Goldman Gets Defensive

The NYT has a blog post about Goldman’s denial of a conflict of interest in the subprime market.

In the report, which announces near record results that Goldman obtained in 2009, Mr. Blankfein and Mr. Cohn defend the bank’s role of “providing liquidity to markets.”

This would be a plausible explanation if they did not know that they were dealing toxic assets. For example, you do not need to be an expert in the underlying equity to be a market maker in the equities market. In that role, buying and selling equities provides liquidity to the market.

Goldman’s actions are more equivalent to that of a drug dealer than a market maker, since they knew they were dealing with toxic assets. Goldman’s lack of exposure to their own products reminds me of a dealer who has a hard and fast rule not to try their own yayo. To push the analogy further, Goldman had the cops bought off so that when their primary client (AIG) went bust, they still collected on the cocaine debt.

We have a nice long history of prosecuting criminals and drug dealers who profit at the expense of society. It would be great to see them prosecuted for their crimes, but it is unlikely. We can only be hopeful that we have some meaningful Financial-industry reform that prevents this type of sleazy behavior in the future.