A Greek Tragedy or There’s a Sucker Born Every Minute

February 24, 2010 at 5:09 pm 2 comments

Is legal the same as ethical? Is following the letter of the law the same as being guided by the spirit of the law?

What has me asking these related questions is the latest news emerging from the melt down of the Greek economy (as well the economies of Spain, Portugal, Italy and Ireland) that could have a devastating effect upon the euro. Greece borrowed like a drunken sailor in the late 1990’s and early 2000’s. This orgy of borrowing has placed it in an extremely treacherous debt laden crisis. It has now come to light that Goldman Sachs, the subject of my January 14 blog, aided the Greek government in its destructive efforts to suck itself down the debt drain by arranging financing through derivatives known as swaps which imploded along with so many other derivative based financial schemes in 2007-2008. While these financial arrangements were legal within the context of financial arrangements of the time (2001), Goldman Sachs structured these derivatives for the Greek government in such a way that in effect they masked the true extent of how much the Greeks were borrowing.

Well, so what? What does this have to do with ethics? The transactions between the Greek government and Goldman Sachs were legal. The problem is Goldman Sachs violated one of the so called sacred ethical principles of the financial services industry. That principle is transparency. What is now happening because of Goldman Sachs’ actions (it advised and then partnered with the Greek government using swaps to raise money while hiding its real debts) is that it has greatly, if not terminally, handicapped the Greek government in its efforts to deal with its debt crisis. Greece is having difficulty in attracting investors to help it out of its self induced debt crisis because no investor can be sure that the government balance sheets are telling the truth or are there more of these Goldman Sach-like investments waiting to explode and further plunge the Greek economy into deeper economic crisis and consequently losing the investments of any investors who are lured into investing in Greece. In hindsight, a senior Goldman Sachs executive, Gerald Corrigan, recently stated before a British parliamentary committee that, while there was nothing inappropriate done by Goldman Sachs (read Goldman Sachs followed the letter of the law), “the standards of transparency could have been and probably should have been higher” (read Goldman Sachs violated the spirit of the law to collect its reportedly $300 million (US) in fees). What is chilling is the language used by Mr. Corrigan. Even after the experience of our world-wide economic meltdown, caused in no small part by the really irresponsible trading practices of investment firms like Goldman Sachs, Mr. Corrigan doesn’t say his firm should have been transparent in its actions, he says they ‘could’ have and they ‘probably’ should have. Like, kinda sorry everyone and maybe next time we will, ya know. Just trust us, we know what were doing here, bucko.

Why does a firm like Goldman Sachs, one of the very best at what it does, filled with the brightest people from the most prestigious MBA programs in the world, constantly shoot itself and its reputation through its very questionable actions? Could it be that by following the letter of the law but constantly ignoring the spirit of the law, its profits first and those profits more than make up for the public humiliation of being recognized as sleazy snake oil sales people (my apologies to any snake oil sales people who are offended by being lumped in with such company)?  Could it be that while the firm is publicly chastised for its greedy behaviour  the individuals within the firm who engineered this behaviour and profited handsomely from this very questionable behaviour remain anonymous while they collect their bonuses?  There is little or no personal accountability for this irresponsible and often destructive behaviour but the financial rewards are, as the younger generation says, awesome.  After leading the world economies to the brink of disaster in 2008, Wall Street is paying itself a reported $20 billion dollars in bonuses for 2009. Ca-ching goes the cash register. Ethics to the back of the bus.

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Entry filed under: banks, ethics, investments. Tags: .

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2 Comments Add your own

  • 1. crisismaven  |  February 24, 2010 at 5:29 pm

    Greece is not the problem, really, it dates back to the inception of the Euro as a synthetic currency. And Greece is not alone, sovereign bankruptcies will soon be seen across the board.

    Reply
  • 2. Philip Smith-Eivemark  |  February 25, 2010 at 2:38 pm

    Good point. The Euro as a synthetic currency has taken away any EU country’s ability to use its own central bank and its own government’s monetary policies to deal with its economy. All that is now done in Brussels. And, lets face it, its the economic heavyweights in the EU like Germany that will set the overall economic policies of the EU. That said, my point in this blog was the role played by Goldman Sachs, and I’m sure there were other bankers besides Goldman involved as well, in taking an active role in hiding the magnitude of the Greek government’s debts which has played a central role in the mess the EU is in right now. The primary reason this deceptive act was done was to collect their fat fees; there was little or no consideration given to the eventual consequences of their actions. The idea of transparency, of any ethical consideration other than greed and duplicity, was completely disregarded. Even the lukewarm response of Goldman Sachs’ Mr. Corrigan to his firm’s active participation in that deception points to a culture that is still tied to a ‘what can we get away with’ mentality rather than a culture that has learned from its huge past mistakes concerning duplicity and greed as the driving forces of that culture and the catastrophic consequences of those self-serving actions to the rest of the world.

    Reply

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