Posts Tagged ‘clients’

Goldman and Greece

February 23, 2010

… and I ain’t talkin’ about the musical.

There was an interesting article by the BBC’s Robert Peston on what financial services Goldman offered the Greek government. The services themselves are pretty dubious, giving the Greek government little real benefit aside from reducing its on-book debt. Even Goldman do not seem to pretend that it was anything other than, ahem, financial engineering.

Peston’s question was: is it ethical.

The answer is: probably not. But ethics are troublesome, and I don’t mean troublesome in that “oh dear that stops us making lots of money” way, but in that “oh dear ethics is inherently based upon a point of view and therefore is difficult to capture in an abstract sense which can be applied equally to all parties and all cases” way. Typically, clients’ transactions are judged in terms of “but would their or our government think this a bit dodgy” kind of way (a test the Greek trades would have failed). But when there is no government it becomes a bit of a tougher test to apply.

“Efficiency” is a key selling point of any financial product; typically that means the product is easier to manage, has lower risk, has lower transaction costs and, sometimes, less tax. In a Daily Mail sort of way this must  seem unethical – but this is no different to a retail bank saying “you can have an ISA (which is tax free) or a savings account (which isn’t)”. Is it wrong for that bank to help its customers minimise their tax bill?

Goldman, presumably, felt the emphasis was on the Greek government. Interestingly, their ethics don’t seem to be under debate.

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Goldman says reports of CEO testimony improper

January 17, 2010

» Goldman says reports of CEO testimony improper

There are two ways to interpret Goldman Sachs’ activity here:

  • They ruthlessly and unpleasantly sold products they knew were going south
  • They hedged their position

Personally, I believe the latter. Mostly because, as a broker, Goldman’s main job is to help its clients buy or sell the assets the client wishes to buy and sell. Deciding an investment strategy is the client’s job (or their adviser, or asset manager, or whatever). Judging the quality of the assets is the job of a credit ratings agency. Obtaining the assets is Goldman’s job.

If you go to a fishmonger and want to buy salmon – and the fishmonger tells you he thinks salmon is disgusting and you’d be better off going for cod – then you may be wondering when you invited the fishmonger to lunch or asked him for advice on your menu (you may do many other things, from follow his advice or, if you are a serial killer, batter him to death [batter – food pun, ha ha] with a lump of fish, but you get my point). You want salmon, he sells you salmon. He then buys more salmon from his supplier to restock – and his activities of buying and then selling at the same time are unlikely to lead to him being denounced by, well, everybody.

The fact is, investment banking is not a commune. Some hedge fund wants to go long CDOs or the latest cool stocks? Let them. Just don’t expect the broker to do the same thing. We don’t expect our doctors to get our illness, lawyers to become a party to our contracts, estate agents to move in with us. Brokers are risk averse. They’re not going to pin their entire profits on their clients’ investment strategies or even ask them what they are. Many businesses are the same – they are there to help you buy and sell, they are not there to share your tastes. It is when those riskless businesses screw-up, like Lehman, that things get very fishy indeed.