Goldman Sachs Final Paper Proposal
Business corruption is a problem that is increasingly having a massive effect on the economy and lives of everyone in the country. The massive financial crisis which occurred in America around 2008 was caused by a variety of factors. One of the main causes of this economic downturn was the failing of the housing market. A major reason this market failed was due to the selling of mortgage backed securities by different companies. The Goldman Sachs Group was one of the companies selling these securities. Goldman Sachs deceived their investors by encouraging some of them to buy these securities while telling other investors at the same time to sell. They convinced buyers that the securities were highly rated when in reality they were junk. The collapse of the housing market was inevitable and they continued to sell to investors.
The securities which they sold the investors were the same ones which John Paulson, the president of a New York hedge fund, bet would fall in value. These baskets of securities were called abacus by Goldman Sachs. In nine months investors lost over $1 billion in abacus. This had a tremendous effect on the stock market, causing its stocks to plummet. This led to the Securities and Exchange Commission (SEC) charging Goldman Sachs with fraud for the sale of mortgage backed securities and the deception of the investors. Goldman Sachs was forced to pay $550 million to settle these charges with the government.
This topic is of interest to me because my major is business management and this will help me learn and understand the financial and administrative mistakes people make is business and how to avoid these mistakes. Understanding the laws for businesses and the economy will be helpful in pursuing a career and also in being an investor. I am interested in learning what led to the economic downturn in more detail because I feel the need to be educated on issues which affect our whole country. I am also currently taking an economics class so it will be interesting to see how the class relates to real life. Corruption in business has always interested me and how people attempt to gain financial success through illegal means. There are several books and articles about the case, so the information is readily available for research on this topic.
Brendan, I am kind of curious about what it means to call this a "mistake" that could then be "avoided." Whose mistake was it? The bank? The government? Because the actual people that were making these decisions were doing something highly unethical and wrong, but doing it on purpose for profit. That they made a significant profit and only had to pay out a very, very small sum means that something else is going on here. What other questions should you ask of the situation? What questions should you ask about the role of regulation? What about the bankers? Think about that, and then write out a few questions here that can drive your research.
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