Patricia McGuire
University president

Patricia McGuire

President of Trinity Washington University.

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Snake oil

Q: Goldman Sachs, the country's most successful investment bank, is under fire for helping a hedge-fund tycoon dump bad investments on unsuspecting customers and then betting against them. CEO Lloyd Blankfein says the firm did everything it was legally required to. Are ethical issues relevant as a business seeks to earn money for its investors? Does the little guy stand a chance in such an environment?

Scoundrels! Does anybody even use that word any more? The behavior of Goldman Sachs is so stunningly villainous that it demands we dust off some properly indignant, old -fashioned words to describe the firm's astonishing greed and unscrupulous betrayal of its own clients.

In a country where phenomenal wealth seems to be the default measure of great success, Goldman Sachs is widely considered to be the most successful investment bank. In a nation that exalts law above all other considerations -- even above ethical conduct -- it's not surprising that defenders of Goldman Sachs (including the venerable Warren Buffet, whose Berkshire Hathaway company has billions tied up in the bank) claim that Goldman's actions were not illegal.

While the legal question is ultimately up to a court, in fact, what's most shocking about this case is the cavalier attitude displayed toward fundamental integrity and business ethics.

Goldman Sachs made money by enticing its clients to make bad deals and then betting against them. Such willful duplicity betrays the essential pact of trust between the banker and investor. Goldman claims that the investors were "sophisticated," thus implying that the buyer knew or should have known that snake oil was in the bottle. But this episode of "information asymmetry" (a.k.a. withholding facts, or not telling the truth) cost the clients about, oh, a billion dollars or so.

No "little guys" were hurt, or so they say. That's because us "little guys" all together are not worth the gold in Fabrice Tourre's watch. Tourre is the brainchild of the Goldman fairy dust who admitted he was sorry for sending some emails that fell into the hands of the SEC. Oops! For Fabulous Fab, misleading investors was worth millions, but getting caught is, well, priceless.

In fact, the damage to the "little guy" is huge. Goldman Sachs is the latest icon of Wall Street to have blood on its hands for the economic catastrophe that has cost millions of people their jobs, homes and economic security. Because guys (and it is mostly guys) on Wall Street wanted more homes in the Hamptons, families in southern California and Phoenix and Florida and Cleveland and Detroit have no homes today. Because greed fueled the desire of investment bankers to create increasingly risky instruments in order to pad their own portfolios, the retirement funds of millions of workers will take years to recover their losses, if ever.

Beyond economics, though, the Goldman episode is another blow to ethics education. At Trinity, like many other universities, we have a longstanding honor system designed to teach students how to live lives of honor and integrity, and how to make ethical choices at work as well as personally.

At Trinity, cheating comes with very serious penalties, including the potential for expulsion. But external social values are not as strict as ours, so, sometimes, a student who cheats does not seem to understand the big deal. Too late, the student learns a very hard lesson about the primacy of integrity.

Sadly, when the big guys lie and cheat, the little guys think that's probably ok. We are living in a culture where the value of integrity is, too often, unknown or disparaged while the value of greed appears to be a large bank account, fancy cars and homes, and a reputation for success.

Ethics education in this climate often feels entirely countercultural, an odd remnant of old-fashioned days when the worst you could say of someone was that he was a "scoundrel."

By Patricia McGuire  |  May 3, 2010; 12:00 AM ET  | Category:  winners and losers Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati  
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