Goldman Sachs needs to admit it made mistakes

March 1, 2010

By Chris Hughes

Even the mighty Goldman Sachs makes mistakes. The Wall Street bank’s decision to help Greece keep some of its debts hidden from public view in 2001 was one of them.

The transaction allowed the Greek government to present accounts which understated the state’s liabilities by 1.6 percent of GDP.

The arrangement was not illegal, not against any regulations and was approved by Europe’s statistical authorities. Still, helping a client lessen the transparency of its finances is ethically questionable. For its own sake, Goldman should just admit that the firm compromised the principles it is supposed to hold dear.

At the time, it may have seemed that the deal’s goal, comforting Greece’s fellow members of the euro zone, justified the means. In retrospect, though, it’s hard to reconcile such financial alchemy with Goldman’s expectation that its people comply fully with the “letter and spirit of the laws, rules and ethical principles that govern us”.

There are, to be sure, mitigating factors. Goldman, which carefully considers the ethical and reputational risks of individual transactions, wasn’t alone. Other banks helped governments take advantage of the European Union’s weak fiscal governance. But Goldman regards itself as the global standard setter, demanding “high” ethical standards of its people, and eschewing the practices of the crowd.

Similarly, it can be argued that Goldman followed its overarching business principle that client interests always come first. And it certainly remained faithful to another tenet: that the firm should strive for creativity. It’s also true there have been almost no complaints about this transaction until now.

Such considerations help explain why a senior Goldman executive said the Greek deal was not inappropriate — and why Goldman posted a dry explanation of the deal on its own website. That’s all in tune with Goldman’s general post-crisis message: We have done little wrong and many of the attacks directed at us are sour grapes.

But outsiders are much more critical — a fact that Goldman ignores at its peril. Even Ben Bernanke, the generally pro-Wall Street Federal Reserve chairman, has raised questions about Goldman’s role in the Greek pastichio.

Humility may not come easily to Goldman, but it can be the most creative, and effective, response to criticism. Goldman’s longer-term interests would be best served by admitting that on this occasion dedication to client service and creativity got the better of its judgment, something it won’t let happen again.

Such an admission wouldn’t reflect well on Goldman’s client, the Greek government. But the fact that Greece fudged its finances is hardly under debate. At the very least, Goldman could admit that it should, with hindsight, have advised against the deal.

Comments

Fair enough, although whether such an admission by Goldie would be sufficient to soothe the crowds baying for blood is debatable. After all, when one is likened to a ‘vampire squid’, anything less than abject surrender would appear to be unacceptable.

Posted by Gotthardbahn | Report as abusive
 

“its overarching business principle that client interests always come first”

“an admission wouldn’t reflect well on Goldman’s client” – if the first statement is true then they would never admit it.

Posted by savo | Report as abusive
 

The trouble lies closer to home-with the Greeks that deliberately took the step. Goldman only provided them with the instruments they asked for

Posted by FinanceProff | Report as abusive
 

The only lesson in all of human history is this: pride goes before a fall.

This is the only lesson in all of human history because it consistently goes unlearned.

Now, to Goldman Sachs, a question: what would have happened to your firm had the US Government not pledged fundamentally the entire US public treasury and then some to bail out your counterparties, and by extension, you? That’s right: you’d have gone bankrupt.

This fact alone suggests that a great deal of humility is in order, along with reparations.

Posted by JackMack | Report as abusive
 

I think that Goldman is serving clients, but so is selling a new Mercedes to someone making a minimum wage. I think that this is where ethics kicks in if you have any bank of ethics to draw on. Just putting together deals and making money is not an end in itself, and saying if we don’t do it somebody else will is no excuse. The reputation of the company and of the nation allowing you to conduct business is of utmost importance.

Posted by fred5407 | Report as abusive
 

Lloyd insists he is doing “God’s Work” at Goldman Sach, perhaps is view is upside down?

Posted by jstaf | Report as abusive
 

It’d be one thing, some might even say a breakthrough, for Goldman Sachs to apologize for aggressively point-shaving Western and Third World economies for longer and at higher rates of exploitation than anyone can calculate.

But somebody there has probably realizes that there would also be restitution involved, restitution in full. So that apology is going to have to wait until they’re all safely in retirement, like Nixon mouthing sorry bubbles for Watergate.

Posted by HBC | Report as abusive
 

Isn’t that what Goldman MD, and former NY Fed official, Gerald Corrigan did a week or so ago? As reported by Reuters, he said:

“With the benefit of hindsight … in the particular cases going back to the late 1990s and early 2000s … the standards of transparency could have been and probably should have been higher,” Goldman Sachs managing director Gerald Corrigan told a parliamentary committee in a public hearing.

Posted by PRB | Report as abusive
 

From the AIG bailout to their upcoming side-door escape (thanks to Geithner) from bank holding company status and now Greece, Goldman has their name on just about everything sleazy coming out in the news lately. Maybe the sell-out your country US Senate can justify turning a blind eye to this gang of economic thugs, but we’ll see how the rest of the world feels about behavior such as this. Eventually the only people Goldman will be able to take advantage of will be Americans because no one else will want to have anything to do with them. I know America would be a better place if they would just move their organized crime operation out of our country. Just leave and good riddance, we can’t afford you guys anymore, just please leave ..

Posted by Woltmann | Report as abusive
 

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