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Exploring Leadership in the News with Steven Pearlstein and Raju Narisetti

THE QUESTION

Can we trust Goldman Sachs?

Goldman Sachs promises to put customers' interests first. At the same time, Goldman was able to avoid serious financial trouble by hedging positions in ways that placed bets against clients. Do Goldman's leaders need a new business strategy, or do they need to just do a better job at explaining their business to regulators and the public?

Posted by Steve Pearlstein and Raju Narisetti on April 26, 2010 2:19 PM
FEATURED COMMENTS

gce1356: Can Goldman be trusted? Trusted to do what? It can be trusted...but only to do what's in Goldman's interest first and foremost. Would you tr...

RonS2: "Do Goldman's leaders need a new business strategy, or do they need to just do a better job at explaining their business to regulators and t...

jfv123: These pundits are saying some of the most rediculous things I've ever heard that fly in the face of how our securities markets operate. Gol...

Make a Comment  |  All Comments (22)

ALL COMMENTS (22)
mailboxlee Author Profile Page :
 

Some people call Goldman Sachs "Government Sachs" because it is believed they do the bidding of the Treasury and Federal Reserve on Wall Street. Part of what they do is to rig the price of gold so the dollar and other paper financial assets seem to be worth more than gold by shorting gold to suppress the price of gold. If this is true, there is little hope of breaking their relationship with the Federal Government. Also, many Goldman alumni are now federal regulators and federal financial officials. A new motto for our country, "In Goldman We Trust!"

 
Ajay2 Author Profile Page :
 

Goldman is the root cause of many of the ills that are faced by the common man whether it is currency fluctuations, oil price rise in 2006/2007, mortgage market meltdown, AIG CDO crisis etc. I am all for SEC case against Goldman. By agressively pursuing Goldman, govt can tame down speculative manipulations in the financial markets which is hurting the commmon man.

 
stanassc Author Profile Page :
 

There isn't a thing Goldman can do but join Arthur Anderson.

Rest in peace.

 
alloleo Author Profile Page :
 

"Do Goldman's leaders need a new business strategy,"

You mean, do they need to be honest for a change?

"...or do they need to just do a better job at explaining their business to regulators and the public?"

You mean, should they do a better job of lying?

 
pessimist46 Author Profile Page :
 

Goldman's job is basically helping those who have money to lend find those who need to borrow. Unfortunately, they have figured out that the more confusing and obscure that they can make that process the more of the money that they can keep for themselves. The sooner they go away the better for the rest of us.

 
scvaughan Author Profile Page :
 

The latest scandal involves "synthetic collateralized debt obligations". Yeah, right. Another unintelligible gimmick to bilk people.
Executives at Goldman and other such firms should be tried under RICO.

 
porchfan Author Profile Page :
 

In the business of making money, you really can only trust yourself. Why should you or anyone else care about trusting Goldman? I should say we would be better off asking the question
..."should we trust the government? "

Unless the Government outlaws making money, Goldman will be fine under any set of laws or oversight. You all have to understand these folks are very smart.
Ask Goldman how many MIT graduates they have working there and why they recruit not only from the best business schools like Harvard & Columbia but also the best engineering schools like MIT, Stanford & Cornell.

Governments in effect, through very high taxes, can pretty much outlaw making money. At some point all the work & risk is not worth it. It's another tool governments do to reduce societies risk.

I suppose at that point you might be able to trust Goldman.

 
Bushwhacked1 Author Profile Page :
 

Anyone out there willing to buy a used car from from Goldman Sachs? I didn't think so. Should be an interesting day today with Blankfein in D.C. shoveling it fast and furious. Wonder if he's familiar with the word "PERJURY"?

 
tkjtkj Author Profile Page :
 

Of course we can trust Goldman ..

In exactly the same way we can trust the fox to care for our chickens ..

 
dangreen3 Author Profile Page :
 

There is so little we know of substance, about Goldman Sachs. They seem bigger than the Government clerks, who poke around, at understanding this giant. I say so what of their size, just have laws that confine their schemes, to their investors. So when you have the likes of Bernie Madoff, running or working for Goldman Sachs, if you invest you may win, or you may lose. Same old conclusion of the citizens. If Goldman or JP Morgan fails, let them fail.

 
patmariegeraghty Author Profile Page :
 

Read this book , THE QUANTS a truly fascinating explanation of what is going on behind the scenes in high finance,and no Goldman absolutely cannot be trusted,they should be, but wont be stopped.are you joking?read the Book.

