I really hate politics. Always have.
And, I just shake my head in disgust with this completely politically motivated move to label Goldman Sachs as the evil witch that Congress is now trying to burn at the stake.
In short, there was no valid reason to make the Goldman CEO (and other firm executives) get slapped silly again in front of what felt like a McCarthy-like hearing yesterday. I should offer up that we do represent companies which are financed by Goldman. But, that has no bearing on why I'm writing this post.
Let's review the facts:
* Goldman is just one of many, many players who created and benefited from the subprime market. Yes, Goldman might have profited more than any of the rest, but were those actions illegal? So far, we've seen nothing to demonstrate this.
* Yes, I agree that the industry needs to be reformed because (in this case), excessive greed without any checks and balances almost killed our economy. Those in the industry should feel bad and need to change. The new regulations should help in some way do this (which of course, is always the major challenge). But, all the giant bank CEOs were already admonished in front of Congress over a year ago. They received a real beating. So, why do this again to one firm as a further example? Makes little sense to me except that Congress has to waste our time seeking out another villain for the recession we're living in because that will feed their constituents' need for revenge.
* I can't speak to the merits of this civil suit by the SEC. But, when was the last time business people (or anyone) were forced to appear on a televised hearing in front of a Congressional circus for a civil legal proceeding? Just ridiculous.
* I've heard a public outcry to create regulation that would end derivatives. The public and congressional members who are aggressively calling for this just don't have a clue. And, that's scary. Maybe they should do their homework. Then they'd see that most derivatives certainly aren't bad. In fact, entire industries (outside of Wall Street) would suffer immensely if we curtailed this important finance tool. Do they know that companies like Jet Blue must utilize derivatives (in a very challenging industry) to compete. By betting on the future of oil costs, Jet Blue can obtain it cheaper. This lowers Jet Blue's overhead which indirectly impacts the ticket prices we pay when flying. Likewise, manufacturers like Hershey, Nabisco and others do the same by betting on the future cost of sugar and other commodities. These are examples of derivatives that are staples for many businesses, providing lower costs in a similar way. Ironically, I should also add that higher costs for these companies would mean fewer jobs. An issue that no politician wants to deal with in his/her district.
* Finally, if we're going to make one participant in this economic meltdown sit on the hot seat, why not include everyone else who shares some responsibility? That's only fair.
I laugh at the bitter irony of how politicians like Chris Dodd and Barney Frank are attempting to now lead the formation of tighter regulations. Well, that's kind of funny since these two led the charge in the 90s to force through laws that made organizations like Fannie Mae give mortgages to people who neither had the credit or money to ever be capable of owning a house. This lack of common sense created the necessary legal environment for a new market to sprout that eventually blew up. Let's give the Goldman seats next week to Chris and Barney and ask them what on earth they were thinking way back when.
The problem is that the media and politicians (I call them the wolves) always have to find someone to blame. That's the culture we live in. Goldman was certainly a willing participant in this mess. But, yesterday's eight hour hearing was pure theater for the masses. And, that's just sad.
In short, there was no valid reason to make the Goldman CEO (and other firm executives) get slapped silly again in front of what felt like a McCarthy-like hearing yesterday. I should offer up that we do represent companies which are financed by Goldman. But, that has no bearing on why I'm writing this post.
Let's review the facts:
* Goldman is just one of many, many players who created and benefited from the subprime market. Yes, Goldman might have profited more than any of the rest, but were those actions illegal? So far, we've seen nothing to demonstrate this.
* Yes, I agree that the industry needs to be reformed because (in this case), excessive greed without any checks and balances almost killed our economy. Those in the industry should feel bad and need to change. The new regulations should help in some way do this (which of course, is always the major challenge). But, all the giant bank CEOs were already admonished in front of Congress over a year ago. They received a real beating. So, why do this again to one firm as a further example? Makes little sense to me except that Congress has to waste our time seeking out another villain for the recession we're living in because that will feed their constituents' need for revenge.
* I can't speak to the merits of this civil suit by the SEC. But, when was the last time business people (or anyone) were forced to appear on a televised hearing in front of a Congressional circus for a civil legal proceeding? Just ridiculous.
