Goldman Sachs is just being the poster boy for all the conflict of interest activities that investment banking firms are involved in everyday. This is the same kind of activities that we saw investment banking firms doing in the late 90’s as they underwrote and sold product. “The product was new and complex but the deception and conflicts are old and simple,” said Robert Khuzami, Director of the Division of Enforcement of the SEC. He also said”Goldman wrongly permitted a client that was betting against the mortgage market to heavily influence which mortgage securities to include in an investment portfolio, while telling other investors that the securities were selected by an independent, objective third party.”
. Why do they do these activities? The answer is simple, because they can and it is very profitable for them to do so.
We saw and heard CEO Chairman of Goldman tell the financial services industry that they just create products that investors seek. They take no responsibility for due diligence, disclosure, or basic analysis of the instrument they create.
An investment bank makes its money selling the bond, IPO, CDO, secondary offering, private equity deals, hedge fund offerings to trade their creations, mutual funds, annuities, security lending, custodial services, prime brokerage, and more. They act as government and municipal bond underwriters selling you bonds in municipalities that have questionable prospects of paying back the debt except other than issuing more debt. They own interests in rating agencies, stock, commodity and option exchanges. They own alternative trading systems, option exchanges, and make markets in stocks.
Offering debt on debt through CDO’s and CDS’s without regard to value or investment benefit is like Las Vegas coming up with 101 ways to take proposition bets in the Super Bowl.
This gambling mentality and debt creation almost brought down the world’s financial system and they continue to work on ways to get around credit card regulations and other spirit of the law regulations. They keep lobbying congress to leave them alone and allow free enterprise.
Financial reform has no provisions to stop these conflicts of interest. The banks are happy to have the very watered down financial reform proposals become law. .
They even will manage your wealth as your investment advisor. Is there a possible conflict of interest?
When looking for an investment advisor, find an independent advisor not attached to an investment bank or creator of products.