Congress’s Ironic Outrage At Goldman Sachs

In the words of Thinking Man, my finance expert friend, “It was shiesters slamming shiesters” Tuesday on the Hill as senators from both sides of the aisle alternately interrogated and slammed executives of one of New York’s most prestigious investment banking and trading forms, Goldman Sachs.

Debate rages as to whether the Goldman execs acted unethically, or even illegally, in selling investments in mortgages at a time when the housing bubble was about to burst. But it does seem to me there is some opportunism on the part of legislators in making this particular firm — and Wall Street in general — the scapegoat at a time when the public is frustrated and financially strapped.

It does seem ironic.

As Fox News commentator Jonathan something-or-other (I didn’t catch his name) pointed out tonight on the O’Reilly Factor, some of the senators who were among the most vociferous today, such as Carl Levin, in condemning Goldman execs for signing investors up for mortgage interests also voted for the federal bailout. This commentator made the point that, while Senator Levin castigated Goldman honchos for allegedly encouraging investment at the time the housing market was vulnerable, Goldman was working with people who presumably were willing to risk their money and were voluntarily doing so (On a basic level, there is always a risk incurred in any kind of investing. Whether they accurately represented to their clients the degree of risk as they perceived it, and whether they bet against the interests of their clients are important and valid concerns, but their clients did, at least, voluntarily hand over their money, realizing there was at least some greater degree of risk than there would be in putting money in the bank). On the other hand, Senators who voted for the federal bailout, and who have been faulted in general for excess federal spending that has resulted in an ominous level of debt, are making irresponsible choices with other people’s money – without the direct consent of the people whose money they are spending (of course, we can always vote them out, but not immediately).

My understanding of the concerns of members of Congress and many Americans are that these execs allowed people to invest at a time they knew the investments were likely to become worthless. If that is true it does seem highly unethical.

Goldman exec Lloyd Blankfein had some things to say in his firm’s defense that strike me as worth noting, however.

Asked if Goldman sold securities that it also bet against, he said, “You say bet against…The people who were coming to us for risk in the housing market wanted to have exposure that gave them exposure to the housing market, and that’s what they got it [sic]. The unfortunate thing, and it is unfortunate, is that the housing market went south very quickly.”

I am no finance expert, but it seems – if I am interpreting correctly – that he’s saying Goldman did not know these investments would become worthless. Only that they were high risk, and that they were selling them to people who approached the firm wanting to make that kind of investment.

It seems to me that if–and it’s a big if, I realize–it cannot be proven that Goldman execs knowingly or through reckless incompetence sold people investments they knew were worthless, then essentially we have a case of killing the messenger. What would be troubling in such a case is not only that people would be criminally charged for doing their jobs, but that the nature of investing–including high-risk investing–would be coming under government scrutiny in a way that demonizes the agents in society who capitalize on risk. This strikes me as potentially a slippery slope, in that much of what makes our capitalist system so uniquely dynamic and prosperous is economic freedom, which includes freedom to risk – and fail. You don’t want businesses engaging in fraud or deception, and some regulation is certainly important to prevent serious ethical violations and crimes. But it seems to me there may be a fine line, at times, between energetic, aggressive capitalism and what some might perceive as exploitation. In a capitalist society, risk and economic failure cannot be legislated out of the equation.

It will be interesting to see how this unfolds. I hope that while the values of honesty and ethics in business are upheld, so is the value of individual responsibility respected.

This entry was written by and posted on April 29, 2010 at 3:00 am and filed under Blog.