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Wall Street's 'Spectacle of Scapegoats'

Michelle Lodge
Wednesday, 28 Apr 2010 | 11:26 AM ET

Unless Wall Street gets back to the business of business—creating value—both Wall Street in general and the public at large are in for a continuous spectacle of scapegoats and politicians, similar to Tuesday’s Congressional hearing with Goldman Sachs executives, an ethics expert told CNBC Wednesday.

Goldman's Lloyd Blankfein
Goldman Sachs CEO Lloyd Blankfein testifies regarding charges the firm used a strategy that allowed it to take the opposite side of investments it was selling to the firm's clients.

“Mr. Blankfein said Goldman couldn’t operate without the client’s trust,” said ethics expert Edward Freeman, from the University of Virginia's Darden School of Business, referencing to the testimony of Lloyd Blankfein, CEO of Goldman Sachs. “He’s right."

"Wall Street can’t operate without the public trust," added Freeman, "and Wall Street has lost that public trust.”

Paul Argenti, professor of corporate communication at Dartmouth's Tuck School of Business, agreed with Freeman, and said the Goldman situation underlines the need for regulation of the financial services industry.

The Ethics Game
Discussing Wall Street's ethics, with Edward Freeman, Business Roundtable Institute for Corporate Ethics and Paul Argenti, Tuck School of Business at Dartmouth.

He added that Goldman has been placed in the role of the unethical party in a “morality play,” which was in full display during Tuesday’s testimony of Goldman honchos.

“One was the arrogance in the face of questions, particularly, the first panel and their inability to answer questions on do you operate in your client’s best interest,” said Argenti.

Equally damaging, said Argenti, were comments from David Viniar, Goldman’s CFO, about emails from Goldman executives calling securities that Goldman sells “crap” and Blankfein saying “We [those at Goldman] aren’t that smart,” when asked whether Goldman anticipated the real estate market meltdown.

Following his testimony, Blankfein told CNBC's David Faber, "I think the financial institutions let the public down and we are a very influential financial institution, so we bear our share."

Blankfein disputed claims made during the hearing that Goldman ran the synthetic CDO market like a "casino." He said synthetic CDOs allowed people to "efficiently and quickly get the kind of diversification and risk they wanted on the buy side or on the sell side."

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