Will Goldman’s Scandal Prompt Cultural Changes on Wall Street?
Updated July 15, 2010 – 3 p.m.
On the same day Congress passed sweeping financial-reform legislation, Goldman Sachs & Co. agreed to pay $550 million to settle fraud charges. The charges accused Goldman of fraud in mortgage investments. That includes $300 million in fines assessed by the Security and Exchange Commission – the largest in SEC history.
The remaining balance of $250 million goes to the victims.
You might recall that Goldman’s mortgage-related investments were designed with participation by a Goldman client, Paulson & Co. Paulson bet those investments would not succeed, and they didn’t.
Goldman is now forced to assess its procedures in such financial mortgage deals. The catalyst was the investments that cost investors nearly $1 billon, but the deal netted Paulson huge sums of money. It was also part of the mega mortgage meltdown that helped to exacerbate the nation’s economic downturn.
“This settlement is a stark lesson to Wall Street firms that no product is too complex, and no investor too sophisticated, to avoid a heavy price if a firm violates the fundamental principles of honest treatment and fair dealing,” said Robert Khuzami, the SEC’s enforcement director.
A federal judge in New York will rule on the settlement.
The case against Goldman gathered steam when a published report added impetus to fraud allegations against Goldman. The Sacramento Bee alleged Goldman secretly worked to dump “billions of dollars in risky mortgage securities and buy exotic insurance” in anticipation of the housing bubble. But the report said Goldman hid its actions from the Securities and Exchange Commission for nine months in 2007 (“Goldman didn’t disclose its subprime mortgage hedges”).
At issue: Opponents eventually proved that Goldman’s gambling was so relevant – investors would not have bought Goldman’s offerings.
The furor over that controversial 2007 mortgage derivatives deal underscores the fear of many Americans that the market is rigged against them because Wall Street is a haven for questionable behavior.
The Security and Exchange Commission’s triumph over Goldman’s handling of the collateralized debt obligation (CDO) in subprime mortgages shows the Wall Street sheriff is back and is flexing some muscles.
Furthermore, Goldman’s failure to disclose that a hedge fund manager, John Paulson, helped select the underlying securities and then bet against them to make more than $1 billion is bad enough.
It’s looked even worse after Bloomberg reported Goldman knew it was under investigation for nine months but failed to disclose the investigation in their financial reports to investors.
Such omissions triggered the shareholder legal action.
The resulting headlines are reminiscent of the financial-greed scandals involving the 1980’s shadowy behavior of convicts Mike Milken and Ivan Boesky, as well as the principals at Enron and Worldcom.
Several questions have arisen:
- Is the SEC action really the tip of the iceberg of upcoming legal challenges?
- Will it lead to a stock market correction?
- Will it end the entitlement attitudes seemingly held by many investment bankers?
- Will it improve the culture in the financial sector?
This case was an ideal situation for New York’s litigious community.
It led to a decline of Goldman shares – 13 percent – as well as the shares of other financial companies trading in CDOs, including Deutsche Bank AG, Morgan Stanley, Bank of America (the parent of Merrill Lynch) and Citigroup.
In addition, a Chicago online publication, ProPublica, reported on questionable bets by Magnetar and allegations of conflicts of interest by the latter three financial firms. Magnetar denied culpability and none of the three banks denied or commented on the allegations.
Indeed, the same day that the SEC acted against Goldman, April 16, a Dutch bank leveled similar charges against Merrill Lynch. Cooperatieve Centrale Raiffeisen-Boerenleenbank BA, or Rabobank, cited Merrill Lynch in a $1.5 billion CDO.
Sadly, regarding Wall Street’s entitlement attitudes and culture, the consequences might not be severe enough to prompt an attitude adjustment.
Not to be cynical, here’s the bottom-line question: Are there enough moral compasses on Wall Street to put a stop to the chicanery? Probably not.
From the Coach’s Corner, for more on Sen. Cantwell’s efforts, see “Sen. Cantwell Is Right to Question Risky Derivative Dangers, Geithner.”
30 Time Management, Stress Reducing Skills
Updated May 10, 2010
OK, so you didn’t get a bailout, but Goldman Sachs faces a fraud investigation and paid $20 billion in bonuses just one year after taxpayers rescued the firm with a massive cash transfusion. If you’re a Main Street businessperson, the firm’s behavior is likely to contribute to your stress factors.
