Businessmen and Finance
Even in business, there is a lot of suspicion of capital markets. Here’s something a former GE vice president has written. Basically, he thinks speculation and risk-taking is immoral, that markets shouldn’t be allowed to make bets on whether companies or assets are overvalued, and that they should be required to have collateral even if they don’t want it. The Harvard Law School Forum on Corporate Governance and Financial Regulation » Goldman Sachs: Being “Legal” Doesn’t Make It “Right”
But, in such an era, the “it was legal” defense is inadequate because regulators and the public (and some customers) are asking “is it right?”Two related examples.
First, Goldman is defending against the SEC complaint in the court of public opinion by saying that the synthetic CDO was a transaction between sophisticated parties (“consenting adults,”) that everyone knew there would be a long and short side of the transaction, that it did not mislead the long side of the transaction, which had every incentive to understand the CDOs packaged in the instrument.
But, the underlying question is whether a synthetic CDO transaction — which is unrelated to the “real economy,” just a bet between well-heeled parties that creates significant economic risk — is “right.” There is a strong view that these transactions are not right. Goldman needs to defend not only its actions in the particular case but also take a position on whether such transactions are appropriate and under what conditions.
