Goldman Sachs no model for Chinese institutions
Updated: 2012-03-20 08:05
Editor's note: Greg Smith, former Goldman Sachs Group Inc executive director and former head of its US equity derivatives business in Europe, the Middle East and Africa, caused an uproar with his claim that the firm had "sidelined" its clients in its pursuit of money. Goldman Sachs has defended its practices and its treatment of clients. These are comments on the issue from some major Chinese media outlets.
The incident directly reflects the financial ethics that investment banks follow. For quite a long time, big financial companies, including Goldman Sachs, have said that they put clients' interests first.
Words such as just, fair and open were constantly on their lips. However, scandals involving financial companies taking advantage of clients have surfaced frequently in the media, and financial regulators have punished wrongdoers in several cases in recent years.
The problem is the lack of effective supervision to deal with the ethical shortcomings of financial companies due to the rapid innovation of new financial products. Even for professional investors, it is difficult to fully understand the real and potential risks of emerging derivative products.
Apparently, such scandals happened due to financial companies' greed; however, the essential fact is that those financial institutions have had a disproportionately big market influence as they assume multiple roles.
In many cases, they are market players, but they also influence the regulatory process.
The power of financial companies should therefore be broken up. Different business sectors must be segregated so that they cannot manipulate the neighboring sector. The real controllers of those financial institutions should also be barred from holding shares of institutions of different financial sectors.
Shanghai Securities News:
Goldman Sachs could have sidelined the interests of its clients - as Smith has claimed - because the US courts have tolerated such behavior.
In a series of important cases after 2000, the right to pursue legal claims through civil lawsuits was progressively limited by the US Supreme Court.
In 2004, the US Securities and Exchange Commission's attempt to supervise hedge funds was overruled by the court.
In 2007, the court decided that the Antitrust Law did not apply to the securities sector, despite obvious signs of monopoly and high commissions and fees in the industry.
In 2008, the court ruled that plaintiffs must prove they were directly solicited by defendants when seeking restitution in securities cases.
It is unreasonable that some Chinese still take international investment banks such as Goldman Sachs as role models and learn from their practices.
China National Radio:
It is very difficult to take precautions against and supervise Goldman Sachs.
Goldman Sachs is operated by the world's top financial professionals and elites in the industry. It is capable of designing new financial derivatives that can easily bypass supervision and manipulate the global capital market. Goldman Sachs is a giant financial empire that virtually has no rivals.
In April 2010, the US Securities and Exchange Commission filed a securities fraud charge against Goldman Sachs and its vice-president, Fabrice Tourre, for making material misstatements and omissions in connection with a synthetic collateralized debt obligation that the company structured and marketed to investors.
The SEC said that the investors were alleged to have lost more than $1 billion.
But the charge failed to bring down Goldman Sachs after the company settled for $553 million.
Goldman Sachs will pursue its own profit by hook or by crook. A lot of insider dealing and fraud cases have been brought to light by the media recently.
The company helped the development of emerging economies in a way; however, it is also willing to lower the ethical bar to gain more profit.
For example, in 2004, when China decided to restructure its State-owned commercial banks, Goldman Sachs issued a series of reports attacking the nation's banking system and recommending against buying Chinese banks' stocks. At the same time, the company made a fortune by gobbling up a huge amount of Chinese banking shares at low prices.
Blind trust in international investment banks such as Goldman Sachs will place investors in danger.
China should also realize that cooperation with global financial giants is inevitable. On the one hand, China should beef up its own financial teams, and on the other hand, the nation should forsake the short-sighted worship of the international financial giants.
(China Daily 03/20/2012 page17)