Friday, May 7, 2010

Whom to eulogize…whom to benchmark…

Couple of months ago, one of my friends in financial services sector forwarded me an article published in the Sunday Times, London with a catchy heading: I’m doing ‘God’s work. Meet Mr. Goldman Sachs. I finished that powerful reading in one go and the moment I finished reading that a sense of awe struck me temporarily. Normally, I don’t get overawed in any situation but this was not an ordinary explanation of achievements. When all the biggies of Wall Street found biting dust, here is Wall Street’s Sun God with profits of $3.2 billion in the last quarter alone.

Last week when I was reading Securities and Exchange Commission (SEC) charges against Goldman, I was surprised of the hype and hoopla associated with it. According to SEC, Goldman Sachs structured and marketed a synthetic collateralized debt obligation (CDO) that hinged on the performance of subprime residential mortgage backed securities. Goldman Sachs failed to disclose to investors vital information about the CDO, in particular the role a major hedge fund played in the portfolio selection process and the fact that the hedge fund had taken a short position against the CDO. Now this is not something unique that the SEC has found against Goldman. My memory hints that Goldman has benefited from the upside of all recent booms, be it dot.com, commodities or housing. The whizzo teams of Goldman manage risk well and get out of bull markets at just the right time; they play their part in inflating the bubbles in the first place and pocket a fortune in doing so. Being very big in size has the advantage of more and more market information. Investment banks normally prevent misuse of information through strict Chinese wall between traders and advisors as any misuse is nothing but unethical. How strong was this Chinese wall in Goldman case is for the regulators to decide, but my search for an institution, which we can eulogize and a role model CEO is still continuing. Lloyd Blankfein just missed that chance.

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