Company Through Ethical Problem Years. Read Article

¶ … company through ethical problem years. Read article summarize key points: company involved; problem hand; steps company; outcry public/government; final outcome. Then analyze issue involved: How event avoided; what company; what charge; long -term effects issue.

Goldman Sachs' Greek tragedy

Companies' misbehavior usually has a deleterious effect upon their customers, employees, and shareholders. However, in the case of the investment banking firm Goldman Sachs, the unethical behavior of Goldman caused the downfall of an entire country and has impeded the economic growth of the European Union. "One deal created by Goldman Sachs helped obscure billions in debt from the budget overseers in Brussels," enabling the nation of Greece to conceal its debt from the EU when it first made a bid for membership, and to continue to "skirt European debt limits" mandatory for continued membership in the EU (Story, Thomas & Schwartz 2010: 1).

In 2001, Greece was admitted to the European Union, an economic agreement in which all member countries agree to observe certain economic standards, in exchange for benefits such as the free trade of goods and labor between their borders and the use of the Euro as a currency. "Goldman helped the [Greek] government quietly borrow billions" by making the deal look like a currency trade "rather than a loan, [which] helped Athens to meet Europe's deficit rules while continuing to spend beyond its means" (Story, Thomas & Schwartz 2010: 1). Such financial chicanery would have been extraordinary even on an individual organizational level, but Goldman enabled the fraud to be perpetrated by an entire country.

Goldman specifically created new financial instruments for Greece and other poorer EU member nations so that their financial balance sheets looked considerably stronger than they were in reality. "In dozens of deals across the Continent, banks provided cash upfront in return for government payments in the future, with those liabilities then left off the books. Greece, for example, traded away the rights to airport fees and lottery proceeds in years to come" (Story, Thomas & Schwartz 2010: 1). This lack of transparency was patently unfair to bond holders, given that they purchased Greek bonds without any idea of how much money Greece owed, and was also unfair to members of the EU, who extended the benefits of membership based upon Greece meeting certain conditions of solvency. Rather than trying to trim its bloated public sector jobs, more rationally manage its pension system (famous for early retirement for workers in many protected professions), or to attempting to institute a more effective tax collective system, Greece concealed the payment of its debt with the aid of Goldman. Today, Greece owes $300 billion to its creditors and accumulated these debts with the aid of a major U.S. investment baking firm using tactics that were technically legal but were completely lacking in any spirit of ethical transparency. "Politicians want to pass the ball forward, and if a banker can show them a way to pass a problem to the future, they will fall for it" said one economist (Story, Thomas & Schwartz 2010: 1).

Although the actions of Goldman may have been unethical, they were perfectly legal. Markets for sovereign (national debt) are virtually unregulated. "Wall Street did not create Europe's debt problem. But bankers enabled Greece and others to borrow beyond their means" (Story, Thomas & Schwartz 2010: 1). And because of Greece's membership in the EU, the actions of Goldman also harmed the citizens of all member nations, who are all part of the same currency as Greece and must suffer the economic repercussions of propping up a member nation.

It could be added that Goldman's actions in the long run did not benefit Greece. If Greece had not concealed its debts with the aid of investment bankers, it would never have been made a member of the EU. As a non-EU nation, Greece could depreciate its currency, which would bring foreign investment and tourism into the small nation. Tourism has historically been one of Greece's most lucrative sources of revenue. However, since Greece's currency is the Euro, it is dependent upon the value of the Euro as priced relative to the other EU member nations.

Another aspect of blame, some would contend, lies in the hands of the Greek population itself, which is notorious for resisting financially responsible policies. "Explanations of how Greece got in this mess typically focus on profligate public spending. But its fiscal woes are also due to a simple fact: tax evasion is the national pastime" (Surowiecki 2011:1). Greece's shadow economy, or untaxed legal earnings, average 27.5 per cent of its G.D.P., larger than in any other major industrialized nation (Surowiecki 2011:1). Greek tax officials are notoriously easy to bribe, and tax evasion is not considered particularly unethical or 'wrong:' "Greeks, by contrast, see fraud and corruption as ubiquitous in business, in the tax system, and even in sports" (Surowiecki 2011:1). Politicians who avoid enforcing the tax code get reelected, while those who refuse to look the other way don't get reelected.