I can't remember if it was a chuckle or more of an eye-rolling sort of snort, but when the headlines crossed that Goldman Sachs (GS) would not face criminal charges for its fiendish trading actions during the subprime debt meltdown, my reaction was certainly not one of surprise. And I'm not alone.
Like it or not, the bare-knuckled, high-stakes world of proprietary trading is a dark and dangerous place. It operates under a system of rules that is known to be plagued by moral hazards, pocked with ethical pitfalls, and shrouded in a cloud of stench — but it is also a very, very hard turf to score a conviction.
"Despite the fact that they're not consistent with what we take to be right and wrong, and despite the fact they're taking the other side of trades with their clients and doing things that we suspect are wrong, the truth is you can't prove it wrong under any law, and so they're off the hook," says Hugh Johnson, chairman and CIO of Hugh Johnson Advisors. What's more, he adds in the attached video, so are quite a few other prop traders too.
In case your memory of events from five years ago has faded, Goldman Sachs was called before Congress to explain how it could simultaneously package and sell bundles of dubious mortgages to clients while also betting against them — or shorting them — at the same time.Read More »from Goldman Sachs Dodges Criminal Charges, but Stench of Prop Trading Sticks