In a sense, this has become a morality play on who we are and what we have become. On one side we have a Goldman Sachs, a company that has used its reputation and connections to market a roster of dubious products, including those that have in some measure added to the current financial turmoil. This by selling to Greece's Treasury financial instruments whose wizardry helped enable Greece to hide its apparent mountain of debt, thereby helping to set off its current crisis. Goldman was also concocting mortgage bundles, allegedly designed to tank, wrapping them in highly questionable 'triple A' ratings while adding what had once been their highly respected imprimatur. Many seemed to have been financial instruments that Senator Levin, during Congressional Hearings, likened to "sh*t", selling them to the unsuspecting. In rationalizing this act of financial hubris, how many times has the mantra of "sophisticated buyers" been intoned by any Goldman talking head near a microphone at the Senate hearings or beyond? As Mr. Tourre of Goldman was to make clear in one of his now famous emails, that profiting from "sophisticated hedge funds" would be a difficult task in that "most of the time they will be on the same side of the trade as we, and they will know exactly how things work."
Well, it would appear, according to the SEC complaint, that the Abacus AC1-2007 transaction allegedly fell into the category of selling a security where Goldman set out to be on the other side of the trade. Within months of buying this poisoned chalice two European banks, IKB-Deutsche Industrie Bank and ABN Amro, probably dazzled by the Goldman name and the triple A ribbon tied around the package, lost $150 million and $840 million respectively.
Was this trade a one off by a "rogue" trader doing nothing illegal, as has been inferred by Goldman? How"one off" and how "legal" remains to be seen. But assuming it was a 'one off', would it not have been the correct thing to do in terms of reputational standing, in terms of professional integrity, to have assumed some significant responsibility for an unfortunate misstep? To have come to some reasonable accommodation with the parties who seemingly based their disastrous decision in large part on Goldman's good name. Would it not have been a far, far better investment than that of Goldman paying out billions upon billions in bonuses to its staff and traders? That would have been the stuff of character that seems to have gotten lost in this vortex of financial derring-do.
Perhaps most telling, in their lust for big time money, they have trotted out and in a manner destroyed one of the great icons of the financial world's increasingly threadbare respect. Their actions and need for a public defender occasioned the transformation of Warren Buffett, the once great "Oracle of Omaha" being reduced to the level of a not particularly elegant used car salesman. It was/is beyond sad to listen to Buffett defending Goldman, educating us that it is always the buyers responsibility to check things out, and not Goldman's responsibility to alert their customers of the potential and pointed pitfalls of a financial product that they engineered, and to which they attached their good name and reputation. This is clearly not about the Goldman trading desk going long or short in buying/selling corn futures. In that trade no further comment nor explanation is expected other than the trade itself.
However, here we are dealing with financial instruments created and marketed as a product of the firm itself. Buffett, in his comments is extending the crudest blanket exculpation of "Caveat Emptor", bringing comfort to Goldman by, in effect, saying if you can get away with selling "sh*t", your customer is to blame, not you, or "he should have checked out the brakes before he drove the car out of the lot."
In timely and singular contrast we have the example of BP and the disastrous Gulf of Mexico Oil spill. Here is a company being held responsible for the environmental and economic disaster in the Gulf, a company with a checkered reputation at best (please see "BP -- Star of Stage, Screen and Radio" 05. 03.10). Here is a company that without skipping a beat has assumed moral responsibility for the disaster. Without court action, BP almost immediately wired $25 million each to the states of Alabama, Florida, Louisiana, and Mississippi to help pay for their response plans. While the issue of legal responsibility is still to be determined as to where it lies between the rig operator or BP, BP is not caviling and says it is prepared to do whatever it takes to stop the underwater gusher and clean up the spill. Better it hadn't happened of course, but here is a player who clearly understands it obligations and acts on them.
Two societal disasters impacting our world and lives. At least one of the corporate players seems, so far, to understand its responsibilities.