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Monday 8 March 2010
Time for Goldman to Come Clean
Even mighty Goldman Sachs makes mistakes. The Wall Street bank’s decision to help Greece keep some of its debts hidden from public view in 2001 was one of them.
Even mighty Goldman Sachs makes mistakes. The Wall Street bank’s decision to help Greece keep some of its debts hidden from public view in 2001 was one of them.
The arrangement, which allowed the Greek government to present accounts that understated the state’s liabilities by 1.6 percent of its gross domestic product, wasn’t illegal or against any regulations, and it was approved by Europe’s statistical authorities. But helping a client reduce the transparency of its finances is ethically questionable. For its own sake, as well as that of its shareholders, it’s time for Goldman to admit that it compromised its principles.
At the time, it may have seemed that the deal’s goal, comforting Greece’s fellow members of the euro zone, justified the means. In retrospect, it’s hard to reconcile such financial alchemy with Goldman’s expectation that its people comply fully with the “letter and spirit of the laws, rules and ethical principles that govern us.”
True, Goldman, which carefully considers the ethical and reputational risks of individual transactions, wasn’t the only firm in this situation. Other banks helped governments exploit the European Union’s weak fiscal governance. But Goldman regards itself as the standard setter, demanding “high” ethical standards of its people and eschewing the herd mentality.
It can be argued, too, that Goldman followed its overarching business principle that client interests always come first. And it certainly remained faithful to another tenet: that the firm should strive for creativity. It’s also true that there have been almost no complaints about this transaction until now.
Such considerations underlie Goldman’s public explanations to date of the deal. That’s all in tune with Goldman’s general post crisis message: We have done little wrong and many attacks directed at us are sour grapes.
Outsiders, however, are much more critical — a fact that Goldman ignores at its peril. Even Ben S. Bernanke, the Federal Reserve chairman, who is regarded as generally sympathetic to Wall Street, has raised questions about Goldman’s role in the Greek fiasco.
Humility may not come easily to Goldman, but it can be the most creative — and effective — response to criticism. Goldman’s longer-term interests would be best served by admitting that, on this occasion, dedication to client service and creativity got the better of its judgment, something it won’t let happen again.
Such an admission wouldn’t reflect well on Goldman’s client, the Greek government. But the fact that Greece fudged its finances is hardly under debate. At the very least, Goldman could admit that a better option would have been to advise against such a deal.
Fickle Forex Traders
Currency buyers are suffering from King Lear’s dilemma. Shakespeare’s monarch could not decide which of his two ungrateful daughters was the less awful. Lear complained that “when others are more wicked, not being the worst stands in some rank of praise.” Foreign exchange dealers know the feeling.
Only a few weeks ago, they were mostly worrying that the mix of huge fiscal deficits in the United States, political gridlock and tepid economic recovery would undermine the dollar. The euro looked less awful. The region’s sluggish recovery and seemingly expensive currency were offset by a positive trade balance and signs of fiscal discipline.
But then the woes in Greece and other weak euro zone members came to the fore. Forex traders began listening to the euro sceptics, who had long been predicting the single currency would split. Big bets were placed against the euro, while the United States, for all its long-term weaknesses, looked a safer place to spend a few weeks.
Lear had only two wicked daughters, Goneril and Regan. But there are more ugly sisters in the currency world. The pound still counts as a major currency, though maybe not for long if worries increase about huge deficits and the prospect of a hung Parliament in the coming election. Since Feb. 15, the pound has fallen 2 percent against the weak euro.
For now, the yen could most resemble Cordelia, Lear’s virtuous daughter. But Japan seems locked in permanent recession and some currency gurus say the overly indebted government will meet a disastrous end.
Currency traders generally welcome the volatility generated by rotating fears. It would be foolish to assume the worst news will continue to come out of Athens. There are enough problems around the world that the euro’s time as the ugliest princess is likely to be brief.
2 comments:
Time for Goldman to Come Clean
CHRISTOPHER HUGHES and EDWARD HADAS
01 March 2010
Even mighty Goldman Sachs makes mistakes. The Wall Street bank’s decision to help Greece keep some of its debts hidden from public view in 2001 was one of them.
The arrangement, which allowed the Greek government to present accounts that understated the state’s liabilities by 1.6 percent of its gross domestic product, wasn’t illegal or against any regulations, and it was approved by Europe’s statistical authorities. But helping a client reduce the transparency of its finances is ethically questionable. For its own sake, as well as that of its shareholders, it’s time for Goldman to admit that it compromised its principles.
At the time, it may have seemed that the deal’s goal, comforting Greece’s fellow members of the euro zone, justified the means. In retrospect, it’s hard to reconcile such financial alchemy with Goldman’s expectation that its people comply fully with the “letter and spirit of the laws, rules and ethical principles that govern us.”
True, Goldman, which carefully considers the ethical and reputational risks of individual transactions, wasn’t the only firm in this situation. Other banks helped governments exploit the European Union’s weak fiscal governance. But Goldman regards itself as the standard setter, demanding “high” ethical standards of its people and eschewing the herd mentality.
It can be argued, too, that Goldman followed its overarching business principle that client interests always come first. And it certainly remained faithful to another tenet: that the firm should strive for creativity. It’s also true that there have been almost no complaints about this transaction until now.
Such considerations underlie Goldman’s public explanations to date of the deal. That’s all in tune with Goldman’s general post crisis message: We have done little wrong and many attacks directed at us are sour grapes.
Outsiders, however, are much more critical — a fact that Goldman ignores at its peril. Even Ben S. Bernanke, the Federal Reserve chairman, who is regarded as generally sympathetic to Wall Street, has raised questions about Goldman’s role in the Greek fiasco.
Humility may not come easily to Goldman, but it can be the most creative — and effective — response to criticism. Goldman’s longer-term interests would be best served by admitting that, on this occasion, dedication to client service and creativity got the better of its judgment, something it won’t let happen again.
Such an admission wouldn’t reflect well on Goldman’s client, the Greek government. But the fact that Greece fudged its finances is hardly under debate. At the very least, Goldman could admit that a better option would have been to advise against such a deal.
Fickle Forex Traders
Currency buyers are suffering from King Lear’s dilemma. Shakespeare’s monarch could not decide which of his two ungrateful daughters was the less awful. Lear complained that “when others are more wicked, not being the worst stands in some rank of praise.” Foreign exchange dealers know the feeling.
Only a few weeks ago, they were mostly worrying that the mix of huge fiscal deficits in the United States, political gridlock and tepid economic recovery would undermine the dollar. The euro looked less awful. The region’s sluggish recovery and seemingly expensive currency were offset by a positive trade balance and signs of fiscal discipline.
But then the woes in Greece and other weak euro zone members came to the fore. Forex traders began listening to the euro sceptics, who had long been predicting the single currency would split. Big bets were placed against the euro, while the United States, for all its long-term weaknesses, looked a safer place to spend a few weeks.
Lear had only two wicked daughters, Goneril and Regan. But there are more ugly sisters in the currency world. The pound still counts as a major currency, though maybe not for long if worries increase about huge deficits and the prospect of a hung Parliament in the coming election. Since Feb. 15, the pound has fallen 2 percent against the weak euro.
For now, the yen could most resemble Cordelia, Lear’s virtuous daughter. But Japan seems locked in permanent recession and some currency gurus say the overly indebted government will meet a disastrous end.
Currency traders generally welcome the volatility generated by rotating fears. It would be foolish to assume the worst news will continue to come out of Athens. There are enough problems around the world that the euro’s time as the ugliest princess is likely to be brief.
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