Goldman Sachs: Greed over Ethics?
Goldman Sachs is one of the biggest investment banks in the world. It is also probably the most controversial one. The American banking crisis in 2008 had not only affected the US economy, but its impact was felt worldwide. However, ironically enough, investment banks like Goldman Sachs which were responsible for the crisis ended up making lot of money out of it.
In 2010, the Security and Exchange Commission accused Goldman Sachs of committing security fraud and misleading investors with Abacus 2007-AC1. The SEC claimed that Goldman Sachs sold mortgages at inflated prices which they felt were going to fail to their clients and then bet against those mortgages. So, Goldman finally had to pay around $550 million to settle the charges. This was the largest fine levied in the history
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Goldman created “a synthetic co-lateralized debt obligation” known as Abacus 2007-AC1 which was based on bonds derived from subprime mortgage loans. Goldman invited its clients to invest in Abacus. So, if the people whose mortgages made up the bonds made their house payments periodically, those who had invested in Abacus (insurance companies like AIG, banks etc.) would make money. The assumption which was made here was that the borrowers would not default on their payments.
The SEC claims that Abacus included the worst possible assets handpicked by Goldman Sachs and John Paulson, a hedge fund manager. Thus, Goldman Sachs bet against the securities which it sold. So, according to the SEC, Goldman Sachs made money by betting against its own clients. The bank collected almost $7 billion from AIG in just one year before the crisis. Goldman thus profited and encouraged the collapse of the housing crisis. Also, it’s a fact that after the crisis, Goldman Sachs received approximately $12.9 billion out of the total taxpayers’ money which was used to bail out AIG as they were considered “Too Big to
The Robber Barons, as they were called, were the kings of American Industry and American Society during the late 1800's and early 1900's. Rich beyond the average man's wildest dreams, these industrialists were often criticized for their philosophies and their ways of making money. Robber Barons can also be viewed as immoral, greedy, and corrupt, and the evidence to support such a view is not difficult to find. Bribery, illegal business practices, and cruelty to workers were not uncommon in this period, and many of the most respected industrialists were also the most feared and hated.
When the names Carnagie, Rockefeller, and Pullman come to mind, most of us automatically think of what we saw or read in our history books: "These men were kind and generous and through hard work and perseverance, any one of you could become a success story like them," right? Wrong. I am sick of these people being remembered for the two or three "good deeds" they have done. Publicity and media have exaggerated the generosity of these men, the government has spoiled these names with false lies, and people have been blind to see that these men were ruthless, sly businessmen who were motivated by your money and their struggle for power.
Jake Clawson Ethical Communication Assignment 2/13/2014. JPMorgan Chase, Bailouts, and Ethics “Too big to fail” is a theory that suggests some financial institutions are so large and so powerful that their failure would be disastrous to the local and global economy, and therefore must be assisted by the government when struggles arise. Supporters of this idea argue that there are some institutions that are so important that they should be the recipients of beneficial financial and economic policies from government. On the other hand, opponents express that one of the main problems that may arise is moral hazard, where a firm that receives gains from these advantageous policies will seek to profit by it, purposely taking positions that are high-risk, high-return, because they are able to leverage these risks based on their given policy. Critics see the theory as counter-productive, and that banks and financial institutions should be left to fail if their risk management is not effective.
The decades after the Civil War rapidly changed the face of the United States. The rapid industrialization of the nation changed us from generally agrarian to the top industrial power in the world. Business tycoons thrived during this time, forging great business empires with the use of trusts and pools. Farmers moved to the cities and into the factories, living off wages and changing the face of the workforce. This rapid industrialization created wide gaps in society, and the government, which had originally taken a hands off approach to business, was forced to step in.
Pitzer, Matt. "The Case Against Goldman Sachs." Last modified 04/21/2010. Accessed October 5, 2011. http://www.business.missouri.edu/ifmprogram/reports/2010WS/GS.doc
Bernard Madoff had full control of the organizational leadership of Bernard Madoff Investments Securities LLC. Madoff used charisma to convince his friends, members of elite groups, and his employees to believe in him. He tricked his clients into believing that they were investing in something special. He would often turn potential investors down, which helped Bernard in targeting the investors with more money to invest. Bernard Madoff created a system which promised high returns in the short term and was nothing but the Ponzi scheme. The system’s idea relied on funds from the new investors to pay misrepresented and extremely high returns to existing investors. He was doing this for years; convincing wealthy individuals and charities to invest billions of dollars into his hedge fund. And they did so because of the extremely high returns, which were promised by Madoff’s firm. If anyone would have looked deeply into the structure of his firm, it would have definitely shown that something is wrong. This is because nobody can make such big money in the market, especially if no one else could at the time. How could one person, Madoff, hold all of his clients’ assets, price them, and manage them? It is clearly a conflict of interest. His company was showing high profits year after year; despite most of the companies in the market having losses. In fact, Bernard Madoff’s case is absolutely stunning when you consider the range and number of investors who got caught up in it.
