The public show trial staged by Congress featuring the executives of Goldman Sachs, showed up the general ignorance of members of Congress and the inability of most of the media to educate the public.
So here is some Finance 101.
When a company creates a form of security and places it up for sale, it is technically a market-maker, not an adviser, and thus has no fiduciary responsibility. Neither is it a broker, unless it sells the security.
Up to now, brokers have had no fiduciary responsibility. They do have to sell what is "suitable” for the customer. Therefore, a broker cannot sell risky securities, for example, to widows and orphans without their express knowledge. They can sell suitable risks to highly sophisticated investors.
Goldman Sachs, under the Congressional spotlight, were market- makers. They were also dealing with seasoned institutions who knew risks and frequently sold short, in the hope markets would fall; often with both positions at the same time.
Advisers, on the other hand, generally give advice and suggestions only. They are not market-makers, nor are they brokers.
It may be rough for Congress to comprehend, when their eyes are only on courting votes.
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