Just as we thought the recession was over and that economies around the world had turned the corner we are witness to charges of fraud against Goldman Sachs and the potential default on the massive debt owed by Greece. As I have often written, many of the economic issues have less to do with economics and much more to do with ethics. The problems besetting Greece appear to be rooted in an ethic of entitlement; people demanding the right to continued high level of services regardless of the ability of the country to afford them. As has been noted, 15 years ago Canada and Greece had similar debt levels. Canada wisely chose the path of cutbacks, restraint and balanced budgets. Greece did not. There was some short term pain in Canada but today we are the economic envy of the world (which highlights how bad it is for many others) and Greece is in danger of going bankrupt.
Goldman Sachs is the most successful investment bank in the world. Whether part of the success is a result of illegal activity in their soliciting of investors is something that we may never know. While any legal outcome will be greatly significant for Goldman Sachs it is the moral conduct that should concern us. So long as making money in every which way—barring outright illegality—is the only goal that really matters we will continue to see innocents suffer and quality of life issues receive scant attention. While many businesses have recognized the importance of promoting a proper work life balance much of the professional investing world has not.
What is most interesting is that while Pete Rose is barred form the Baseball hall of fame—despite unquestionably having a baseball career that warrants such induction—because he bet either on games involving other teams, or bet on his own team, to win. He has become persona non grata as the 1919 “black sox scandal” is still fresh in the memory of baseball authorities. Yet many in the investment world have come to the defence of Goldman Sacks. This despite the fact that the recommendations of which stocks to purchase, came from those who were actually betting against these very same stocks that they were recommending.
From the perspective of Jewish law there is nothing inherently wrong with betting against one’s clients—provided such “bets” are revealed to the investing public. Let the investor decide if they would like to invest with advisors who don’t have confidence in their own recommendations (with the track record of many advisors the answer may very well be yes). We do not subscribe to the view that people should put their money where their mouth is, that the interests of professionals need be aligned with their clients.
In conducting business with others one should be looking out for their own personal interests. It is in the realm of charity and acts of kindness when the interests of others should be paramount. The business world must be run with integrity, transparency, clarity and forthrightness but Milton Friedman’s motto that the business of business is business is not far off the mark. One may be prohibited from using business profits for charitable purposes, or for retaining staff who do not contribute to the ongoing success of the business. While one may do so—as an act of charity if one the sole proprietor—doing so for a public company or a non profit is misapplication of benevolence. One cannot be nice to someone at a third party’s expense. Goldman Sachs may be correct in asserting their innocence; they may have done nothing legally wrong. And that is the crux of the problem.
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