If you had to pick something that marked the turning point for the financial community, you undoubtedly would choose the scandal surrounding that leading Wall Street firm, Goldman Sachs.
While they might be innocent of violating any law until proven guilty, the lack of ethics and morality illustrated by that firm’s conduct will prove to be a seminal event.
It is well known by now that Goldman Sachs sold a bundle of underfunded mortgages, conscious that the entire package would be worthless. The buyers lost about $1-bi1lion, but the sellers claimed it was not their responsibility. An economist with Bloomberg News, Ben Stein, wrote that, “This is simply the worst behaviour in finance by a large firm that I have seen.” Later on, it transpired that Goldman sold that package short – in other words, sold it hoping to repurchase it at a lower price and amass a large profit.
The investment industry for some time has been buying up and bundling those risky subprime mortgage loans into highly profitable (for the brokers) securities and selling them to unsuspecting investors.
Unfortunately, this type of misconduct is not an isolated case, as the finance industry is riddled with corruption. What is surprising is the securities industry’s short-term concerns are so overpowering it is forgotten that actually is contrary to its long-term interests.
Complicit have been bond-rating agencies such as Standard & Poor’s and Moody’s. They failed miserably to appraise the securities under review. Some securities they highly rated did not undergo a complete examination. They merely wished to win the goodwill of the firms peddling those issues – and to be compensated for that.
Conflicts of interests abound in the industry; it must make its transactions more transparent. Sales personnel repeatedly place their own orders ahead of those of a client’s, thus capitalizing on that pending transaction. Also, many sales personnel benefit from inside information, a violation of the law that is seldom prosecuted.
Many firms’ employees receive huge bonuses, with little correlation to the value of their contributions to society or even to the industry.
All this idiocy and negligence were, in large part, to blame for last year’s financial collapse.
Clearly, the financial industry needs a major overhaul. The recent examples of misconduct must not occur again. Also, the character of the people coming into the business must change.
There has not been sufficient care taken about the employees hired. Then, the industry once again must begin to work for the clients’ best interests and thereby restore integrity to the financial sector – one that is at the core of the economy.