* I've heard a public outcry to create regulation that would end derivatives. The public and congressional members who are aggressively calling for this just don't have a clue. And, that's scary. Maybe they should do their homework. Then they'd see that most derivatives certainly aren't bad. In fact, entire industries (outside of Wall Street) would suffer immensely if we curtailed this important finance tool. Do they know that companies like Jet Blue must utilize derivatives (in a very challenging industry) to compete. By betting on the future of oil costs, Jet Blue can obtain it cheaper. This lowers Jet Blue's overhead which indirectly impacts the ticket prices we pay when flying. Likewise, manufacturers like Hershey, Nabisco and others do the same by betting on the future cost of sugar and other commodities. These are examples of derivatives that are staples for many businesses, providing lower costs in a similar way. Ironically, I should also add that higher costs for these companies would mean fewer jobs. An issue that no politician wants to deal with in his/her district.
* Finally, if we're going to make one participant in this economic meltdown sit on the hot seat, why not include everyone else who shares some responsibility? That's only fair.
I laugh at the bitter irony of how politicians like Chris Dodd and Barney Frank are attempting to now lead the formation of tighter regulations. Well, that's kind of funny since these two led the charge in the 90s to force through laws that made organizations like Fannie Mae give mortgages to people who neither had the credit or money to ever be capable of owning a house. This lack of common sense created the necessary legal environment for a new market to sprout that eventually blew up. Let's give the Goldman seats next week to Chris and Barney and ask them what on earth they were thinking way back when.
The problem is that the media and politicians (I call them the wolves) always have to find someone to blame. That's the culture we live in. Goldman was certainly a willing participant in this mess. But, yesterday's eight hour hearing was pure theater for the masses. And, that's just sad.
Can't disagree with the witch trial analysis of yesterday's "hearings." But let's face it - witch trials are as old as, well, the Salem witch trials and aren't going away. I can't help but look back at Goldman and say that yesterday could have been predicted, pre-empted and diffused if they said the following across media channels(hopefully, with integrity) right when the allegations surfaced:
1. Hedging against their own securities is not illegal. Institutions financial and non-financial hedge as a long-established practice.
2. Packaging a security with full knowledge of its instability, with the sole intention of selling to clients who are ill-equipped to have knowledge, is not a company practice.
3. Cavalier communication about securities some may consider faulty is not a company practice.
4. The sales of these particular CDOs neither facilitated nor exacerbated the global economic downturn, any more than the trading of such CDOs at other firms.
5. The practice of packaging and selling these CDOs had nothing to do with the collection and repayment of TARP money at Goldman.
6. Goldman has and will always comply with federal and state law – along with SEC regulation – associated with the packaging, buying and selling of securities.
That would have positioned the hearings as a mockery. But, Goldman either can't say those things, or (my opinion) they can and they were too slow to the draw. Either of which made yesterday inevitable.
Posted by: Michael D | April 28, 2010 at 12:49 PM
Great commentary, Michael.
You may have missed your calling as a PR counselor.
In theory, most of your points really make sense. Here's the problem though, the average joe or sally doesn't understand any of this. And, with congress, the administration and so many other groups who were hurt and consumers telling and listening to different versions of what really matters, I believe this stimulus would either go right over people's heads or simply been seen as very arrogant (or both). My point is that they couldn't win with these messages.
Posted by: ed | April 28, 2010 at 02:10 PM
Ed,
The Goldman Sachs witch hunt is just one example of many.
"the average joe or sally doesn't understand any of this" is the foundation on why politics is becoming one dimensional where politicians continue to point fingers and place blame elsewhere, but themselves.
The first rule for many politicians is to secure reelection, and for congressmen and women that means every two years. To secure a substantial amount of financing for your campaign, you need to side with your political party and what is best for the party, not necessarily what is best for your constitutes.
It's a shame that politics has become a game where winners and losers are sought rather than cooperation and mutual successes based on thought out and intelligent public policy.
Posted by: Milin Shah | April 28, 2010 at 04:39 PM