The Golden Rules?

Yesterday I made a comment on Goldman’s ethical position. I want to clarify this today.

Specifically, I noted that Goldman’s negative bet on the housing market in 2006 was neither immoral, unethical, or illegal. Those are three separate considerations:

Legal is the easiest. While I can’t speak to the way they bet on housing, it looks like they used approved investment vehicles in an approved manner. By following the laws, they stayed “inside the lines.” Ethics has to do with standards of professional practice and fiduciary duties. As long as they remain objective, exercise due care, and put their clients first, they aren’t restricted from making market calls, either.

It’s in the question of morals that’s the rub. That’s because, as a pluralistic society, we have lots of competing moral frameworks out there. Morality tells you what’s right and what’s wrong. It could be as simple as “Thou Shalt Not Steal” or as nuanced as Kant’s Categorical Imperative: “What if everyone else did that”?

By some measures, Goldman’s bet on housing crossed the line. But there’s not enough agreement as to where that line is. What I would say is, profiting from a decline in housing didn’t cross any universally accepted moral lines. It’s unclear. Some firms, then, wouldn’t have made that bet. Ours wouldn’t. But to my view Goldman didn’t steal or mislead in order to profit from the market’s move. So I think most people wouldn’t begrudge them a successful strategy.

But I’ll admit that I’m a banker, judging another banker. I may be too generous. When the blind lead the blind, they both may stumble. Hopefully that ‘s not the case here.

Douglas R. Tengdin, CFA
Chief Investment Officer
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