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.