Ethics: Goldman Sachs

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“Goldman Sharks Swimming in Grey Water”

Don Tram
Joel Valenti
Marcio Vandik
Christine Vanstrom

March 29th, 2012

Executive Summary

Goldman Sachs, founded by German immigrants, began as a small humble business looking to succeed. Over time their business strategy changed and they entered into ethical and legal issues they had not encountered before.

In the late 1920s Goldman Sachs began maliciously investing in companies to drive their demand. They coined this term “laddering” from overleveraging them selves and putting the market at risk. Their actions created the bubble that burst in the stock market crash of 1929.

Furthermore, Goldman Sachs engaged in “trading huddles”. Only their preferred customers where chose to participate on this unethical schemes, and the same customers were shot changed on financial profit from unprofitable IPO’s shares. It was clear that Goldman Sachs business focus was not customer based but self-based by the mantras that they use to have: “long-term greedy” and “Filthy rich by forty.”

In 2008 the market once again crashed equally as hard as in 1929 and Goldman Sachs was at the root of the cause. With self-fulfillment and greed in mind, Goldman Sachs used Collateralized Debt Obligations and bet against their clients to increase profitability. Goldman Sachs progressively became more unethical in their dealings, and the SEC took notice. Goldman was accused on two accounts of fraud because of one particular portfolio of securities, named ABACUS, which they dealt with.

After analyzing the case and reviewing the unethical actions and alleged accusations against Goldman Sachs, it is clear that Goldman Sachs was operating unethically. They misrepresented, hid information, and engaged in conflicts of interest with their clients. Goldman Sachs took an unfair advantage with their “toes to the line mentality” on their legal and ethical issues leading the SEC to establish harsher regulations for the banking industry.

Goldman Sachs can become more ethical by adopting Warren Buffet’s front page of the newspaper principles. When a firm finds that its employees needs to convince themselves that their work is adding social value, the firm should questions its ethical practices. The recommendation for a firm when they find themselves condoning unethical actions is to be honest with the regulating entity and its clients. It is likely to reward them in the long run despite the immediate consequences.

Goldman Sachs
Background

In 1869 two German immigrants came to the US and founded Goldman Sachs with the humble purpose of being both an originator and a clearinghouse for commercial paper (Jennings, 73). However, the firm started to gradually drift from its initial business strategy set by its founders and started to provide other services and undertook investment strategies. In the late 1920’s Goldman Sachs created investment companies that it would itself invest in to drive up the market demand. As a result, investors started to invest in the company because of the perceived high demand. With the new proceeds, Goldman would borrow more money and create another investment company and repeat the process. As a result of this action, Goldman contributed to the stock market crash in 1929 and, with a similar strategy, the recent financial crisis in 2008 (Jennings, 73). During the Internet bubble in the 1990’s, Goldman engaged in an activity known as laddering. Goldman, as the underwriter of a security, would enter an agreement with its best clients to sell a portion of IPO’s shares at a predetermined price after their initial offering. This led to a misconceived demand in the secondary market of the stock due to the predetermined secondary pricing Goldman had set with some of it’s clients. Furthermore, in the 2000’s, Goldman would sell Collateralized Debt Obligations, for which it had a negative outlook, to its clients and issue trading reports, developed through the existing...
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