03/20/2012 09:53 am ET Updated May 19, 2012

Feel Cheated by Wall Street? Look in a Mirror -- Not to Washington!

The most recent kerfuffle involving the alleged depredations of Goldman Sachs illustrates a fundamental cause of our recent economic problems. No, not Goldman and other institutions taking advantage of innocent consumers, although some of the latter undoubtedly occurred. I'm talking about major institutions doing nothing to protect their own interests, even though they possessed the knowledge and resources to do so.

All the regulation in the world will be useless if people don't take responsibility for themselves and ask necessary questions, and walk away from deals if they don't get sensible answers. Certainly, there are those who lack the education and/or mental capacity to protect themselves, and are in need of government guidance or more. However, the Goldman Sachs' of the world rarely, if never deal with such persons, and should not be expected to treat their counterparties like ignorant consumers.

Take the celebrated episode involving Goldman representing El Paso Co. in connection with its acquisition by Kinder Morgan, despite the lead partner on the El Paso team owning shares in Kinder Morgan, and other disclosed conflicts of interest. Sounds pretty bad doesn't it? ... Not really as far as I am concerned!

Nothing prevented El Paso management from ASKING Goldman about the interests of the firm and its partners. If the matter were of such significance to El Paso, its CFO, General Counsel or other executive should have and could have directly asked the question. A client of that magnitude certainly has the 'pull' to get an honest answer, and take its business elsewhere if it doesn't like what it hears. If Goldman lied, I would be much more concerned than I am about its conduct, but I have not heard anything indicating that they did lie. It sounds as though El Paso management did nothing to ensure itself of unbiased advice, and should be prepared to explain its inaction to its own shareholders.

A knowledgable observer writing in the linked article above states that: "The longer answer is that the behavior of Goldman Sachs and Foshee is a serious affront to our collective sense of fair play." My question is 'Whose sense of fair play?' One dealing with major Wall Street players expecting more than honesty in fact and compliance with applicable law is leaving an awful lot to the imagination. When did anyone start to believe that they should believe that their counterparts were looking out for anyone other than themselves?

We have also heard a great deal from Greg Smith, the noisy Goldman employee who resigned on the op ed pages of the New York Times. He was motivated by Goldman's alleged insistence on making money instead of promoting the interests of its clientele. In the preceding article, he laments that "I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients."

In the first place, I was not aware that Goldman clients engaged the firm for any reason than their own pecuniary motivation (i.e. they wanted to make big bucks), so I'm not sure why they were expecting something else from it. While large financial firms maintain some operations, such as those where they are expressly constituted as 'trustees' and thereby do assume a formal obligation to place their clients' interests first as a so-called 'fiduciary', this is the exception and not the rule.

In what business is the focus on helping customers over making money? Doing both, yes, but one should not expect their car dealer, furniture store or clothier to be a public servant or public utility, so I'm not sure why Mr. Smith expects so much more here. Neither Goldman nor any of its competitors holds itself out as an altruistic, non-profit entity.

It is common knowledge among sophisticated players dealing with the Goldmans of the world, that all they can expect is honesty in fact, and compliance with law, which appears to be what Mr. Smith did observe. When one goes into a transaction involving billions anticipating that the other party will somehow subordinate their own interest in order to 'do the right thing', they are doing a disservice to themselves and their colleagues, and ignoring reality.

In order to avoid a repeat of the financial debacles we have seen over the last several years, it is essential that people look out for themselves in a responsible manner, as opposed to believing that someone else will do it for them. A capitalistic system is based upon enlightened pursuit of one's own self interest, not upon the substitution of paternalistic principles. It is time for those having 'sway' over large financial players to start asking the hard questions as to what they are doing to avoid being overreached and not simply assume that government will take care of the problem. To begin with, this means being quick to inquire -- not assume -- as to key facts. Managers who are unwilling or unable to make such inquiries or act on troublesome answers should not be managers.

It was bad decision-making in the private sector that led to our economic downfall. To obtain better decision-making, we need decision-makers to start from realistic and not utopian premises. No one benefits from this curious mentality that those around them have an absolutely pure heart.

The author owns a small equity position in Goldman Sachs.