Posts filed under ‘banks’

Here We Go Again

The man just doesn’t get it. It absolutely amazes me how someone who is so intelligent is such an ethical klutz. Lloyd Blankfein, Chairman and CEO of Goldman Sachs (I know, I know…Goldman again. I really want to blog about other important ethical issues but Goldman has become the flag bearer for everything that is wrong with the ‘free’ market system. Every day either Mr. Blankfein or one of his senior execs says something that is so mind boggling that I have to talk about it. So into the Goldman breech I go again) yesterday pledged to Goldman’s clients that his firm would be, I quote, “the leader in things (my italics) like ethics, in putting clients first”. This quote really highlights his misunderstanding of just what is ethics.

While some MBA schools will protest what I am about to say, for the most part, aspiring student executives, particularly in the financial services field, are first taught in most business schools that ethics is value-added or an add-on to what the firms do to make their money (in many business schools ethics is either an elective course – the future business exec doesn’t have to take it because as an elective it just isn’t that important ¬ or it is taught integrated into many courses as just another part of the course on finance or marketing or leveraging or whatever course is taught by instructors who themselves have had little or no formal training in ethical awareness and therefore, for most of them, do not really comprehend how dynamic and central ethics is to human behaviour). This credo of ethics as an add-on is then practised that way for many firms, particularly in the financial services industry, which further reinforces the idea that ethics is a thing that isn’t really central to the whole business process. If you think I’m just bitching with nothing to back up this last statement, just look at the actions of most of the investment firms and almost all of the mortgage firms in the run up to our most recent financial melt down. It was primarily greed at play in the fields of easy profit. Ethics, the how of doing business, and fiduciary responsibility which is a core reality of good business ethics, were simply ignored, seen as not central to the whole process of making money, and the consequences of that approach to business was, quite simply, catastrophic. Mr. Blankfein’s misunderstanding of ethics as a thing, as some thing that is added on to our behaviour from outside of us, as something that is dealt with as not really present until the outside world complains, is, sadly, emblematic of how much of the investment industry misunderstands ethics.

However, ethics is not a thing like a mortgage or a hedge fund. Mortgages, derivatives, income trusts and other created financial vehicles are things. One creates them, they have their time in the sun, and, once they cease to produce the desired profit level, they are dismantled and abandoned for some other human created investment package. Ethics, on the other hand, is not a human created package. Ethics is a human relational dynamic that has its own building blocks (values) and its own goal (trust or mistrust for the many practitioners of me-first economics). Ethics is not primarily concerned with profit for all those business types who see ethics as an add-on that is mainly concerned helping the business person look good while making big $$).

Ethics is present all the time, whether or not, you and I are aware of it – it is part of who we are as human beings. What Mr. Blankfein, by his classification of ethics as a thing, is demonstrating is a tragic and ultimately destructive (for him personally, his firm and all of those people adversely affected by his and his firm’s actions) misunderstanding of ethics. Like breathing, ethics is always present in our personal and corporate make-up. Like breathing, it disappears into the background for most of us because it is so much a part of what we do as human beings that we are often not aware of it until something outside of us shakes us into awareness. At that point, as Goldman and Mr. Blankfein are now experiencing, ignored ethics generally leads to really bad consequences.

Ethics is not an add-on, not value added, emphatically not a thing. It is central to almost everything we do as people as our internal dynamic that either creates trust or mistrust with others. Mr. Blankfein, you don’t just do ethics like you do lunch. Like physical fitness, ethical fitness must be constantly cultivated and actively and consciously incorporated into our dealings with other people. It takes time and effort to understand ethical dynamics and incorporate positive ethically influenced behaviour in a firm. In an industry which is almost completely short term focused on the profit margin for the next quarter, time is an enemy. But time is needed to understand and encourage ethical behaviour. If you don’t understand and approach ethical awareness in a respectful and effective manner, you get the mess in which you currently find yourself.

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May 6, 2010 at 2:34 pm Leave a comment

What Planet Are These People From?

