Moral Mumbo Jumbo
I was skimming this article on Goldman’s conference call on Friday about AIG and noticed a question from an unnamed journalist at The Guardian. He asks
if GS feels that its collateral requirements put AIG over the edge of bankruptcy and whether GS feels “guilty” about that.
Of course, Goldman’s response, from David Viniar, is dismissive:
This is why we have collateral terms in the first place, to make sure we are protected, and all we did was call for the collateral under the contracts….There’s no guilt whatsoever.
Right away I knew the question came from my good friend Andy Clark, The Guardian’s Wall Street correspondent. I was all set to needle him about it that night over drinks, but found out Dealbreaker beat me to it.
Andy and I have argued several times about the moral obligations of corporations. Andy believes a corporation is a collection of moral people, and therefore it’s actions should be accountable to the same moral standards as the rest of us. I believe he’s silly.
A corporation is not a moral entity, it is a rule-based institution. It is expected to act out a finite set of profit motives on behalf of it’s shareholders and investors. Unlike a moral operator, we expect simple and predictable behavoir from a corporation. If we create a corporation that has to balance its profit motive with a moral one, we will inevitably be disappointed when we find that our trust has been breached. We will be shocked — shocked! — when it turns out that these inevitably opposing forces have forced the corporation into decisions we don’t agree with.
Instead, we should expect only that the corporation be driven simply by its profit motive. We should expect it to act within the law, and have no dillusion that it will take powerful regulation to ensure that we only extend trust to a corporation as far as we can throw it. Are we to be surprised that Citi, AIG et. al became too big to fail? That cheap credit engendered irresponsible lending? The answer is “yes” only if we are naive enough to trust that any institution could responsibly manage both the profit motive and a moral code. The faster we recognize that we cannot trust the world to our corporations, the sooner we’ll figure out that it takes competing forces and constant oversight to create a culture in which we can all live.
