Sense on Cents

It takes money to make money.

Simple business principle, correct? A basic, fundamental business tenet, right?

Well if the money it ‘takes’ is used to pay inordinate fines and penalties resulting from management’s willingness to jeopardize reputation and principle in pursuit of profit, what does that say about the business enterprise itself?

Will the $550 million fine recently imposed on Goldman Sachs fundamentally change the manner in which Goldman engages clients and operates its business? I have chuckled more than a few times upon reading that Goldman’s mortgage employees involved in the structuring, trading, and sales of the securities at the center of this entire debacle will have to undergo continuing education type classes. These classes are truly nothing more than a ‘check the box’ perfunctory exercise. Honestly, I would love to be a fly on the wall during these classes as I am sure some of the material covered and accompanying discussions would provide real comedic fodder.

The Financial Times addresses this topic in writing Slapped Wrist and Back to Business for Goldman:

…the penalty levied on Goldman, equivalent to a couple of weeks’ profits, is unlikely to have a deterrent effect on the rest of the financial industry.

Robert Khuzami, the SEC’s enforcement chief, called it “a stark lesson to Wall Street firms that no product is too complex, and no investor too sophisticated, to avoid a heavy price”. But the reality is that most banks would gladly give up less than a month’s profits to get rid of the regulators. As one banker told me last week: “It’s just the cost of doing business.”

After the most devastating crisis in generations, taxpayers and investors had the right to expect more than this business-as-usual kind of justice.

The cost of doing business? That is how the industry views this fine on Goldman Sachs? If so, I guess I could have entitled this commentary “If you’re not cheating, then you’re not really trying.”

Goldman Sachs continues to have a serious issue with its reputation. I highlighted this very point on CNBC last March (video clip here) and I reiterate it again today.

LD

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This entry was posted on Wednesday, July 28th, 2010 at 7:15 AM and is filed under General, Goldman Sachs. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.