Monday, April 26, 2010

All That Glitters is not Goldman Sachs

A corollary of Euripides states, “Those whom the gods would destroy they first make greedy.”

The gold leaf has come off the doorknobs at Goldman Sachs. The Securities and Exchange Commission recently filed a civil fraud charge against GS. The SEC claimed that GS failed to disclose vital information to buyers of a synthetic CDO created for, and with the involvement of its client, John Paulsen. The case has led to a vocal exchange in the media and blogosphere. Defenders of Wall Street say the SEC has a weak case at best. Those of the SEC say that GS is guilty and, even if GS were to be acquitted in a jury trial, behaved unethically.

The best comment I’ve read so far, with which I largely agree, is “10 Things You Don’t Know (or were misinformed) About the GS Case,” posted by Barry Ritholtz on April 23, 2010. He has offered to bet anyone $1,000 that GS will lose in court or settle, with the winnings to go to the charity of the winner’s choice.

Universities are all about truth, ethics, and justice. During apartheid, students and faculty demonstrated against investments in South Africa. Ditto for other important social causes. I have yet to read of a student and/or faculty demonstration demanding that universities divest themselves from GS. Perhaps one reason is that most universities do not disclose individual holdings in their endowments. I wonder how many, if any, graduate schools of business will return gifts to GS if the firm is found guilty, especially that the newest courses found in GSB curricula are about ethics (and the environment).

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