It’s been discussed as a boxing match or a win-or-lose debate.
Unsurprisingly, your view of who ‘won’ was likely determined by where you stood on the Wall Street/Main Street political axis before the show got under way.
But if we can place cynicism aside for a moment, we might agree the hours and hours of back-and-forth Tuesday between U.S. senators and a gathering of Goldman Sachs & Co. current and former executives was of immense educational value for all.
Whether you are a “sophisticated” institutional investor (the word sophisticated now in some cases being taken to mean its opposite), a mere individual with his or her nest egg in the stock or bond market or an observer who thinks Wall Street is to blame for everything that’s gone wrong with the economy, you now have a much better idea of how things really work in some of the higher, more complex reaches of our markets.
The most educational quote comes from Lloyd Blankfein, the chief executive of Goldman Sachs. ”I don’t think our clients care or they should care” about what position Goldman might have as it sells a deal to others. “As far as whether something is a weak security or going bad, we are selling securities all the time that are weak or we in the market don’t like.”
You can express outrage at this idea, as some of the members of the Senate Permanent Subcommittee on Investigations chose to do. “You’ve got a short bet against that security, you don’t think the client would care?” asked Subcommittee Chairman Sen. Carl Levin, D-Mich.
But know this. Market makers and indeed all others in the financial services industry and probably any other industry will almost always take a narrow, legalistic view towards their responsibilities to the person or people with whom they are doing business.
You can call them customers or clients or whatever you like. If you are one of their number you ought to know what the counterparty is legally obligated to tell you and expect nothing more.
If you get more, consider it a bonus.
The Securities and Exchange Commission is claiming that in one synthetic collateralized debt obligation deal Goldman and one of its employees did less than what was required of them and so the SEC filed a civil fraud charge. The SEC says buyers of this particular CDO should have been told a hedge fund that was going short helped choose some of the contents of the CDO.
Goldman and the employee vehemently deny the charges.
If we want to change what market makers and others owe their clients as far as disclosure, let’s change it. Let’s legislatively be clear about what is demanded of various actors in the financial arena.
Once that’s settled, don’t expect anything more.