I never intended for this blog to become a bash Goldman Sachs commentary but, OMG, what is with the senior management of this firm? Are they all moral morons? Psychopaths in suits? Ethically challenged to the point of farce? They have proven beyond a doubt they are rip-off artists with how they treated their clients and the world economy in the subprime mortgage scandal that Goldman was at the heart of…their actions show that the term ‘fiduciary responsibility’ is totally meaningless to them. When asked if Goldman had a duty to act in the best interests of its clients, Goldman senior exec. Daniel Sparks replied “I believe (italics mine) we have a duty to serve our clients well.” Uh, no Mr. Sparks, fiduciary duty of Goldman towards its clients is not a mere belief to be applied when, and only when, Goldman stands to make a lot of money by looking out for its clients, fiduciary duty is a moral right that is the very basis of your relationship with your clients. Fiduciary duty is the corner stone upon which the financial services industry is supposed to rest. When Goldman’s own senior execs are sending each other emails describing subprime based investments Goldman are pushing their clients into as “one shitty deal” and making “lemonade from some big old lemons” and “crap” I have to question the very reason for Goldman Sachs being allowed to exist as a firm. Goldman was not providing its clients with the service those clients were entitled to; instead Goldman, acting more like a giant casino than an investment bank, bet against its clients.  If Goldman knew these mortgage based investments were disasters waiting to happen, why didn’t they warn us about them instead of abetting the financial meltdown through its greedy self-serving actions?  Lloyd Blankfein, Goldman’s CEO, brazenly tells the US Senate panel that he doesn’t “think our clients care or should (my italics) care” what Goldman is planning to do. What?????? The clients of his firm have no stake in what Goldman is doing even when they are knowingly placing those clients in toxic investments? This statement is absolutely mind boggling. Fiduciary responsibility? What’s that asks Goldman.  Corporate social responsibility?  Never crossed our minds.  While Mr. Blankfein is the 2009 Financial Times man of the year because he knows how to profit big time by betting against his clients, the man is clearly demonstrating he is either ethically bankrupt or morally ignorant. Neither of these attributes is what society needs in a man in his influential position. The actions of Goldman Sachs show that it has jettisoned the reasons why investment banks were approved by society in the first place – to be financial intermediaries whose role is to transfer savings from one sector of the economy to another that needs capital and to provide stability and liquidity in the market to allow for the free flow of capital in the market. These were the reasons it was given its charter to operate in the market in order to benefit, be value-added to (in MBA-speak), society. Goldman, by its actions, has shown that it has discarded its given societal role to enhance the overall well-being of society in its heady rush for profit and executive bonuses at any cost. Just what is the social value of this moral black-hole of a firm?

April 28, 2010 at 3:09 pm Leave a comment

A Blinding Insight or Did I Choose the Wrong Vocation?

I had a blinding insight a few weeks ago and then watched Jon Stewart a couple of days ago “steal” my insight and do a much better job of presenting it than I ever could. But, what the hell, this is my blog so, for those of you who haven’t seen the Jon Stewart show, I figured out how all of us insignificant tax payers could make a bundle. How? See, here’s the insight and it’s so simple…we act like corporations! The Supreme Court views corporations as ‘individuals’ from a legal point of view. Corporations have all the rights that you and I do (except they can’t be sent to jail). With this legal understanding of that thingy called a corporation as really a person, the people who run that corporation can’t be held personally liable or accountable when that corporation goes rogue like all those Wall Street financial corporations did as they set about bankrupting us and destroying so many lives so those corporate cats could make a killing. It wasn’t those greedy financial types who wiped us out, it was the corporations they worked for who wiped us out.  So those greedy financial types can’t be held accountable for their duplicity and greed, its their firms who are accountable.  Indeed, their firms will pay those greedy financial types large bonuses to keep them in the fold because they have “talent” that is too valuable to fire.

So this got me thinking…if corporations can be viewed as people then maybe the courts could be fair (the law is fair, right??) and view me as a corporation. Instead of just being Phil I could be Phil Inc. As Phil Inc I could head off to my banker and ask for a loan. Now when a financial wizard on Wall St. does this the banker would ask for collateral and that collateral would be, yes you guessed it, billions of dollars in financial vehicles based on worthless sub prime mortgages packaged as great investment products. What made these worthless investments worth so much? Well, the financial wizard has a buddy called a financial rating agency like Moody’s and they work hand in hand to support each other so they both can make enough money to choke a herd of horses. So the financial rating agency slaps an AAA rating on these worthless investment vehicles and this allows the financial wiz to unload them onto trusting investors as great investments. And so this worthless shit gets moved around by other financial wizs who recommend them to their clients as really solid investments (whatever happened to fiduciary responsibility? Oh well, what does fiduciary responsibility really mean if the financial wiz is making money?).

