In recent weeks Goldman-Sachs executives have been paraded in front of hearing committees and held up as an enemy to the people. I can’t help myself. I have an opinion about this.
What is Goldman guilty of really?
The court will decide whether they actually “misstated and omitted key facts about a financial product tied to subprime mortgages”, as the SEC complaint alleges. Specifically, the SEC is saying that Goldman created a CDO (Collateralized Debt Obligation) for the hedge fund Paulson & Co. based on mortgage-back securities (specifically the ones that seemed most likely to fail), and that Goldman didn’t tell potential buyers that Paulson was shorting (or betting against) them. Does that make them responsible for the entire financial crisis?
What Goldman is most guilty of is making money when seemingly everyone else was losing money.
Let’s get real. Goldman-Sachs is an investment banking firm. They invest in securities going up, and they invest in securities going down. They are supposed to create investment vehicles. They regularly take out insurance policies on their investments. They are supposed to balance their risk – that’s their job. Their ultimate responsibility is to their shareholders.
They are supposed to make money.
If we are so desperate to find a scapegoat for the financial crisis, perhaps we should start with this list:
- The consumers who purchased houses they couldn’t afford
- The banks that agreed to give mortgages to these customers
- The investment rating companies who over-rated the mortgage-backed securities and the CDOs
- The buyers of the securities who failed to fully understand what they were buying
- The lawmakers who failed to regulate financial products
It’s just starting to feel a little bit too much like a witch hunt. What do you think?