How Much Economic Distance Is Justified?

The median household income in the U.S. in 2016 was about $60,000. The following year, Citibank’s CEO, Mike Corbat, received a 48% increase in compensation--$23 million. Goldman Sachs’ Lloyd Blankfein enjoyed a 9% rise, to $24 million. JP Morgan Chase’s Jamie Dimon received $29.5 million.[1] The sheer distance between the median and bank CEOs’ incomes not only begs the question—were the executive compensations justified?—but also raises the question—is such distance itself justified?

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[1] “How Good Were the Paydays for Bank Chiefs . . . and Shareholders?: DealBook Briefing,” The New York Times, February 16, 2018.

God's Gold on Wall St.: A Vaunted Self-Assessment of God's Work

A year after the financial crisis of 2008, Lloyd Blankfein, the CEO of Goldman Sachs,  found himself vilified for his firm’s quick return to risky trading in spite of its new bank holding company status. Populist resentment at the time was especially pitted against the hefty bonuses from the trades. Also, people were upset about the benefits that the bank had obtained from the decisions of its alums in the U.S. Government—specifically, in the U.S. Department of the Treatury. For instance, Goldman Sachs and other AIG counterparties got a the dollar-for-dollar payout from AIG thanks to an infusion of funds for that specific purpose by Treasury. Regardless, in an interview with the London Times, the highest-paid CEO (at least in the financial sector) dismissed such talk and defended his money-making machine and its compensation.  In addition to being the engine of economic recovery, according to Blankfein, Goldman Sachs provides a social function in making capital available to companies so they can expand. Stunningly, he adds, “I’m doing God’s work.”[1]  Such a claim is a far cry indeed from Thomas Jefferson’s warning that banking institutions are more dangerous to our liberties than standing armies.[2]  Perhaps God intends to undo our liberties by bailing out the banks.

Besides these rather obvious problems with Blankfein's religious claim is his presumption to know what God's work is, and, furthermore, that he is doing it.   Even though a feckless system of corporate governance can enable a CEO to essentially function as his or her own boss, including doing the board's job of evaluating his or her own performance, it is a tall order for a human being to be able to evaluate his performance as God's work.   To be sure, it is possible that God is an intelligent being that bestows favor on his golden stewards for doing His work.

Lloyd Blankfein may have been involved in two conflicts of interest: 1) that of having excessive power over the board whose principal task it is to oversee him, 2) having communicated with GS alums in high posts in the U.S. Government (e.g., Hank Paulson) and perhaps having them enact policies on GS's behalf.   It may be that institutional and personal conflicts of interests can become so ubiquitous that they are simply not seen by the culprits. Furthermore, it could be that the denial enabled by a tacit presumptuousness is like a white movie screen on which even doing God's work can be projected. How ironic it is, that sordid proprietary interest could operate not merely under the subterfuge of being a neutral "market-maker," but also as God's work. Such work is two degrees of freedom away from squalid greed. So it is remarkable that the two could become conflated in a mind.

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[1] John Arlidge, I’m doing ‘God’s work. Meet Mr. Goldman Sachs, The Sunday Times, 11/9/09.

[2] Thomas Jefferson to John Taylor, Monticello, May 28, 1816, in Paul L. Ford, ed., The Writings of Thomas Jefferson (New York: G.P. Putnam’s Sons, 1892-99),  XI, 533.

See related book: God's Gold and Essays on the Financial Crisis

Wall Street Banks in Commodities Businesses: An Inherently Unethical Conflict of Interest

Writing to the bank’s board of directors, an executive at Goldman Sachs wrote that the bank’s commodities division would achieve higher value “if the business was able to grow physical activities, unconstrained by regulation and integrated with the financial activities.”[1] According to Sen. Carl Levin, Goldman’s goal here is “to profit in its financial activities using the information it gains in the physical commodities business.”[2] The integration could be achieved in part by using the bank’s access to nonpublic information from the banking or trading operations to manipulate the price of a commodity by artificially restricting or adding to supplies through ownership at the production or storage stages. This structure contains a conflict of interest. Because resisting the temptation to exploit the conflict would put the Goldman bankers at odds with the bank’s financial interest, I contend that reliance by the public on intra-bank firewalls (i.e., policies) separating the commodity businesses from the bank’s trading operations is too weak to protect the public, including buyers of the commodity.






