Listening the chatter defending Goldman Sachs actions round a set of investments they sold reveals just how much Wall Street has lost its ethical bearings. Much of the defense can be summarized as follows. One, they were smart about the upcoming collapse of the housing market, and they should not be penalized for being smart. Two, those that bought the CDOs were sophisticated investors who knew the risks.
So, what did Goldman Sachs do? They worked with another investor, John Paulsen, to create an investment he (and they) were planning to bet against. Since he profited from its failure and not from its success, how much motivation would he have in making sure it would succeed. They then sold this investment to others without mentioning to them that Mr. Paulson was involved in creating it. When the investment lost value, both Mr Paulson and Goldman Sachs made money. The issue is not whether they were smart enough to foresee the falling housing market, but that they created and sold a product to fail while they claimed the product was sound, and profited when that particular product failed. Imagine if a doctor allow a the person, who had taken out a million dollar life insurance, into the operating room, then claimed shock when the patient died from what the doctor and that person did.
Were they smart in creating a product designed to fail and made a bundle on its failure. Yes. They made a bundle. Was it immoral? Yes, again. What about their defense of the investors that lost being smart as well? Boiled down to its basics it is “Don’t blame us, we ripped off smart people.” Does that defense sound like it is based on any ethical system other than the code of conmen? Was what they did illegal? Unfortunately, probably not. Deregulation of the past twenty years have created loopholes in the system that almost brought down the house in 2008. We need to close the loopholes, which is what the current bill being debated, before we suffer any more.