The Great Recession of 2007 – 2009 enlarges the longest financial crisis since the Great Depression of 1929 – 1932 that damaged the economy. The causes of the Great Recession all started as hundreds of billions of dollars were given to the United States abroad and financiers conceiving were to make a profit and what better way but the real estate market. Since the Community Reinvestment Act of 1977 and an expansion made in 1995, the then President Bush endorsed the program that created Option adjustable rate mortgages (nick-named “Pick-A-Pay”) to allow banks to sell these options even though they were high risk (Conservapedia, 2013). The Community Reinvestment Act of 1977/95 is defined as “to framework financial institutions, state and local governments, and community organizations to jointly promote banking services in the community” (Office of the Comptroller of the Currency, n.d.). That being said, there were three individuals, and firms that contributed the most to the recession, including Senator Charles Schumer D-NY, Fannie Mae, American Insurance Group (AIG), Goldman Sachs, Merrill Lynch and Morgan Stanley....
Preston, A. (2012). You eat what you kill: from scandal to catastrophe, the rise and fall of the investment bank. New Statesman, 141, 22
middle of paper ... ... They had complete disregard for ethical standards that they should have looked towards when making their decisions. They allowed greed, and notoriety, to take over their basic perceptions of what is right, and what is wrong. So in conclusion, I have provided my analysis of ethical behavior that surrounded the financial events of Bernie Madoff, and the events that surrounded Enron.
Greg Smith was an executive director for Goldman Sachs business for the past 12 years. Working for Goldman Sachs was a great experience for Smith until witnessing the company changes turn for the worse. Smith states the three organizational problems that caused him to quit his job at Goldman Sachs was due to the lack of culture, integrity and leadership the company no longer possessed. Smith felt culture was always an important part of Goldman Sachs’s success. He states the company revolved around teamwork, integrity and always doing right by their clients.
In 2008 the worst financial crisis since the great depression hit and left many people wondering who should be responsible. Many Americans supported the prosecution of Wall Street. To this day there have still not been any arrests of any executive on Wall Street for the financial collapse. Many analysts point out that greed of executives was one of the many factors in the crisis. I will talk about subprime loans, ill-intent, punishments, and white collar crime.
Enron started about 18 years ago in July of 1985. Huston Natural Gas merged with InterNorth, a natural gas company. After their merge they decided to come up with a new name, Enron. Enron grew in that 18-year span to be one of America's largest companies. A man named Kenneth Lay who was an energy economist became the CEO of Enron. He was an optimistic man and was very eager to do things a new way. He built Enron into an enormous corporation and in just 9 years Enron became the largest marketer of electricity in the United States. Just 6 years after that, in the summer of 2000 the stock was at a tremendous all time high and sold for more than 80 dollars a share. Enron was doing great and everything you could see was perfect, but that was the problem, it was what you couldn't see that was about to get Enron to the record books.
... middle of paper ... ... The forced liquidation of some $3 trillion in private label structured assets has been deprived from the financial markets and the U.S. economy has obtained a vast amount of liquidity that the banking system simply cannot restore. It is not as easy to just assign blame within these cases, however it is noted that the credit rating agencies unethical decisions practices helped add onto the financial crisis of 2008 and took into account the company’s well-being before any other stakeholders.
In “The Big Short”, directed by Adam McKay, corruption within the banking sector and housing industry during the early 21st century became evident to the main characters. The movie explains one tactic used by the fraudulent bankers and private sector called a CDO (Collateralized Debt Obligation), stating that the “...[the banking sector] take a bunch of B’s, double B’s, and triple B’s that haven’t sold and put them in a pile. When the pile gets large enough, the [CDO] is considered diversified. And then the...rating agency gives it a 92-93 triple A rating, no questions asked...” (McKay, "The Big Short").
Eight years ago, the world economy crashed. Jobs were lost, families misplaced, hundreds of thousands of people left shocked and confused as they watched the security of their world fall to pieces around them. In, “The Big Short,” a film directed by Adam McKay and based on the book written by Michael Lewis, viewers get an inside perspective on how the financial crisis of 2008 really happened. Viewers learn the truth about the unethical actions and irrational justifications made by those who unwittingly set the world up for failure. Two main ethically tied decisions are brought into question when watching the film: how could anyone conscionably make the decision to mislead investors by misrepresenting mortgage backed securities (MBS), and why