The full essay is at Institutional Conflicts of Interest, available in print and as an ebook at Amazon.

Facebook’s IPO: Morgan Stanley’s Conflict of Interest

Morgan Stanley’s underwriting of Facebook’s IPO has been thought by some of the bank’s rivals to be incompetently managed.  According to the New York Times, “(r)ival bankers and big investors have complained that Morgan Stanley botched the I.P.O., setting the price too high and selling too many shares to the public.”[1] Interestingly, the incompetence is positively correlated with unethical policy decisions at the bank. Even as the bankers as underwriters were eager to sell lots of shares, they may have given some of their institutional customers—albeit only the most preferred, as per the bank’s other services—some privileged information. If this charge is true, the conflict of interest at the bank should be closely examined by Congress and any relevant regulators.

The full essay is at Institutional Conflicts of Interest, available in print and as an ebook at Amazon.

1. Evelyn Rusli and Michael De La Merced, “Facebook I.P.O. Raises Regulatory Concerns,” The New York Times, May 22, 2012.

Batting Better Than Goldman Sachs on Corporate Governance

Companies differ on how they handle personal and institutional conflicts of interest. This difference may reflect disagreement over whether a conflict of interest is inherently unethical, or whether one must be exploited for any conduct to be unethical. I take the former position: that to be in a conflict of interest is indeed inherently unethical. At the very least, being in a conflict of interest can trigger or spawn additional conflicts of interest. I point to Goldman Sachs’ response to an institutional stockholder’s corporate governance proposal as a case in point. That case can be contrasted with how the BATs board reacted in terms of corporate governance to bad public relations and a failed IPO.


The full essay is at Institutional Conflicts of Interest, available in print and as an ebook at Amazon.

Batting Better Than Goldman Sachs on Corporate Governance

Companies differ on how they handle personal and institutional conflicts of interest. This difference may reflect disagreement over whether a conflict of interest is inherently unethical, or whether one must be exploited for any conduct to be unethical. I take the former position: that to be in a conflict of interest is indeed inherently unethical. At the very least, being in a conflict of interest can trigger or spawn additional conflicts of interest. I point to Goldman Sachs’ response to an institutional stockholder’s corporate governance proposal as a case in point. That case can be contrasted with how the BATs board reacted in terms of corporate governance to bad public relations and a failed IPO.


The full essay is at Institutional Conflicts of Interest, available in print and as an ebook at Amazon.

Conflicts of Interest at the Federal Reserve

In 2011, “(m)ore than a dozen members of the regional Federal Reserve boards have had ties to banks or companies that received emergency funds during the [2008 financial] crisis, according to [a GAO report]. The report highlights a close relationship between the Fed's regional banks and many of the institutions they were lending to, adding credence to concerns that the financial sector enjoyed a largely consequence-free rescue in the wake of the crisis, thanks to its connections with the federal government.”[1] Meanwhile, mortgage borrowers with houses “under water” got hammered. From the crisis to the release of the GAO report in October 2011, there were millions foreclosures in the United States, with very little in the way of mortgage modifications or refinancing for those homeowners who needed relief. In other words, the bankers had connections in the banking regulatory agency while Congress left the troubled homeowners—constituents—at the mercy of the bankers. Their agency having their backs, the bankers could afford to take a hard line on the mortgages. The playing field, in other words, is not at all level. 


Material from this essay has been incorporated into "The Federal Reserve" in  Institutional Conflicts of Interest, which is available in print and as an ebook at Amazon.  

1. Alexander Eichler, “Conflicts of Interest Abound at the Federal Reserve, Report Finds,” The Huffington Post, October 19, 2011.

