Monday, April 19, 2010

Financial Services and Banking are in Desperate Need of Reform at the Top

On April 16th, the US Securities and Exchange Commission (SEC) filed a complaint against Goldman Sachs in US District Court (linked below) alleging that the firm defrauded customers by selling investments in subprime mortgages while surreptitiously betting against the same investments in separate transactions. The SEC's complaint additionally alleges that Goldman’s conduct “contributed to the recent financial crisis by magnifying losses associated with the downturn in the United States housing market…”

Goldman Sachs is arguably the most powerful and visible investment bank in the world, and so the ramifications of the SEC’s charges will likely tarnish not only the image of Goldman Sach’s, but that of the entire US banking industry. The SEC’s complaint also raises serious questions and concerns about the nature and character of banking as a profession.

Goldman Sachs Tower, Jersey City, NJ

I remain dumbfounded by the apparent current state of financial services and banking in the US. Clearly, the banking industry is in desperate need of reform at the top.

SEC Complaint

5 comments:

Dr William J McKibbin said...

I recently posted this article onto various groups at LinkedIn with the following text:

The executive leadership teams at our nation's largest banks and financial insitutions are responsible for everything that happens or fails to happen within their domains. If firms such as Goldman Sachs cannot ethically manage their affairs in detail (including the actions of their non-principal employees), then we should dissolve Goldman as "too big to manage." The nation is exhausted from the excesses on Wall Street, and if the leadership at Goldman Sachs cannot fulfill their duties and responsibilities, then let's proceed now with breaking them up for the good of the banking industry, as well as the nation. Again, the senior mangement teams at our nation's banks and insurance companies are responsible for everything that happens or fails to happen within their domains, and quibbling about that responsibility is outrageous... Thank you for the opportunity to comment...

Bankerchick said...

I strongly agree that management should be help accountable for the errors in judgement and lack of innovation in banking. However, I wonder why more is not said about accountability of paid board members and committee chairs who are meant to be the oversight? More often than not, they have no term limits, have little industry knowledge and don't even send new business or bank as customers at the institutions they are running. The Financial bills need more "teeth" as it relates to accountability of board members.

debo said...

While all the parties mentioned above are accountable or at least should be held accountable, the blatant part that is being disregarded with regard to all commentaries on the management of the banking industry is that everyone is forgetting who the banking industry is accountable to. The only answer is their shareholders and the clients. Everyone's comments, (not just on this blog, but on all media channels) refers to the banking sector's management the same way that they complain about politicians; with that attitude that Blankfein and the rest of the banking CEO's have some duty to each and every American as if they were elected by the populace. They don't.

Dr William J McKibbin said...

Hi Debo, all citizens of the US, including those who serve as CEO's in the private sector, have a duty to do what is right by the nation as a whole. Otherwise, the people will dismantle that which threatens the nation. By the way, CEO's are quite aware that their shareholders are also citizens -- I am confident that good will prevail in the executive suite as public and shareholder demands for greater transparency hit the offices of CEO's. Thanks for commenting...

Anonymous said...

Goldman Sachs was left holding the bag on some of these investments too! Not to mention that they DID disclose conflict of interest trades. These allegations are worthless to anyone who knows what happened. The SEC was warned repeatedly of problems in the derivatives market and did nothing. They even neglected to catch Madoff, after being notified of his behavior numerous times. At this point, taking an SEC complaint seriously to support your pov is ludicrous.

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