One of the most shocking elements of the testimony by Goldman Sachs executives this week was the moral blindness they showed when evaluating the economic collapse and the role of their firm in that catastrophe. Over and over again, the Goldman executives excused their role in the greatest downturn since the Great Depression as simply "market makers," as if that would exempt them from the most basic moral standards.
Since they were nothing but "market makers," argue the executives, they should not be held responsible for the most egregious kinds of conflict of interest, in this case aggressively selling of billions of dollars of synthetic collateralized debt obligations without disclosing to the buyers, the rating agencies or the regulators not only that they were "shorting" these products, but they had actually worked with a hedge fund to dump the most risky securities into the swaps.
What passes for morality on Wall Street is certainly as strange as the synthetic CDO's themselves. After all, who died and made Goldman and the other investment banks the singular gods of the American financial system? Clearly, the idea that we could ever trust Wall Street to be the sole, unregulated market makers of American finance is ridiculous, even though eight years of Republican rule apparently convinced these tarnished titans that they could rule without the slightest moral compass.
The fact that Goldman and the other investment banks ruled the financial roost does not justify their blatant conflicts of interest, unbridled greed and manipulation of the risk markets. The Senate hearings may have demonstrated not only that products like synthetic CDOs are complicated beyond comprehension, but that they represent a complete divorce of Wall Street from both common sense and simple morality.
As much as the bankers deny it, the financial system has been hijacked by traders, with most of their profits derived from speculating on exotic securities rather than any real banking or customer business. And this has been done with the nearly explicit permission of the government, which has been complicit in the moral blindness, and now is desperately attempting to corral the horse that has long since left the barn.
What is not complicated at all is the need for the Congress and the administration -- not to mention the American people -- to confront the moral blindness on Wall Street and quickly rein it in. Wall Street cannot be trusted to "make markets" with no oversight from a referee in the form of the federal government. For those who gripe that government regulation will inhibit free markets, the strong response is that is exactly what the government should be doing, especially when unfettered financial markets lead to the kind of spectacular meltdown that Wall Street has visited upon the global economy.