Goldman Sachs: Politicians and executives speak different languages

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Political scientists discuss how the political system speaks to the economic one, but what happens when there is no common language?

In many ways, that is what is at the heart of the Senate hearing on Goldman Sachs. Over and over, senators probed Goldman executives on their vision on what is the difference between a market maker and a participant and what are the different ethics involved.

“Do you have a responsibility to disclose to client when you have an adverse interest to the client,” Sen. Mark Pryor (D-Ark.) asked former Goldman executive Daniel Sparks. “Do you have a responsibility to disclose?”

“No,” Sparks said. It is “not the responsibility to disclose at all times how you are positioned.”

“Should there be more transparency,” Pryor pressed.
“You create a number of issues,” Sparks replied. He then explained why that could be a problem since positions quickly change so that information may be outdated. He argued that there were functional problems among other difficulties in being what Pryor called transparent.

But technical difficulties aside, the real question is what is the law and morality on investment trading at the level of many billions of dollars changing hands.

Sparks and others argued that an investment bank owes a client all information with respect to an investment vehicle, but not necessarily all information on the bank’s positions since that may not have an effect on how the investment vehicle performs.

Because of that distinction, Goldman executives insist that they behaved in a proper fashion according to law and their own ethical standards.

The distinction may not be clear to most people, but senators were clear in their questioning, arguing that Goldman should have told its clients more than just what was in the paper trail. Ultimately the courts will determine whether Goldman acted properly or committed fraud as the federal government alleges.

Senators, however, will draft the new rules of the road and are sure to insist on more bright lines defining ethics and standards.

-- Jim Puzzanghera, reporting from Washington

-- Michael Muskal, reporting from Los Angeles