Wall Street Ethos

On January 14, Andrew Ross Sorkin reports on the exchange between Phil Angelides, chairman of the Financial Crisis Inquiry Commission and Lloyd C. Blankfein, chairman of Goldman's Sach's, at the Commission's hearings the day before.

Angelides "asked Mr. Blankfein to explain how his firm could have sold bundles of troubled mortgages at the same time it placed bets with Goldman's own money that their value would fall. Mr. Blankfein responded, Goldman's clients knew what they were buying and that his firm was simply providing a customer service. These are professional investors who want this exposure."

Sorkin concluded, "The exchange was partcularly revealing because it laid bare an essential truth about the Wall Street ethos: if there's a buyer-no matter how sophisticated-there's always a seller."
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Andrew Ross Sorkin, Wall St. Ethos Under Scrutiny at Hearing, New York Times, January 14, 201o

Buffett would agree. Twenty-one years ago, he wrote:

"Our comments about investment bankers may seem harsh. But Charlie and I-in our hopelessly old-fashioned way-believe that they should perform a gatekeping role, guarding against the promotor's propensity to indulge in excess. Promotors, after all, have throughout time exercised the same judgment and restraint in accepting money that alcoholics have exercised in accepting liquor. At a minimum, therefore, the banker's conduct should rise to that of a responsible bartender who, when necessary, refuses the profit from the next drink to avoid sending a drunk out on the highway. In recent years, unfortunately, many lending investment firms have found bartender morality to be an intolerably restrictive standard. Lately, those who have traveled the right road in Wall Street have not encountered heavy traffic."
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Warren Buffett, 1989 Letter to Berkshire Hathaway Shareholders