;)
Politicos are falling all over themselves to get in front of a microphone to chant “Congressional oversight trumps Capitalism.” Even a few of our own Directorship readers may take a cynical view of the investment bank’s plight. Let’s draw another hash mark on the wall of corporate misdeeds.
Or let’s not.
As CEO Lloyd Blankfein’s testimony on the Hill today will undoubtedly show, this is a story better told in the business section, not the front page. Unfortunately, his comments may even raise the stakes but in all probability he will not be given the forum to state the facts–which can only be seen in the context of what I will call the American Mirror–as we stare at ourselves we see should see our political leaders.
Goldman Sachs’ trading desks, like desks all over Wall Street, are in the business of moving products into smart, greedy hands because that produces the best outcome for investors. The hedge funds, or hedgies, play the industrial strength version of this game, working angles that only a rocket scientist could love. Goldman’s role in these trades is to deliver not to debate. At the same time they are delivering, the firm may have a sense of a skewed supply/demand imbalance and may make a judgment on those facts for themselves or other clients. But if one hedge fund or bank is working to deepen exposure to a particular investment class, another gives the signal to lighten up. This is what happens every day on Wall Street. You take the trade or you don’t.
The Goldman eclipse: It was no accident the SEC publicity machine issued release #59 about their Goldman investigation before they later issued release #60 the same day about their incompetency in the Allen Stanford Ponzi case.
When the SEC charged Goldman with fraud on Friday, April 16, 2010, few outside of the media understood the significance of why that day was chosen. Not only was it the same day the Inspector General announced the SEC’s failure in the Allen Stanford Ponzi scheme case, but it was a “no news” day. Rarely does a company announce anything of magnitude on a Friday. This is because journalists are wrapping up their articles for the week, and more importantly in this case, Goldman would be caught off guard with no time to prepare. While the company stewed, the weekend pundits had a field day, and by Monday the firm was on the defensive. You thought the “Dirty Tricks” team went away with Nixon.
“It takes a cynic” to see how this would mightily help the President in his crucial objective for the American public–to win the upcoming mid-term elections. The Obama administration announced the President’s War on Wall Street only two days later–acknowledging the helpful assist from the SEC. Having dropped the healthcare ball, the next move for this election season was to stick a fork into the heart of Wall Street and ride that public anger–all the way through to November. Goldman partners are huge contributors to the Democratic party, ironically. Yet, the politicians don’t fret. They know that soon when this is over, they’ll come back. Perhaps that is why Chuck Schumer is so quiet.
Now watch for the piling on from all sides. This will be in the headlines for another three weeks and the investigation, well, at least until November. The firm will be pilloried by a media that lacks the resources and the incentive to get the real story. Maybe an Andrew Sorkin or a Charlie Gasparino will sense the lack of oxygen in the room and let in some air. Meanwhile, competitors will both be shorting the company and talking trash to the client side. The good news is the company’s franchise is still unassailable. Goldman will be tarnished by the publicity but their leading role in the global banking sector remains intact.
It is a disturbing prospect. American business leadership has the knack to take body blows, apologize to everyone, and find the stamina to move past and recover. For that we should be collectively thankful.
Jeffrey M. Cunningham is a frequent speaker and writer on corporate governance issues. He has served as a director of ten public companies, four of them as non executive chair. The comments and opinions shared in this column are his personal viewpoints, and do not reflect the opinions of NACD Directorship.
Hey, Jeff, if circus this is, and it may be, it is far too partisan to accuse solely the Democrats of exploiting it. In the hearings yesterday I didn’t hear any Republicans holding back so it would seem that if there is a “Get Goldman Sachs” Bandwagon, everyone is trying to ride it to the elections.
On the other hand, answering every single question with a variant of “I don’t know” is hardly going to win friends and influence people. But since that has been the answer from every CEO ever brought up before a congressional hearing from autos to credit ratings, how are we going to change the standard response? That would seem more important to try and change than anything else. Truth and reconciliation, U.S. style.
Mr. Cunningham’s comments may be right on target about governmental timing by the SEC, the grandstanding of the politicians, and, in spite of it all, the resilience of the free market. However, the comments seem to miss the point: Is it in society’s best interest to have individual companies act in a manner that results in a near collapse of the entire system? If I heard the Goldman executives correctly, they packaged assets they were looking to unload into securities that had little or no economic substance from one arm of their business knowing full well they were shorting the very same securities from another arm. Trying to deny the existence of a conflict of interest by saying there is a wall between the two different aspects of the business (or worse that one arm does not know what the other is doing) does not work. There is only one company (one body) and all report up to the board; and it is senior management and the board’s obligation to recognize the conflicts and ensure that they are avoided. I am reminded of the money laundering scandal and the bankers who testified before Congress that they were not doing anything illegal because all of their peers were doing the same thing, and not to participate would have hurt corporate earnings and lowered their company’s stock price. I am also reminded of the dot-com boom when securities were put out into the market that made no economic sense whatsoever. There is a fundamental missing of the point about ethics and character and their role for the greater good of society.
I would add that both comments are thoughtful responses to issues that my column omitted.
My particular focus is due to the concern I have, and many share, that Congressional hearings have become mere show trials, but the hecklers are on the podium not the back benches. The issues are too important. We have only to look to our own history for how to properly conduct a hearing – the Continental Congress was a sterling example of how Americans can convene the kind of forum where real debate can take place – and so fully answer the cogent questions posed by readers Hodgson and Weir.
In the incestuous nature of blogging – probably even worse in corporate governance blogs – I blogged on your blog on our blog, Jeff, here: http://blog.thecorporatelibrary.com/blog/2010/04/sec-market-timing-the-goldman-sachs-trial.html
I agree that these hearings are becoming show trials but I feel the fault – as I say in my blog – lies on both sides, both the politicaians and the executives. The politicians being guilty of grandstanding and the corporates of a complete cover-up. Rational questioning in a reasonable arena might actually lead to disclosures that could help us prevent this happening again.