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West Point Cadets
West Point cadets and instructors

West Point Cadets

A group of 13 cadets and four instructors from the U.S. Military Academy at West Point take on the weekly 'On Leadership' questions. Who better to explore the gray areas of leadership than members of The Long Gray Line?

'Customer interests first' - really?

Q: 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?

Goldman Sachs offered a package investment that, at best, Goldman thought likely to fail, and at worst was designed to. Trying to reconcile that with their promise to "put customers' interests first" makes my head hurt.

Giving Goldman Sachs the benefit of the doubt, I'll assume that they merely thought the bets their clients made were ill-advised (irony intended). Even in this best case scenario, the behavior of Goldman Sachs is undeniably inconsistent with their promise to put the interests of their clients first. Goldman violated their integrity the moment they determined that their packages were likely to fail and did not inform their clients.

No amount of explaining can bring Goldman Sachs' integrity back. The leadership of Goldman Sachs should change their business strategy. Not only did they violate their integrity, but this breach will continue to be heavily publicized due to their impending case. Goldman needs to admit their mistakes and somehow convince their clients that they will "put customers' interests first." And the surest way to accomplish this would be to actually keep their promise this time.
-- Cadet Avi Bakshani

The gambler

The line between gambling and investing is often ambiguous in practice. Any fan of poker (or at least someone who has watched Rounders) knows it's simply a matter of perspective. We put our chips in the pot when we think we have enough information to believe we've got everyone beat. Both are fundamentally games of probability. With the right information, an investor and gambler both make a calculated wager on winning. Accurate information and rational decision-making are critical elements of the equation.

From one perspective, Goldman simply helped Paulson provide investors a way to bet (invest) that a group of subprime mortgages would not default. Goldman apparently didn't think it was a great investment, but investors bought the product, so the demand was there for the service Goldman provided. From another perspective, they deceitfully packaged a bunch of mortgages on their books they knew would fail and tricked investors into absorbing Goldman's loss.

Fundamentally, Goldman made a rational, calculated hedge investment based on their vast informational resources. At the same time, investors, whether through ignorance or irrationality, made a bad gamble on a hand that never had much of a chance.

Until the facts come out on the conflict of interests issues, my stance is that investors and gamblers alike need to recognize that pocket rockets are not always standing tall after the river. I don't gamble, but if I did, I sure wouldn't trust the "house" to place my bets for me. There wouldn't be a lawsuit here if people hadn't put their money on an investment that even the broker didn't appear to think was a good one. -- Major Donnie LaGrange

The coach who bets against the team

Investing money is always a risky business. However, when investing, individuals rely on their brokers to make the best possible decisions. Individuals represented by Goldman Sachs not only put their hard-earned money in the hands of the company, but invested a great deal of trust in the individuals that represented them.

This trust signifies that the company will make the right decisions. Goldman Sachs has lost their investors trust as they continue to be disloyal by placing bets against their clients. When Goldman promises that they "put their customer's interest first" and then turn around and "place bets against them" that demonstrates a lack of honesty and loyalty to their customers.

This situation is like a professional coach placing bets against his team. How could you trust your coach if he was placing bets against his team in order to make more money? If the coach was making the wrong decisions to ultimately hurt the team and throw games (similar to what Goldman Sachs has done to their investors,) it would be extremely difficult to trust your coach or his capabilities to make the right decisions in the future.

If Goldman Sachs continues on this path, a new strategy is needed in order to retain or gain the trust and loyalty of their clients. Goldman Sachs will not continue to be a truthful company, therefore lose clientele if they do not change their strategy of betting against their investors. -- Cadet Dario Marcelli

Note: The views expressed in this article are those of the author and do not reflect the official policy or position of the Department of the Army, Department of Defense, or the U.S. Government.

By West Point Cadets

 |  April 27, 2010; 11:25 AM ET
Category:  Economic crisis Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati  
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Please report offensive comments below.

Before we cry about loosing money at IB firms when their bets went bad, we need to see who cried about their behavior when their bets were right.

Nobody complained when they were making money for others.

These companies are in the business of making money, they are not charities, nor do I think they pretend to be in the business of safe investment opportunities. They are risk takers.

We all know that anytime something is too good to be true, it usually is. People were only lying to themselves when they put there money into these firms and didn't think there was a chance they might loose it all.


Posted by: DaVeVeDa | April 28, 2010 11:52 AM
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Maybe that's it, GCE1356...

GS thinks its clients are its shareholders, not the people that buy 'junk' from them.

customers aren't clients.

maybe all their customers should go elsewhere.

Posted by: vigor | April 27, 2010 4:26 PM
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When Goldman says "clients" it really means Goldman executives first and foremost. That's the convoluted language of derivatives, where black becomes white, day becomes night, and everything means the opposite of what it should. Now apply that same concept to Goldman in regard to integrity and you'll see what I mean.

Posted by: gce1356 | April 27, 2010 12:31 PM
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How naive to believe a Wall Street firm is interested in your investments. Who believes idle gossip like any banker is interested in your welfare. If you believed you would make 40% annually until the day u died than you are a sucker and deserve to lose your money. Who do you think u are complaining now that your fortune was lost? You played the odds and lost. Was Barclay's any better? Morgan? Who are you kidding? Go cry to your mama.

Posted by: KraftPaper | April 27, 2010 12:13 PM
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