I watched four hours of the Goldman Sachs Senate hearings yesterday evening. Mind-boggling to watch them continually skirt the question of fiduciary responsibility based largely on the rationale that 1) nobody knew for sure what would happen in the housing market, so they could not reasonably advise clients on related investments; and 2) as “market-makers” they just faciliate transactions.
 
I couldn’t get my mind off the topic even as I woke up this a.m. Inevitably, I started thinking about what I would have liked to say, especially to the Birnbaum, Sparks, Swenson, and Tourre crew. It goes something like this: 
 

“Gentlemen, the bottom line is that fiduciary responsibility has nothing to do with precognition.  No doctor, lawyer, board member, or financial advisor can predict the future. Yet all share a fiduciary responsibility to use their expertise to help clients make decisions that reflect their best interest.

 

It’s clear by your comments that none of you feel that this responsibility pertained to you in your supposed role as market-maker, despite the fact that your increasingly short positions in these deals clearly reveal that the group ultimately held an opinion on the value of the securities and underlying assets. That’s a very serious problem by itself – one that led many of your clients to lose immense amounts of money while you gained from betting on the other side. And it does not even begin to bring into consideration the potential manipulation of rating agencies and collusion with institutional clients who were helping you put together these ABS deals.”

 
What would you say? 
 
 
 

Posted via email from Human Ventures

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