By Robert Field
Andrew Ross Sorkin brilliantly describes the 2008 financial crisis in “Too Big To Fail” which was also made into an excellent TV motion picture. (We had read widely on the subject and had viewed the movie at least twice, but we only this past week read the latest edition of the extraordinary book.)
In March 2011, Sorkin added a chapter entitled “Afterwards” in which he reflects upon the federal government and financial industries reaction to what had contributed to the crisis. As an example of Wall Street mentality, Sorkin relates:
“The SEC [Securities and Exchange Commission] asserted that Goldman [Sachs] had purposely not disclosed to buyers of Abacus that Paulson [& Co.] had helped create [the bond offering] with the goal of having it fail. The investors who bet it would rise in value wound up losing $1 billion…
“The public drubbing that Goldman took may have proved too much to bear. The firm settled the case for a record $550 million without admitting or denying guilt…
“[Senator Carl] Levin had found an e-mail in which one Goldman colleague had observed to another, ‘Boy that Timberwolf was one shitty deal.”…
“When asked about that assessment, [Goldman’s CFO David] Viniar only made the situation worse by responding, ‘I think that’s very unfortunate to have on e-mail.’ After lots of laughter in the gallery, he tried to correct himself. ‘Please don’t take that wrong,’ he added. ‘I think it’s very unfortunate for anyone to have said that in any form.’” …
Okay, that might just represent an ethical blindness or a dark sense of humor on the part of one executive. But then we hear from perhaps the world’s most sophisticated investor:
“ ‘I don’t have a problem with the Abacus transaction at all, and I think I understand it better than most,’ said [Warren] Buffett, whose Berkshire [Industries] still held a $5 billion stake in Goldman. ‘For the life of me, I don’t see whether it makes any difference whether it was John Paulson on the other side of the deal, or whether it was Goldman Sachs on the other side of the deal,’ he observed, adding, ‘It’s very strange to say, at the end of the transaction, that if the other guy is smarter than you, that you have been defrauded. It seems to me that’s what they are saying.’”
Buffett is famous for his financial acumen. He prides himself in only investing in industries in which he has accumulated extraordinary knowledge. So fair enough as far as he is concerned. He isn’t going to rely upon what a broker tells him.
But what about the rest of us on Main Street who earned out savings from various fields of endeavor? How do we protect our investments?
Why is Wall Street’s view of ethical behavior so differently from most of us who deal on Main Street? This is in part is due to at least two considerations: Many security sales persons start off in predatory ‘boiler rooms’ making random calls and pushing shoddy products on the unsophisticated and often the elderly and vulnerable; other get their education from the top business schools in an environment that only values making money.
If you are a guest and bring a ‘social conscience’ to a business school alumnae meeting, be prepared to be scorned.
