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Should Financial Institutions Be Restrained From Harming Countries?

The recent brouhaha about Greece's ride to the brink of disaster, and the role of financial institutions, actual and potential in the crisis, has raised certain ethical issues about whether financial institutions should be restrained from actions that potentially can harm whole countries. I will identify three such cases, and three potentially different outcomes.

The first case is that of Goldman Sachs, who was basically an "employee" of the country of Greece. I am in the camp that brokers and other professionals should be held to a "fiduciary" standard vis-a-vis their clients. Meaning that Goldman should be a "fiduciary" in relation to Greece. That would not bar Goldman from causing harm with "good faith" advice. But it does mean that a Goldman must bend over backward to refrain from seeking any additional advantage beyond earning a fee for "honest services." This is something that Goldman failed to do, which makes it blameworthy.

A second case is where George Soros broke the Bank of England. in 1992. Unlike Goldman in the previous example, Soros had no ties to England, therefore no fiduciary duty. Soros saw an opportunity for his hedge fund to profit from the likely collapse of the pound. Unlike others, who traded in smaller size, Soros did not merely participate in a prospective event. A good case can be made that the size and timing of his bets CAUSED the collapse.

While I have no problem with mere "hangers on," I do find it a bit troubling that a single individual had, and exerted, "supranational" power over a whole country. MUCH more troubling is the fact he did so with BORROWED money. The way to have stopped Soros' bet against the pound was to regulate his borrowing. Without leverage, he couldn't have done what he did. A Libertarian, I agree with Liberal economist John Kenneth Gaibraith about the right of a man to tyrannize his OWN bank account.

The third case is that of someone like David Einhorn, who was included with Soros and others in the Justice Department warning. He is, unfortunately, associated with the "destruction" of two companies, Lehman Brothers and Allied Capital. His "weapon of destruction" was his honesty. Basically, he pointed out that the Emperor had no clothes in these two cases. The two companies were both headed for skid row. But Einhorn's warnings probably DID alter the timing of events, which means that they happened sooner, rather than later.

My opinion is that he was performing a public service. People may object that he profited from his foresight. But I'd rather see someone like him get on the rooftops and shout a public warning, meaning that the entities were given a "fighting chance" to right themselves, than to take his positions quietly, without sounding the alarm. The problem with this is the public embarrassment it creates: "You were warned about a crash and did nothing?" People resent the insult even more than the injury.

And Einhorn should have a chance to profit: "Thou shalt not muzzle the ox that treads the grain."