Goldman’s business practices as ethical or unethical

1) Argue whether you consider Goldman’s business practices as ethical or unethical.

In light of the magnitude and possible links of the of the recent global economic crisis to the negligent conduct Wall Street player, everybody would be forgiven for reprimand to whomever the slightest blame is directed. The agony and anguish that the negligent behavior of one or a few individual players occasioned to hundreds of thousands of innocent victims across the globe is certainly not worth any explanation from any quarters of a corrupt system. The economy of the United States is perhaps the backbone of the entire global economy and without doubt depended by a large following around the world.

This implies that the responsible players at the helm of its management should operate its functions devoid of the slightest mistake that could cause a multiplier effect of unpleasant results across the board. Flouting basic business ethics in such a sensitive system could perhaps amount to the worst ethical bleach of this age. Informed from such a global perspective, this section of this discourse assesses the conduct of one of the players at the helm Wall Street to find its credibility from a business ethics perspective (US Senate, 3).

Operations of the Wall Street are largely accused of the downfall of the US economy from 2008, due to unprecedented departure from safety lending regulations particularly in the financial services sector. The most affected were mortgage, debt and stock markets whose effect spilled over into the other financial institutions in such a rate that almost paralyzed the entire economy. Sooner than later, the global economy were feeling a pinch of the spiraling impact. A leader in the mortgage business was perhaps more responsible than many more players in the market. Goldman Sachs happened to be one of the main two players in the infamous mortgage market immediately before the collapse of the Wall Street in 2008, alongside Deutsche Bank. The conduct of Goldman Sachs in terms of ethical responsibility it had to observe demonstrates incompetence due to a number of abuses.

Firstly, the manner in which mortgage and other related securities were handled in the unstable market left a lot to be desired (Griffin, 94). Goldman Sachs participated in the design of a risky complex securities system whose failure orchestrated the downfall of several aspects of the market. The mortgage instruments designed by Goldman Sachs and other players were complicated in such a manner that the derived securities became more valuable than the original instruments of trade in the market. Goldman Sachs was aware of the fact that risk handling could only be well handled if the system was clearly defined with minimal technical complexities but continued to design a more complex market system. The sale of the designed securities to a wide investor network around the market further spread the risk which was apparently quantifiable in the beginning and in the knowledge of Goldman Sachs.

In addition, the undying desire for profits by the banks created room for a dangerous market trend by allowing a loss cushion for trading in the created securities. By designing a system where counterparties could wager performance of a security on either fall or rise, Goldman Sachs participated in the generation of a dangerous system where such a volatile arrangement attracted uncontrollably high number of transactions greedily driven by profits (US Senate, 8). Besides, Goldman Sachs went further ahead allowed transactions that did not scrutinize transactions that had elements of conflicts of interest. Committing to deal in trading for both profitable and loss causing transactions by Goldman Sachs demonstrates financial negligence of the highest order.

Rushing to cash off its short positions upon realization of how dangerous the market course appeared ahead is in bad faith for the business fraternity. In more than one occasion, its concealment of financial facts relating to transactions cost the investors a significant amount of consideration while making unjustifiable scrupulous profits at the expense of the unsuspecting investors. Such cases included Anderson’s, Timberwolf’s, Abacus’ and Hudson’s where Goldman Sachs took advantage of the investors to make unfair and ethically unclean deals out of the transactions.

Alternatively, despite the high risks involved, Goldman engaged its clients in effecting lending deals and underwrote trading instruments by way of lending originating from subprime institutions notorious for high risks. By encouraging the poor lenders to continue with their volatile system of transactions and incorporating them in its own globally extended system, Goldman Sachs was throwing the global economy to the dogs. Despite the high indication of mortgage market irregularities and uncertainty in 2007, it continued to operate in the business of lending by characteristically engaging in more risky lending (Harper, 1). The author reports that being found guilty of fraud and subsequent fining of $ 550 is an indication of more possible responsibility in the scam.

2) Where exactly is the ethical line that Goldman crossed or did not cross?

To be precise, an analysis of the case by Goldman Sachs enables the isolation of basic ethical misconduct areas that it ventured into. Firstly, the most important flaw that the bank orchestrated is directly related to risk factors. The low risk practice is a vital financial market regulatory directive that conspicuously appears to be in contention and gravely defied by the bank. By engaging in plainly risky mortgage business and attracting such trading as would have precipitated risky trading leaves a huge question on the commitment of the bank to comply with this regulation. Appearing to facilitate the same risky behavior through support of suspicious securities shows acceptance of risky financial practices by Goldman Sachs (US Senate, 14). Secondly, formulating a complex market appears to be an indirect creation of a volatile market that cannot retain risks which was a major misgiving of Goldman Sachs. By instigating the risky network of uncertainty in securities trading, the bank was opening up loopholes for abuse of unsuspecting investors.

Thirdly, creation of high risk products in the financial products, however simple the system is, is a definite wrong and a forbidden practice in the financial market. From the conduct of the bank in accelerating the design of new products from existing risky ones sends the wrong picture of a committed financial player. Goldman Sachs failed by allowing secondary securities to hold significance despite the downward trend of the main mortgage products.

Works Cited

Griffin, Ricky W. Management, Mason, OH: Cengage Learning, 2010. Print

Harper, Christine “Goldman Sachs Says it Bought Too Many Illiquid Assets Before 2008 Crisis,” 9 February 2011. Web. HYPERLINK “http://www.bloomberg.com/news/2011-02-09/goldman-sachs-says-it-bought-too-many-illiquid-assets-pre-financial-crisis.html” http://www.bloomberg.com/news/2011-02-09/goldman-sachs-says-it-bought-too-many-illiquid-assets-pre-financial-crisis.html (accessed 3 May 2011)

US Senate, “Wall Street and the Financial Crisis: Anatomy of a Financial Collapse,” 13 April 2011. Web. HYPERLINK “http://hsgac.senate.gov/public/_files/Financial_Crisis/FinancialCrisisReport.pdf” t “_blank” hsgac.senate.gov/public/_files/Financial_Crisis/FinancialCrisisReport.pdf (accessed 3 May 2011)