 
BeanerECMO Author Profile Page :
 

Re: dangreen3: There is so little we know of substance, about Goldman Sachs. However, there is a lot we do understand about the substance of government, where Geithner has said he's never held a real job (which is in line with the 93% on the administration's economic team who've no business experience beyong regulation). Consequently, I trust GS much, much more than government.

 
melba1 Author Profile Page :
 

There is absolutely nothing wrong with Goldman's business model. Just look at their earnings. Clients don't seem to be leaving. The company doesn't seem to be flooded with lawsuits. Lloyd Blankfein's job seems secure. Everything is fine except for a little bad press and some upset lawmakers. Their ethics can be severely questioned, but since when has Wall Street let ethics gotten in the way of making money? Especially as it appears that no laws were broken.

 
LoriD1 Author Profile Page :
 

This is not a matter of laws broken. It's about ethics and integrity. When we can't trust the individuals with whom we invest our money then the entire system is broken.

 
steveandjanereed1 Author Profile Page :
 

The more GS communicates to the public, the deeper the hole they dig for themselves.
Therefore, they should keep quiet and busy doing God's work.

 
ashrink Author Profile Page :
 

The defenders of Goldman-Sucks seem to be conceding that it is an unethical, immoral organization. Accepted. Now let us investigate if any laws are broken.

But not with Tax Cheat Geithner and HedgeFund Summers running interference from the inside for any actions of the Justice Department or the SEC.

 
probashi Author Profile Page :
 

Goldman is a big fish in Wall Street, but dig deep enough and others will surface. Years of overlooking questionable practices in the financial industry cannot be undone by the civil suit against GS. The proposed reform is a step in the right direction but not strong enough to force the captains of Wall Street to amend their ways. They know that they have the politicians in their pockets. This is just a temporary setback.

 
dnjake Author Profile Page :
 

As usual, the issue of effectiveness is much more important than the question of virtue. Goldman Sachs behavior is part of a culture of financial speculation that became deeply embedded in our society over the last fifteen years. Wall Street has surely been a central factor in that development. But politicians across the political spectrum and their favorite experts have also played a substantial role. So have many of the institutions throughout our society that need to finance their existence off of incomes or profits from some kind of financial asset. In the process the distinction between gambling and investment has been lost. Between all the manipulation of our financial system both public and private, we no longer have any real idea what our economy's assets are worth or what kind of realistic income can be expected from investing in them. Clearly changes in the practices employed by Goldman are needed. But those changes are just one step in a very difficult process of restructuring both public and private financial processes used to manage our economy's assets.

 
truthhurts Author Profile Page :
 

When Extremist Capitalism was all the rave (like that hostile takeover of Iraq thing) I am sure hedging took place in gold, oil and military/industrial complex as well. In fact, when Rumsfeld told a group of Military/Industry leaders that the gravy days were over, I thought, "That is the end for you buddy".

Extremist Capitalist must have known the risks they were taking to bet against themselves ? Of course, on top of the heap, things can be arranged for a "win-win" situation no matter what the future may hold. And those far superior to our financial intellect and foresight may have predicted a bubble implosion eventually ? Psst, don't worry about it, Greenspan will take the heat.

I think that the public needs to be re-educated so as not to give their money away so easily preventing Extremist Capitalists from ruin their lives (including retirement funds) in the future.

 
gce1356 Author Profile Page :
 

Can Goldman be trusted? Trusted to do what? It can be trusted...but only to do what's in Goldman's interest first and foremost. Would you trust a fox with a henhouse?

 
RonS2 Author Profile Page :
 

"Do Goldman's leaders need a new business strategy, or do they need to just do a better job at explaining their business to regulators and the public?"

Neither. They need to go to jail.

 
jfv123 Author Profile Page :
 

These pundits are saying some of the most rediculous things I've ever heard that fly in the face of how our securities markets operate.

Goldman is a broker-dealer.
Broker dealers do three things:
(i) represent customers selling
(ii) represent customers buying
(iii) buying and selling for the broker-dealers own account to anybody in the world.

All three activities are necessary for well functioning securities markets.

No one expects brokers to be able to perform these three functions without cross selling or buying, meaning that one part of Goldman may be buying (either for itself or a customer) the same security another part of Goldman is selling (either for itself or a customer). There is nothing that is either illegal or morally wrong with that, unless Goldman violated the established rules in the way it does this. So far, no one has made any credible allegation that Goldman did not play by the normal broker-dealer rules.

Brokers don't owe fiducuiary duties to their clients. Investment advisers owe fiduciary duties. Goldman was dealing with extremely sophisticated clients. They know the difference between an investment adviser and a broker-dealer.

If you don't like derivitives, or don't like short sellers, jusy say so and propose banning these securities/activities, but don't act like people broke any legal or even moral rules when they were performing normal market functions that were fully understood by all the institutional investors.

 
 
 
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