Winning is a paradox.
It’s no different in sport than it is in business.
We idolize the singular focus and dedication of a batter who hits 40 home runs or a quarterback who leads his team to a championship.
Like sports, business has its heroes.
Warren Buffet is like a titan among men. Bill Gates may not be universally adored, but he too treads in rarified air.
Then there is Goldman Sachs.
No firm in the history of Wall Street has been more successful or profitable. When everyone else is snipping coupons and making Mulligan soup, the execs at Goldman are munching lobster and ordering their second Ferraris.
Instead of lionizing Goldman, its executives are cast as buzzards scavenging from the dead carcass of our economy. We imagine them in eye patches pillaging a town and terrifying the villagers.
Despite their astonishing prowess and derring-do, only their lawyers love them, generally, from a safe distance.
What a Turnaround
It has been barely a month since the SEC heralded its airtight case against the evil empire. Goldman had defrauded investors and created untold hardship for borrowers caught up in Abacus, one of the firm’s many complex, and little understood financial instruments. Goldman vehemently denied any malfeasance. The SEC all but promised public lynching and heads on a pike.
At the time, I wrote that the SEC picked the wrong fight with the wrong guys. Legal experts likewise agreed that the government would have a tough time proving that Goldman committed actionable fraud.
Now the government is looking to settle rather than litigate. In exchange for a settlement, the SEC wants to whack Goldman with a $1 billion penalty. The regulators will have to convince a federal judge that Goldman’s bad behavior justifies record this setting fine, and this will be no easy task.
Even if it isn’t compelled to pony up by a federal judge, Goldman already has been punished in the only way that really matters to the firm. Following the announcement of the federal fraud suit, Goldman’s share value plummeted 26 percent.
The issue involving Goldman Sachs, however, runs deeper than a question of legality or any amount of money it will have to pay to settle up with the SEC.
It’s a question of morality.
When the housing bubble burst, Goldman made money hand over fist. They were the only ones who read the market properly. When everyone else zigged, they zagged.
One Man’s Arrogance
Legally, Goldman had no real obligation to reveal the identity of its trading partners. Its only duty was to make money for its clients and improve the value of its stock.
It seems kosher until you start to read the self-congratulatory emails from traders like Goldman’s Fabrice Tourre, one of chief architects of Abacus. The gloating over the profit made from the thousands who lost their homes made my skin crawl.
In one email to his girlfriend, Tourre, who dubbed himself Fabulous Fab, bragged, “Just made it to the country of your favorite clients (Belgians)!!! I have managed to sell a few Abacus bonds to widows and orphans that I ran into at the airport, apparently these Belgians love synthetic ABS CDO2!!! (Abacus)”
Although Tourre seemed to be keenly aware of Goldman’s public image as a predator, his emails reflected the firm’s overarching ethos when he later wrote, “Not feeling too guilty about this, the real purpose of my job is to make capital markets more efficient and ultimately provide the US consumer with more efficient ways to leverage and finance himself, so there is a humble, noble and ethical reason for my job. … amazing how good I am in convincing myself!!!”
Morality is a cultural question.
Was it immoral to profit from the misfortune of thousands of homeowners or was it simply smart? This is not a matter than can be decided in a courtroom by old guys in black robes.
Morality is also a leadership question. It starts from the top.
Goldman’s real crime is a lack of compassion. In place of a heart, it has a platinum- and ruby-studded money clip.
Maybe it’s simply a case of bad PR. Frequently, immorality is matter of misperception. Just ask Pontius Pilate or British Petroleum CEO Tony Hayward.
In business, we like to believe that it’s all about the bottom line. As long as it’s legal, making money is the only objective.
Maybe the real lesson from this case is that in the end, it’s really something more.
John Cohn is a senior partner in the Globe West Financial Group based in West Los Angeles. He may be contacted at www.globewestfinancial.com
