http://www.newsweek.com/id/237215After 10 hours and 43 minutes of testimony before the Senate's Permanent Subcommittee on Investigations on Tuesday, the hapless Goldman Sachs employees and the angry senators interrogating them were still talking past each other. "I firmly believe that my conduct was correct," said a tired-looking Fabrice Tourre, the Goldman employee who structured the Abacus trade that led to the SEC's lawsuit against Goldman. Meanwhile, Sen. Carl Levin had used the word "s--tty" 12 times and Sen. Tom Coburn had reminded the witnesses that "we're not that stupid."
The problem for Tourre—and for Wall Street more broadly—is that they're so intent on proving that what they did was legal that they can't see that what they did was wrong. These are men (and they usually are men) of the market, and they played by the market's rules. And the market's rules are these: you make as much money as you can without actually going to jail. This is a world in which people are applauded for "blowing up the customer"—that is to say, offloading a crap product on a dim investor.
But it's not the world the rest of us live in. And if Wall Street doesn't realize that quick, financial regulation might turn out very badly for them.
During the 1980s and 1990s, economists in a variety of countries conducted a series of experiments that shocked their profession. The experiments were called "ultimatum bargaining games," and they were very simple: one person was given a pot of money to dole out. The other person got to accept or reject the deal. But here was the catch: if the second person rejected the deal, neither party got any money at all.
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