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The Case Of Goldman Sachs's Conflict Of Interests

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“Goldman Sachs marketed four sets of complex mortgage securities to banks and other investors, but failed to tell them the investments were very risky. In addition, the bank did not mention that it was itself betting that the investments' value would fall, indicating it sold products to clients it did not believe in backing itself”( bbc.co.uk). Publication of BBC News on April 14, 2011 reported a conflict of interest between Goldman Sachs and its clients. Two years earlier, in 2009, “The New York Times” claim that Goldman Sachs created and petted complex securities known as "synthetic collateralized debt obligations, or CDO's", while at the same time they bet against them (nytimes.com). There are also similar cases, “Adelphia Communication …show more content…

The first question that should be answered is, whether a shareholder could leave an invested capital without controlling on an investment advisor, giving him full authority to place it wherever he believes that it would have a greater profit. Certainly this practice could fail for two basic reasons, the moral hazard and adverse selection. …show more content…

There are cases in which the investor (shareholder, customer, etc.) selects a consultant who has not the ability to understand his needs and he is not deliver his requirements, this could be happen because of the investor has lack of information or disinformation, hence, insiders have private information about exogenous variables which is not well known to all interrelated business partners, this asymmetric information category is known as adverse selection. There are also cases in which company's insiders deliberately mislead their clients-investors for their own interest. In that case the interests of both sides are conflicted and eventually the one with better information wins, this case is called moral hazard. (Baker W. 2010) These two aforementioned concepts of the moral hazard and adverse selection, cause the asymmetric information and agency gap. The asymmetric information and agency gap describe the information gap between departments within a firm, as well as the gap between business and customers. (Rathmell A.

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There are so many views when considering the industrialists of late 19th century to be captains of industry while others consider them as Robber barons because they like practicing a system called the monopoly. Monopoly . they built huge companies and practice unfair businesses; which make them drive their counterparts out of business; and when they do such things, they are stealing businesses from competitors. Most people refer to them as the king of the American industries during the 19th century. Some viewed them as greedy, unprincipled and corrupt.

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Attempting to gain control of a larger part of the new world and be stronger than France or Spain, beginning in 1607, the British devised plans that would allow them to profit from establishing new colonies. The new colonies in America were established as profit-seeking corporations (Tindall & Shi, 2013). Hidden under the guise as promoting religion to the natives, the intent of the corporations was to establish the colonies so the British could continue its search for gold and increase its profits. Any gold and other valuables were to be sent back to England to help free England from the dependence of Spain (Tindall & Shi, 2013). The different corporations chose their leaders based on strengths previously shown in other foreign wars.

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Since the end of the Civil War, powerful men, referred to as captains of industry, formed trusts to control markets. They did this through their collusion, price-fixing, and anticompetitive activities, which took a toll on competition and innovation. The Sherman Anti-Trust Act was passed to combat the harmful effect of trusts which the captains of industry controlled by creating an uneven playing field through their size and scope. The act passed with strong public support however due to the government’s inability to regulate these companies, even after passage of the act, stronger measures were introduced and passed to help protect and open markets to competition.

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