Rating Moody’s and S & P: A Structural Conflict of Interest

For years, banks and other issuers have paid rating agencies to rate their securities. This is a bit like restaurants paying food critics to write on their food.  In the wake of the SEC’s charge that  people at Goldman Sachs built the Abacus investment to fall apart so a hedge fund manager, John A. Paulson, could bet against it, the Senate’s Permanent Subcommittee on Investigations questioned representatives from Moody’s and Standard & Poor’s about how they rate risky securities. Carl M. Levin, the Michigan Democrat who heads the Senate panel, said in a statement: “A conveyor belt of high-risk securities, backed by toxic mortgages, got AAA ratings that turned out not to be worth the paper they were printed on.” Throughout the testimony, the institutional conflict of interest was salient whereby credit-rating agencies put market-share considerations foremost in rating securities presented by the banks that are paying the agencies.

The full essay is at Institutional Conflicts of Interest, available at Amazon. 

Paper Tigers: Firewalls Forestalling Institutional Conflicts of Interest

Structural, or institutional, conflicts of interest are of great significance in applied ethics, even though they often play second fiddle to the conflicts centered on a person’s particular interests. An organizational or institutional conflict of interest, whether within one organization or in the arrangements between organizations, is not any less unethical than a personal conflict of interest.  Therefore, when we take the claims of vested organizational interests that their internal firewalls are more than just paper tigers at face value, our foolhardiness can really be at our detriment. I present a few cases to suggest that “firewalls” in an organization to prevent it from a conflict of interest are, in general, insufficient and thus ought not be relied on. Instead, the public (or government regulatory agencies) should insist that one of the two interests in an institutional conflict of interest be given up.

The full essay is at Institutional Conflicts of Interest, available at Amazon. 

Goldman's Ethical Conflict of Interest: Obviated or Enabled?

According to U.S. Senator Carl Levin, Goldman Sachs “profited by taking advantage of its clients’ reasonable expection[s] that it would not sell products that it did not want to succeed and that there was no conflict of economic interest between the firm and the customers that it had pledged to serve.”[1] Not only was the bank secretly betting against housing-related securities while selling them to clients, in at least one case a client shorting such a security was allowed to have a hand in picking the bonds. What is perhaps most striking, however, is how little Goldman Sachs has had to pay for acting at the expense of some of its clients. One might predict on this basis that the unethical culture at the bank is ongoing.


The full essay is at Institutional Conflicts of Interest, available at Amazon.

1. William D. Cohan, Money and Power: How Goldman Sachs Came to Rule the World (NY: Doubleday, 2011), p. 19.

Business Ethics in the Business World: A Glimpse from Goldman Sachs

Goldman Sachs’ ethics code reads in part, “[We] expect our people to maintain high ethical standards in everything they do. . . . From time to time, the firm may waive certain provisions of this Code.”[1]  The explicit conditionality is notable and significant. I contend that among other reasons, a negative impact on the bank’s financial position and/or profits is apt to trigger such a waiver not only at Goldman Sachs, but from the business standpoint more generally.


The full essay is in Cases of Unethical Business, available at Amazon.com.

1. William D. Cohan, Money and Power: How Goldman Sachs Came toRule the World (NY: Doubleday, 2011).

Amid Record Bonuses Goldman Sachs Enabled Greek Debt

The person who has the gold makes the rules.  I suspect this is the operating mantra at Goldman Sachs even after the bank’s near-death experience (when Solomon Bros stock was taking a hit, Blankfein knew his bank could be next).  As it turns out, the bank was involved in enabling Greece to stealthily spend beyond its means. Just after Greece had been admitted to Europe’s monetary union, Goldman helped the government quietly borrow billions, people familiar with the transaction said. That deal, hidden from public view because it was treated as a currency trade rather than a loan, helped Athens to meet Europe’s deficit rules while continuing to spend beyond its means. Additionally, in late November, 2009— three months before Athens became the epicenter of global financial anxiety — a team from Goldman Sachs arrived in Athens with a very modern proposition for a government struggling to pay its bills, according to two people who were briefed on the meeting. The bankers, led by Goldman’s president, Gary D. Cohn, held out a financing instrument that would have pushed debt from Greece’s health care system far into the future, much as when strapped homeowners take out second mortgages to pay off their credit cards.[1]

The full essay is in Cases of Unethical Business, available in print and as an ebook at Amazon.com.  

1. Louise Story, Landon Thomas, Jr., and Nelson D. Schartz, “Wall St. Helped to Mask Debt Fueling Europe’s Crisis,” The New York Times, February 13, 2010.