The greed of Goldman Sachs

Posted on: 22 April 2010 by Mark O'haire

Whichever government comes to power, they need to investigate the business practices and ethics of banks such as Goldman Sachs. Their greedy behaviour has cost us taxpayer billions!

Some of you may have picked up the news that Goldman Sachs, the New York-based investment bank have been accused of fraud by the SEC (Securities Exchange Commission) – the US equivalent of our FSA. The charges relate to the sale of Bond packages of sub-prime mortgages to investors around the world.

The accusation is that Goldman’s sold these bonds in the knowledge that there was a very good likelihood that the bonds were dropping in value. It is further alleged that Goldman’s knew that the Paulson hedge fund was going to bet on these bonds dropping in value. They did! As a consequence two banks (ABN Amro and IKB) who bought these bonds, lost £940million! The hedge fund made £1billion!

Today the FSA in the UK announced that they’d taken away the dealing license from one of the traders involved and has launched a full scale investigation over here. Now this is all very bad news for the shareholders in Goldman Sachs – already their shares are falling and will go through the floor if the allegations are proved. It might even mean curtains for the company if there is a global loss of confidence in the company - as happened to the accountants Arthur Anderson when Enron collapsed in 2001.

If these charges are proved the consequence to the wider financial markets will be monumental. Having had the collapse of the retail banking sector two years ago, the last thing anyone needs is the collapse of the world’s largest investment bank. If Goldman is pulled under by this scandal then more may follow and put the whole investment market into meltdown.

The knock on effect to the wider commercial world could end in business closures, restrictive availability of capital and the overall loss of business confidence worldwide.

What are the chances of this happening? High!

Investment banking is based on trust and confidence and once you lose that, your old clients and any potential new ones will run for the hills. Businesses like this could literally vanish overnight. What’s really scary though is Goldman’s announcement this week, that their bonus pool to staff for the first three months of the year is an unbelievable £3.6billion - or £108,000 per employee!

Charges (proved or unproved) there is surely something wrong with this despotic level of reward, especially considering most of the money has been made from world governments as they pumped billions of dollars into the banking system - the very same system that was brought to its knees by these investment banks!

For once I agree with Gordon Brown when he said that Goldman’s were facing ‘moral bankruptcy’! Whichever government comes to power they should investigate the business practices and ethics of these banks and bring in legislation to prevent this sort of behaviour in future. This greed has cost us the taxpayer billions!

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