one bad press and attention while the other one get some but not nearly to the same magnitude. Sometimes it is hard to understand how the government and senate operate so politically motivated, and not necessarily focus on doing right for the American people harmed in this. Maybe they look at Goldman and see dollar signs.
I find this whole situation somewhat disturbing; especially the way the executives handled this. Hopefully not all corporate executive possess this mentality, and will not develop it over time. Situations like this cause me to lose faith in the ethics of corporations. It seems there will always be a lack of ethics no matter where I look in the business world.
It’s interesting to see Goldman potentially initiating some changes in regulation that were provoked in the accounting profession after Enron. What professional standards are they held to? What code of conduct do they follow? This seems like another case of “legal versus ethical” to me. They may have followed the rules, but did they do the right thing.
This is what scares me the most. I am pretty good at following rules, and I feel confident that I will continue to do so indefinitely. But what about those moments when the rules are being followed, to the letter, and still people find themselves in court explaining their decisions? What happens when you do everything right, and still get busted for doing something wrong?
Did this Goldman guy suspect he would end up here? Did he even think for a moment that this wouldn’t end well? I wonder what went through his mind…did he know he was doing the wrong thing, or did he think he was just following the law?
I always find it very interesting to hear the rationalizations of the people responsible for things like this. Tourre honestly believed that there was a “noble and ethical reason for his job.” This is just one example of how easy it is to start sliding down the slippery slope when there are not necessarily laws preventing your actions. I believe that one must use even more caution when dealing with gray areas.
This case really makes me realize how ethical standards vary from person to person. As we surround ourselves with people who are constantly pushing the limit and doing what is in the ethical gray area, we are putting ourselves at risk. What some Goldman Sachs’ executives did may not have been illegal, but it sure seems unethical. As I try to put myself in this situation, I wonder what I would have said something to the executives who proposed this idea. I would hope that I have learned enough in this class, to have the confidence in myself to speak up and say that I don’t feel comfortable with the deal because our interests should be in the shareholders/stakeholders.
When I think of the whole idea of ethical actions v. legal actions, I think about things that we do in life even though there is not law saying we have to do it. For instance, there is no law saying that you have to help an old lady pick up a bunch of papers that she just dropped on the ground; instead, you help the lady because it’s the right thing to do and because you just want to help those around you. I know this example may seem really off topic, but I am just trying to stress that sometimes in life we should just do the right thing and not push ourselves into the ethical gray area. Since we live a world with an interdependent culture, we should want the best for others, and we should want to do them no harm. We must think about the golden rule and wonder would we want to feel deceived in the manner that investors may feel right now or do we want to maintain our company values and only supply the investors with bonds that we are confident in?
As one of the EAG presentations mentioned yesterday, it is our responsibility to implement some self-regulation in our lives.
I agree with one of the above comments in which the rationalization aspect of Tourre’s decisions is cleary evident. I think we can all agree, especially after taking this class, that there are many things which on the surface seem terribly wrong, but with time can easily be twisted and manipulated in our minds to arrive at the end result we desire. Although many may not agree with the way Goldman decided to handle its business, I feel we must be careful not to jump to conclusions in deciding how to handle this situation. Legally speaking, I don’t feel that anything wrong was done here. Was this a questionable business decision that cost people a lot of money? Of course it was, however this is the nature of the beast that we have created in a free market. There will always be a winner and a loser, and although questionable tactics were used in order to attain business clients, there was nothing illegal that was done. Does a salesman always push the greatest product to their customer, exhausting every resource possible to make sure what they are giving their client will be a win-win situation? No, the businessman does what is best for their business, understanding that the other party involved should understand the situation at hand and the potential results of the transaction. I understand that this is a loose comparison, and does not involve the loss of a large amount of money, but it does shine light on the notion that we cannot protect investors from every single possible threat out there, and if we attempt to, we will most certainly be lost in our own banter and useless legislation.
The unfortunate truth I believe is that we may never know the truth. The moral highground anthill is a good illustration on this case. As a generally cynical person, I am inclined to believe that we are not going to hear what happened exactly from Goldman, or the SEC, or the media. All of them have some agenda they are pushing, and will sell their take on it as such. Did they deceive? Maybe. Does the investor have a duty to do due diligence? Absolutely. They did not sell these things to grandma’s and infants, they sold them to investing institutions who in hindsight chose poorly.
People have already commented on how convenient it is that the SEC chose Goldman to investigate. When you are trying to sell “financial reform” what better time to try and punch holes in the biggest name on Wall Street. We saw the split decision by the SEC go 3-2 right down the party lines. Coincidence? I will quote my favorite movie, V for Vendetta, “I… do not play with dice, and I don’t believe in coincidences.”
Obviously what Goldman Sachs and Tourre did was ethically wrong and legally ambiguous at best. I did find it very interesting to read Tourre’s emails, they are clear evidence of rationalization in action. However, I also found the congressional “response” to be a tasteless piece of political theater. The hearings showed just how opportunistic and clueless most of our elected representatives are when it comes to how the economy works. Anyways, before I get too off topic, I also found it interesting that the congressmen didn’t really seem to care so much about the ethical mistakes that Goldman Sachs made, even thought that was ostensibly the reason for holding the hearings. Instead they continuously attacked Goldman and the banking industry in general for making bets against the housing market, even though there wouldn’t seem to be any legal or ethical questions about that as long as it was properly disclosed. It just shows that the congressmen as well as society as a whole are willing to overlook ethical transgressions as long as the resulting scandals help them to further their own agendas.
Reading this blog made me remember a presentation one of the groups did the other day. The group discussed the difference between doing what was ethically right and what is legal. The problem seems to be that many companies in corporate America believe that if something is legal it is automatically in the “right” category. It is simple to see why one would argue this way: “If it’s such a bad thing to do, why isn’t it illegal?” However, it should be blatantly obvious that betting against your own product holds some conflict of interest.
