I seldom comment on contentious current events, let alone those that affect clients of Thomson Reuters. However, the intense global criticism of Goldman, Sachs prompts me to join the debate. No sooner had the SEC surprised the firm and the market with its charges of fraud relating to the structuring and marketing of a 2007 synthetic collateral debt obligation (CDO) offering, than commentators up to and including British Prime Minister Gordon Brown fell all over themselves to convict Goldman as being “morally bankrupt.” It just seems too easy and too politically expedient to jump on this bandwagon.
Perhaps the firm will eventually be found liable of these charges, although I rather doubt it. But what happened to our prized principles of maintaining innocence prior to being proven guilty? What is it about our media-driven society that prompts normally thoughtful observers to rush to judgment --even those who couch their indictments in the form of “well, if they did do what the SEC accuses them of, they are [morally reprehensible]?"
Enough already. Goldman has 36,000 employees, among them no doubt a couple of bad apples. Among them are also many upstanding, ethically decent mothers and fathers who deserve better than to be branded as the source of financial contagion. I know many of them personally – they are certainly not the poor, the homeless or the oppressed, but they deserve to be judged on their merits, not condemned in a hasty trial in the court of public opinion. Even the SEC was split 3-2 along partisan lines, which is relatively unusual in such cases.
Has it ever dawned on those quick to judgment that we may not yet know all the facts? Goldman is accused of failing to disclose to the purchasers of the CDOs that Paulson & Co. intended to short these securities and had some involvement (yet not exclusive) in the selection of the underlying mortgages to which these securities related. I imagine that the actual legal proceedings will turn on the precise nature of the obligation that an offeror may have to the sophisticated purchasers of such securities and the highly fact-specific nature of what “he said, she said” – as interpreted after the fact from the ever-present email trail.
These proceedings are best left to the securities and regulatory lawyers, but let’s try to relate Goldman’s alleged conduct to some less exotic commercial dealings. Let’s imagine instead that you are a sophisticated real estate investor looking to buy a house which is located in an area that has been hit by flooding two times in the last 15 years. The selling family is represented by a prestigious real estate agent, “Goldman Reality,” and imagine further that the sellers have confided in Goldman that they believe another flood may soon occur and that in addition to selling their house, the sellers will be placing legal bets in Las Vegas which will pay them millions if another flood occurs within a year of selling their house to you.
Of course, the terrible flood occurs. Do you bring fraud charges against the real estate agent or do you rely on federal flood insurance to bail you out (as of course the sophisticated bank purchasers did in the actual Goldman case)? Do you complain more bitterly if the selling family is subsequently lauded as a great real estate speculator or flood predictor? Let’s all remember that when the actual CDO offering was made in 2007, John Paulson was not recognized to be the great investor he is seen as today.
Goldman does not need me to defend them – they have far better lawyers on retainer. But when most of the world is ready to convict and condemn before trial, my sense of fairness suggests we should suspend judgment until the full story emerges.