Thursday, August 15, 2013

Redrafting Goldman's Business Principle #1

As we noted in a previous post, the first business principle of Goldman Sachs per its own disclosure is.

"Our clients’ interests always come first. 
Our experience shows that if we 
serve our clients well, our own 
success will follow."
I thought I would take a shot at redrafting this platitude into something meaningful: here goes.  

The interests of every client always come first.
Our clients want to acquire or dispose of assets in order to achieve their financial goals.  We stand ready to help them by acting as their agents in the marketplace for real and financial assets.  Where a suitable financial instrument doesn't exist to achieve their goals, we will work with our clients to create a unique financial structure which does achieve their goal, for which we will earn fees and commissions for our expertise and our market relationships. However, we will always be open and transparent about how we earn our money and about how our interests are aligned with those of our clients.  

In a global financial marketplace, conflicts of interest will inevitably arise between those of Goldman Sachs, Inc. and those of our clients.  We will explain and disclose these potential conflicts when we write a client's business. The culture of our firm does not countenance treating bigger clients differently.  It also does not countenance writing a piece of client business and then pro-actively betting against our client's interest for the benefit of our business.  

While this ethical principle may cost us some business in the short run, if our clients achieve their goals and sustain their relationships with us, experience shows us that our firm and its shareholders will be amply rewarded. 

It's longer, but it does go out on a limb and say something. You may have surmised that this kind of required corporate disclosure is probably meaningless for institutions like Goldman Sachs, Deutsche Bank, the old Lehman Brothers and others.  Hence, Goldman's attorneys crafted their initial formulation: it gets the job done by checking the box for disclosure, and it doesn't impact the business. 

Senator Carl Levin's sub-committee produced a 645 page report on "Wall Street and the Financial Crisis."  It's interesting how the Goldman narrative in this doorstop of a report fits the contours of the Tourre prosecution.  A long chapter is entitled, "How Goldman Created and Failed to Manage Conflicts of Interest in its Securitization Activities."

Goldman went out of its way to "assist a favored client (John A. Paulson) make a $1 billion gain, and profit at the direct expense of the clients that invested in the Goldman CDOs." 

As we noted in our earlier post, "Paulson had a very negative view of the mortgage market which was publicly known...." 

Despite this statement, the chapter goes on to say, "Laura Schwartz (of ACA) was "unaware of Paulson's economic interest in the CDO."  So, the entire multi-billion ABACUS CDO subterfuge rests at the feet of Fabrice Tourre.  Don't get a stitch in your side from laughing: I did. Thanks, Senator Levin. 

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