I think my point was more along the marginal lines rather than "the only game in town". As we all know, the cemetery is full of people who thought that they were irreplaceable.
Mike is more cognizant with the current investment banking situation than I am, so I'll take his word for it. But my point was that GS is not the equivalent of Arthur Andersen. It's closer to PwC or McKinsey or (in the insurance broking world) Aon. If GS "died" (i.e., if its reputation were totally wrecked) the world would go on, but it would be a far greater inconvenience than it would to let it continue as the "people you go to because it's the people other people go to". The "critical mass" point that would kill GS is very high. But, once it was reached, everyone would happily jump ship, I guess.
I'm not justifying the OOC settlements -- just predicting that it's the most likely outcome. GS knows it's been dodgy, SEC knows it's going to struggle to get a conviction if GS really fights hard. Much easier to reach a "no liability accepted" deal.
As for the moral hazard (that it will encourage a Spitzer-type to do it again, year after year), well, possibly. But I think that you will get Spitzer types anyway (particularly when they are aiming for high office), and I don't think any company does the "we'll pay, but without accepting guilt" line unless they know, in their heart of hearts, that they have done some wrong. What's more interesting is whether the prosecutors should accept it. In practice, they do.
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Date: 2010-04-20 10:20 pm (UTC)Mike is more cognizant with the current investment banking situation than I am, so I'll take his word for it. But my point was that GS is not the equivalent of Arthur Andersen. It's closer to PwC or McKinsey or (in the insurance broking world) Aon. If GS "died" (i.e., if its reputation were totally wrecked) the world would go on, but it would be a far greater inconvenience than it would to let it continue as the "people you go to because it's the people other people go to". The "critical mass" point that would kill GS is very high. But, once it was reached, everyone would happily jump ship, I guess.
I'm not justifying the OOC settlements -- just predicting that it's the most likely outcome. GS knows it's been dodgy, SEC knows it's going to struggle to get a conviction if GS really fights hard. Much easier to reach a "no liability accepted" deal.
As for the moral hazard (that it will encourage a Spitzer-type to do it again, year after year), well, possibly. But I think that you will get Spitzer types anyway (particularly when they are aiming for high office), and I don't think any company does the "we'll pay, but without accepting guilt" line unless they know, in their heart of hearts, that they have done some wrong. What's more interesting is whether the prosecutors should accept it. In practice, they do.
PJ