In his latest post about Goldman Sachs, Matt Taibbi points out that the investment bank has developed a record now of recommending that its clients buy various financial products at the same time that Goldman Sachs – coincidentally – is selling those products from out of its own accounts. Inevitably, Goldman Sachs’s turns out to have been wrong and those financial products tank . . . but Goldman Sachs makes out like a bandit by moving those assets off of its own books before they tank.
Taibbi’s post reminded me of something I’ve been meaning to write about for a while now, something that occurred to me when Goldman Sachs and the rest of the Big Money Boyz showed up a year or so ago to testify before Congress as to why their selling mortgage backed securities that they knew to be “shitty” wasn’t unethical. To a one, they all pointed out (i) that the people they were dealing with were “sophisticated investors” who “knew what they were doing,” (i) that these were “arm’s length transactions,” and therefore (iii) they had no responsibility to advise their customers that they personally considered these instruments to be “shitty.”
It always seemed to me that this defense rested on the investment banks’ fundamental unwillingness to acknowledge the real role they played as the creators of those mortgage-backed instruments: the role of the “market gatekeeper.”
