Acton Research Director Samuel Gregg is quoted in yesterday’s Pittsburgh Tribune-Review editorial on Goldman Sachs:

The most shocking moment in Tuesday’s Senate hearing on Goldman Sachs wasn’t Sen. Carl Levin’s repeated use of the big investment house’s scatological description of its own dubious offerings.

No, it was when one of Goldman’s high cluckety-clucks actually said that it has no ethical responsibility to tell clients that it is betting against the same investments it recommends.

That really is (expletive deleted).

Samuel Gregg of the Acton Institute reminded in 2008 that it wasn’t merely loose monetary policy, massive bank overleveraging, the subprime mortgage implosion and government-backed social re-engineering programs that landed the economy in a pickle.

“(I)f the current financial upheaval teaches us anything, it should be how much market capitalism depends upon most people developing and adhering to some rather uncontroversial moral virtues.”

We are learning the hard way that “prudence, temperance, thrift, promise-keeping, honesty and humility — not to mention a willingness not to do to others what we wouldn’t want them to do to us — can’t be optional-extras in communities that value economic freedom,” says Dr. Gregg.

“If markets are going to work and appropriate limits on government power maintained, then society requires reserves of moral capital,” he adds.

It’s clear the financial sector has lots of work to do.

The Gregg quote is drawn from his October 2008 Acton commentary, “No Morality, No Markets.”


  • http://mmoretti.com mark

    It was said President Clinton had the “gift” of compartmentalization. He was able to park all his actions and troubles in different places without being concerned about where morality should intrude.

    We saw something of the same with Goldman’s weak explanation. It’s as if they put together on the 15th floor of HQ a product designed to fail for a client’s short play advantage and on HQ’s 16th floor sold the product to a client looking to make money going long. Thus, voila, no conflict of interest.

    Reading about the Goldman case, I couldn’t help but think of a scene from the old Crime Story TV show. I wrote about it here http://bit.ly/95ZRjh

  • Roger McKinney

    “…it has no ethical responsibility to tell clients that it is betting against the same investments it recommends.”

    The Goldman “high cluckety-cluck” was right. You have to understand the market and the instrument before you can make a judgment as to its morality. Goldman created a financial instrument that people could buy or sell. You would buy that instrument if you thought the housing market would continue to rise in price. You would sell it if you thought prices would fall. The buyers were not kindergarten children or your 80-year old grandmother. They were all sophisticated investors of large institutions. Most had advanced degrees in finance. If they didn’t know that some people were selling while they were buying, they need a straightjacket and a padded room.

    I listened to an interview with Warren Buffet in which he described how his company often insures those types of instruments. He said that he couldn’t care less who is buying or selling. He does nothing but calculate the value as best he can.

    The fact that some people were selling the instruments short did not mean that those instruments would fall in value. They fell in value because the housing market tanked. The short sellers did not cause the housing market to tank and they were a tiny minority in the total business.

    And it doesn’t help to use terms like “bet against” when discussing finance. That only encourages socialists to proclaim all of finance and the free market just one big casino. Investors don’t bet. Gambling requires pure randomness, such as you find in dealing cards or rolling dice. There is nothing about dice or cards that one can know that will help them in placing a bet. Investments are very different, even fancy derivatives. The more you know about the industry, the economy, and the instrument, the more money you will make; knowledge is key to success.

    Take the humble options market as an example. If an investor writes an option for a commodity, he is exposed to unlimited losses. So to hedge those losses he takes an opposing, though lesser, option in the opposite direction. Would you call that “betting against the option”? Of course not. So let’s leave the gambling terminology in Lost Wages where it belongs.