Moreover, published reports indicate the firm now disingenuously tries to justify its bonus program by claiming it didn’t need the taxpayer bailout. You might recall it was engineered by former Treasury Secretary Henry Paulson, a Goldman Sachs alum. Where is their moral compass you wonder?
And you might not be convinced the U.S. is embarking on an economic recovery. Many economists are calling it a jobless recovery, but with respect for their opinions, the phrase is actually an oxymoron.
The economy will continue to be difficult with many economic stress factors.
They include:
- Tight credit
- Layoffs
- Rapacious behavior by many credit card companies
- Natural disasters
- Home foreclosures
- Bankruptcies
- Health care costs
- Declining profit
- College tuition
And such factors make businesses reluctant to take bold measures to invest in their future with needed equipment, marketing and training their workers. It’s time for performance solutions.
Start by reducing stress and saving time. Why?
Executives and workers, alike, feel powerless over most of stress factors. Indeed, the 2007 American Psychological Association study, “Stress in America,” had some startling conclusions (www.apa.org). The study is relevant years later.
For example, 74 percent cited work stress, 73 percent had money worries and 66 percent complained about their workloads.
Pressure turns into stress for many.
Trauma in your personal life can affect your business and career. Short of psychotherapy or meditation, time-management skills are a solution.
Here are 30 ways to reduce stress:
- Identify your stress factors and take steps to eliminate them. Whether it is nasty surprise letter from the IRS, credit-card company predatory behavior, or a complaint from your best customer, do what you can to solve the problem quickly so you can move forward. Paraphrasing a philosophy of former President Gerald Ford, clear the table and move forward.
- Know your capabilities and limitations. Don’t take on too much.
- Find a trustworthy person with whom you can vent and give you empathetic feedback when asked.
- Understand when you need to say “no.”
- Get refreshed by taking regular breaks, vacations, recreation and exercise. And when you can, a simple walk will work wonders.
- Set time limits and goals for meetings.
- Review your long range goals. Frequently during your work day, ask yourself: “Is this helping me to reach my goals?”
- Record and analyze how you spend your time.
- Make sure the first hour of every day is the most productive. Tackle the hardest task first. The rest of the day will seem like a walk in the park.
- Practice excellence in every responsibility. Do the very best you can and you will prevent regrets.
- Do everything gently. As famed entertainer Hoagy Carmichael once said, “Slower motion gets you there faster.”
- Remember: If you don’t take the time to do it right, when will you have time to do it over?
- Instead of “post-it notes”, put all the necessary folders away in the appropriate file drawers. Once the clutter is off your desk, the “to do” list serves as the master organizer.
- Look for progress – not perfection.
- Plan your time. Make your “to do” list by Friday for the following week. If you’re in sales, have your list ready by Thursday.
- Review the next day’s schedule before going home each night.
- Prioritize your work: A, B, or C. Your A duties get done first – immediately.
- Learn how to structure your e-mail system for maximum efficiency.
- Eat the right foods for sustained energy.
- Get enough sleep. If you feel tired by mid-day, ask your doctor for a sleep study. Insomnia and sleep apnea routinely lead to high blood pressure and even strokes.
- Make your work fun.
- Learn from baseball player Ichiro and do stretching exercises.
- Listen to the right music. For many successful people that means classical music.
- Look around to help someone who is less fortunate. Volunteerism is gratifying.
- Learn breathing techniques.
- If you commute to work, consider mass transit and take a good book to read.
- Review inspiring thoughts, such as “No matter what, there are no big deals.” Taking the emotional sting out of your reactions to events will help. Learn to respond, not react.
- Develop positive affirmations about yourself, keep your notes handy, frequently review them and rehearse them in front of the mirror.
- Remember, the remedy for depression is action.
- Become more active socially. Yes, that’s a time management skill. If you are not alone, you are not lonely. Loneliness contributes to stress.
Get busy and you’ll soon feel ready to take on the world and head toward to profits. Start investing in your future with needed equipment, marketing and training of workers. And talk with your public officials about policies that will improve the nation’s economic health and create jobs.
From the Coach’s Corner, for related career tips, here is another Biz Column: