I’ve been pondering the role of Goldman Sachs in the transactions that Senator Levin objected to during recent hearings of the Senate Governmental Affairs Subcommittee on Investigations. Did sales personnel for Goldman Sachs, when offering certain securities at a particular price, owe an obligation to the potential buyer to inform that the price might be too high?
Senator Levin seems to think so, but the business folks at Goldman Sachs seem to think not. Levine kept saying, you were offering a “sh*tty” deal. Goldman Sachs personnel responded, buyers are the judge of a deal’s value given the time and place. Senator Levin, please wash your mouth out with soap!
Various senators kept saying during the hearing, you have a fiduciary responsibility. Goldman Sachs personnel kept saying, not at at a market-justified price.
I have to side with Goldman Sachs (and Warren Buffet) on this one. No one expects a car salesman to have a fiduciary responsibility to a customer (best not to be a single female shopping for a car). No one expects a telemarketer to have a fiduciary responsibility to a customer. So why do politicians expect a securities dealer to have a fiduciary responsibility to buyers? I guess it’s because investors are assumed to be too stupid to look out for themselves.
And what if the market had turned up and Goldman Sachs had been the loser? The investors could have bragged about their great deals, and no one would have cared a whit about Goldman Sachs. Where’s the balance?
Yuval Millo (lecturer in the department of Accounting at the London School of Economics) has this to say over at the great academic site Socializing Finance: A Blog On the Social Studies of Finance in “Goldman Sachs: Orders of Worth Colliding“:
When Levin asks Sparks why Goldman Sachs hid from the customers their opinion of the value of Timberwolf (a product that an internal GS memo described as a ‘shitty deal’), Sparks answers that ‘there are prices in the market that people want to invest in things’. On another occasion exchange, when asked what volume of the Timberwolf contract was sold, Sparks answered: ‘I don’t know, but the price would have reflected levels that they [buyers] would have wanted to invest at that time’.
This reveals the incompatibility in its naked form. While Levin focused on the discrepancy between the opinions among Goldman Sachs’ employees about the value of the product and between the prices paid for these financial contracts, Sparks placed ‘the market’ as the final arbiter about matters of value. That is, according to this order of worth it does not matter what one thinks or knows about the value of assets, it only matters what price is agreed on in the market. Both Levin and Sparks agree that not all information was available to all market actors. However, while this is a matter for moral concern according to Levin’s order of worth, it is merely a temporary inefficiency according to Sparks’ view.
Moreover, the fact that this dialogue took place in a highly-visible political arena, a televised Congressional hearing, entrenches the ‘ideal type’ roles that Levin and Sparks play. Sparks, no doubt at the advice of his lawyers, played the role of the reflexive Homo economicus, claiming, in effect, that markets are the only device of distributional justice to which he should refer. Levin, in contrast, played the role of the tribune of the people, calling for inter-personal norms and practices of decency. These two ideal type worldviews, as Boltanski and Thevenot show, cannot be reconciled. What we call ‘the economy’, then, is oftentimes the chronology of the struggle between these orders of worth.
Well said, Yuval.
So was it a shitty deal? Yes, but only if viewed in hind sight. Tough luck if you bought those particular investments from Goldman Sachs. Do you deserve relief? No.
I have some garage junk you might be interested in.
Debit and credit – - David Albrecht