So here’s how Phil Inc could allow each of us to oink our way to the money trough. As Phil Inc I need something with which I can go to the bank to get a loan to get this money machine rolling – I need some collateral. As Phil the real person I really don’t have anything in the real world to use for collateral to get this money maker rolling but I do have a 2005 Yamaha Vino 125 cc scooter sitting in my driveway. Its gotta be worth something like $1000 which if I was Phil the person isn’t much but with which as Phil Inc I can be very creative. I call up my good friend Louie who has recently incorporated himself as a financial rating agency known as Louie’s. Louie comes over to my place and looks at my scooter, places a value of $500,000 on it and slaps a Louie’s rating of AAA on it as well. I take this on paper collateral of $500,000 and its Louie’s triple A rating to my banker who happily presents me with a $500,000 loan. I’m so happy with myself I pay myself a bonus of $250,000 to keep myself from moving across the street to work for someone else and give them the benefit of my financial acumen. Not bad for a Yamaha Vino, eh? But I’m not finished.  I need to make some payments on this $500,000 loan but I don’t want to use “my” $250,000 bonus money to make some payments to keep the bank happy – after all, I worked really hard to earn that money so its mine and I’m not parting with it.  I could create a Ponzi scheme like Bernie Madoff but, lets face it, he was really sleazy and I’m not – I’m a businessman who is doing everything legally even if it is just a wee bit ethically suspect.   So I need to come up with another way to keep this gold mine producing.   So the bank wants to see some payments on its $500,000 loan so I create another corporation, I’ll call it 2Phil2 Inc and I sell this worthless piece of shit (OK it is worth $1000) to 2Phil2 Inc for $2,000,000 and, of course, I just have to pay myself another bonus of $500,000 for increasing the worth of my original corporation, Phil Inc, by another $2,000,000. Now 2Phil2 Inc is selling this crap to its clients as a great investment and the clients, believing 2Phil2 really have their best interests front and centre, jump on board. A bit later these clients are looking for a return on their investment only to discover that maybe the ol’ Vino 125 at the heart of their investment portfolios isn’t really worth $2,000,000. Oh oh, trouble is brewing. Now in real life something like this did happen with Goldman Sachs placing its clients in these worthless sub prime based investments which the big wigs at Goldman knew to be worthless but Goldman covered its bases by taking out insurance on firm it didn’t own, AIG, and when AIG crashed and burned because of these worthless investments, Goldman collected lots of money. So 2Phil2 Inc has learned from the pros like Goldman how to play both sides of the same coin (sell worthless investments to its own clients and collect the commissions from those sales and bet against these same worthless investments they put their own clients into by taking out insurance to collect more money when those worthless investments inevitably do collapse). 2Phil2 takes out insurance on his neighbour for $2,000,000 and when his neighbour commits suicide because his investments, based on the Vino 125 which I of course steered him into because he trusted me, have crashed leaving him penniless 2Phil2 steps up to collect that insurance money.

Now here’s the real beauty of all this deceit. According to our courts I, Phil the real person, am not responsible for this mess. Legally, Phil didn’t do any of this. It was the corporate persons Phil Inc and 2Phil2 who did it. They are the guilty culprits but they have no money left in their accounts. I paid all that money to myself as bonuses for a job well done and to keep myself and my ‘talent’ from leaving Phil Inc and 2Phil2 to work for some other outfit.  As Phil the person I’m legally safe and sound lying on a beach in Tahiti while the investors who trusted me are left holding the now very empty bag (or, like my neighbour, dead). Geez, I should have gone to business school instead of studying philosophy and ethics and religions.  At the very least some MBA school should hire me as a professor to teach these ‘alternative’ investing methods to those aspiring students who dream of making their own killing once they graduate.  I could even teach their ethics course…no wait, that might be seen as a conflict of interest.  But I’m sure there is some ‘creative’ way around that dilemma too.

I wonder if it’s too late to jump on this money making bandwagon????  Praise the Lord for insight!

March 19, 2010 at 5:11 pm 2 comments

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

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.

February 24, 2010 at 5:09 pm 2 comments

No Sex Please…we’re from Bay Street

I see Canada’s financial wheelers and dealers are having trouble with backing a sure fire money maker. Its a company called Avid Life Media and this company happens to own a number of online dating sites including AshleyMadison.com which just happens to encourage its members to commit adultry. It seems the finance types feel they couldn’t get their clients to invest in such a firm that promotes “sin”. Now here’s the problem for me. On Bay Street investing professionals have no problem recommending their clients invest in defence industries whose products kill a lot of people (studies show the killing products of most defence industry firms end up killing far more civilians than combatants), or in the tobacco industry whose addictive product either sickens or kills those who use it, or in certain firms who support third world dictatorships in order to gain access to said countries to make money hand over fist. So, its alright to profit through investments that lead directly to killing, maiming and exploitation and repression but not to profit in a firm that encourages marital infidelity? Is there a priority of levels of “sin” in which investment is pursued or in which investments are discouraged? Is there a professional development course members of the investment industry take that helps them manoeuvre through these murky ethical minefields to decide which “sins” – products that kill, products/services that encourage sexual wildness, partnerships that support repression and exploitation – are OK to invest in and which are not? How is the financial moral compass calibrated in such matters?

Just asking.

January 25, 2010 at 8:18 pm Leave a comment


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