The problem with governmental regulation in corporate America has been that every law put into place has been reactive instead of proactive. What are companies doing right now that will be deemed unethical in headlines three years from now? It’s sad that we need the government to step in and make business a level playing field. I wonder if the direction of morality is increasing or decreasing or if companies are just being exposed more now than in the past…
I think it will be interesting to see how all of this plays out in the courtroom. Every time the SEC comes up with new regulation that they think will help stop fraudulent activity in corporate America, it seems like the crooks just find a more creative and innovative way to break the law and steal money from people. I am not sure who all is guilty here and for that reason will restrain from pointing the finger at Goldman or particular individuals. What I can’t help to wonder though is just how successful these individuals could be at running their Fortune 500 companies if they only used their amazing intelligence to actually create real profits ethically rather than invent these extravagant plans to scam the SEC and the American public.
I feel as though this is just another case of shareholder v stakeholder. Goldman wanted to make their shareholders and their company a profit. They didn’t care about the outsiders and other investors. I just can not believe that they took these efforts to such a level. And I feel as though they have a scewed view of what exactly is so wrong about these transactions.
I believe this is a classic example of “too little too late.” Goldman seems to be more than willing to provide information now that they are in trouble. My question is why weren’t they giving this same information to investors before things went south? I believe that the only reason they are giving out so much information now is they are try to cover themselves and mitigate the penalties they get. It is easy for them to do the right thing now they have nothing to loose but where was all this information when billions of dollars were at stake.
I’m don’t want to defend Goldman as I’m sure they committed plenty of unethical and illegal behavior in the past decade. But in this case, Congress is just grasping for any semblance of credibility. Why isn’t Congress held to the same standard they are trying to hold Goldman to? The German bank in question, IKB, didn’t lose $1 billion because of Goldman. They lost a billion dollars much in the same way and for the same reasons other entities lost money in this financial crisis, irrational exuberance. They failed to do the necessary research. Paulson was short, and they were long…and they lost.
I agree with zsims2006, Goldman was just interested in increasing profit even if it was at the expense of their stakeholders. I don’t know if I would consider their actions as fraudulent as an Enron or Worldcom, but there definitely was some unethical behaviors going on. I also find the emails to be funny in the sense that Tourre tried to rationalize the situation by acting like he was doing good for the US consumer. I seem to have noticed that a lot from our class break downs of executives conducting fraudulent transactions, they all seem to be in denial at the time of the act. I think they are hoping more that they don’t get caught ,and by rationalizing their actions helps them to sleep better at night.
I’m not sure how Goldman Sach case become ‘fraud case’. Individuals trade stocks everyday basis. Market is designed in a way that you can bet on up/downs. For example, I may buy Apple Inc. if I believe Apple Inc. will be a successful company or I can bet on company’s stock price is going down, which is called short selling. Now, ask yourself. Is that such a unethical market behavior? Given the same information readily accessible in the market, I am betting that stock price will go down in future. I believe this is the product of democracy that we are benefiting from the free market.
Applying that to Goldman’s case, the CDOs were put together to be sold. Yes, it was Paulson’s to pick (or least influenced) those asset classes. However, it was approved by very respectable mortgage credit agency. With that in mind, I’m having hard time Goldman’s wrong doing. It appears that public opinion shifts too quickly. One day, we were blaming Citi, Bank of America and AIG for bailout fund for their unsuccessful mortgage investments. We are blaming Goldman being TOO successful. Yes, Goldman successfully hedge their potential loss and made money during crisis. However, is that really because they had unavailable information that real-estate market will fail? I’m sure Citi, Bank of America, and AIG could have find those signs of mortgage market is about to fail. Some of those banks had very influential individuals on their board such as Rubin. Also, those European banks who purchased Goldman’s CDO did not investigate those asset classes well enough. It was Paulson’s idea, but Paulson did his homework. I’m sure those large bank including UBS had resources to investigate those asset classes.
However, I do believe that it is VERY unethical for Goldman to not disclose any information regarding SEC letter. As Goldman’s shareholder, I’m very disappointed. It is something Goldman’s CEO should be responsible. I shall see the report they will publish in near future.
The things that a human being will do and say will never cease to amaze me. The things that we can convince ourselves of through rationalization is scary sometimes. Tourre’s e-mails clearly show that he was doing something wrong, but, he found a way to make it all seem okay. He virtually tells himself that his job is to make capital for the company, and he realized that he might have to step on a few people to do this. Tourre obviously made some very poor calculations when thinking about the consequences of his actions. He never thought about how many people this would really affect. To me, the real question is how could anyone possibly forget that these transactions could ultimately affect America’s investors. For investors are the reason that these financial statements must be fairly stated. If these executives aren’t even thinking about the people who will be affected most, we shouldn’t act so surprised when people act this “dumb”.
“There’s no such thing as a free lunch.” This statement is often used in description of opportunity cost, but I have come to apply it unintended consequences. As there is always a cost for any action we take, there are also consequences that may be too small to see. However in the case of Goldman Sachs, no one seemed to take time to calculate the consequences nor their duties to their investors. Sometimes people get lost in the business world and start to believe their existence is to soley make money. It is easy to say from the outside that this was a dumb idea and it was dumb for everyone to folllow it, but often when you are in the inside you may not even realize the impact of your actions. Don’t get me wrong, this does not absolve at all.
The most important lesson that we can take from this is our own personal responsibility. When your boss comes to you and tells you to do something, it is your duty to contemplate the ethical implications associated. Blindly following orders allows fraud to take place. It only takes one person with the courage to stand up for what is right.