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Goldman’s Animal House

Posted by Larry Doyle on April 21, 2010 8:41 AM |

Trust. Would you know it if you saw it? Would you be able to distinguish real trust from the appearance of trust? Whom can you trust?

Wall Street is an industry in which trust is too often promoted, but too seldom practiced. When somebody would say to me “Trust me on this,” I would get increasingly concerned. Why? Real trust is a virtue which goes without saying.

On this note, Wall Street’s favorite punching bag Goldman Sachs is dealing with the most egregious violation of fiduciary responsibility: a violation of trust. Even if Goldman is cleared of the fraud charges brought by the SEC, Goldman is already guilty of a greater charge, that is, a violation of trust in being fully forthcoming in its disclosures.

Can we paint Goldman with a broad brush based on this specific situation? No, not every employee at Goldman Sachs would necessarily operate in this fashion. As an institution, however, global investors are gaining a clearer picture that Goldman’s management has willingly violated the principle of trust in order to profit. European nations and investors are beginning to turn on Goldman. Will the same occur here in the U.S.?

Will state pension funds move to cut off Goldman from their approved dealer lists? For those who may not recall, the slippery slope which brought about Drexel Burnham’s downfall was littered with state funds cutting off Drexel. That crisis turned into a massive vote of no confidence in the organization based on violation of trust.

While the boys in Animal House may be able to provide a few laughs at the expense of the impressionable Flounder, America is learning a lot more about the goings on at the fraternity known as Goldman Sachs. Will Goldman be placed on “double secret probation” by their friends in Washington? There is no reason why any of this needs to be secret as America issues its own verdict.

In an attempt to bring a little light humor to a serious situation, here’s a lesson about trust courtesy of the boys from Delta House:


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