Their seal is hardly credible when issues become large

Decidedly, finance has no rating. Still admired a few years ago, Goldman Sachs is today taken in a media storm, a little like these "pipoles" in attendance, powerless, to the display of their privacy in the tabloids.

We especially learned last week the role played by Goldman in the case of the Abacus funds. To simplify, Abacus functioned a bit like the PMU, except that there betting taking place on the "sub-prime" loans and not on horses. Betting taking on the one hand, the "hedge fund" Paulson & Co. place on their fall, on the other, the magicians of high European finance, whose fated German mutual bankers, betting on their good health. Like pari-mutuel, that each earned, the lost, and Goldman, as an intermediary, earned commissions. The Bank is accused by the SEC (the US stock market regulator) for not having warned European investors that they played against Paulson. Because if they had known how the horses on which Goldman was bet were selected, investors are perhaps suspicious. For worse a parliamentary investigative commission seeks to understand how Goldman simultaneously could bet on the bursting of the bubble and sell less sophisticated customers famous "subprime".

This new Goldman case illustrates the key role of information in modern finance. In the immediate post-war period, the financial sector has been main channel the savings of households to investment companies. From this point of view, the finance was infrastructure, like roads or water distribution. Vocation seemed to remain a kind of public service drone. Wanted by the States themselves, willing to finance their public debt to lower costs, the development of capital market in the 1980s changed radically this vision. The issue of finance today, it is the information much more than access to capital. Whether a start-up in California, the Greek public debt or "private" equity in India, which is able to position themselves before others.

Goldman has made the processing of its information, that is why its successful past but also of its legal and political troubles. The Bank is at the centre of all networks: Wall Street is, after all, a small world where everything ends up is whether and where the yellow line of the Insider is never far away. "Synergies" between the trade of Bank business and trading for own account give rise to conflicts of major interest. A few weeks ago, we learned that Goldman had assisted the Greek Government to conceal part of its debt to markets, while betting down the same debt. Abuse, manipulate or hide information are temptations particularly strong that the offence is difficult to detect, or even to define legally.

None of this is really new: Internet stock crisis had already highlighted the conflict of interests of the banks. They had then claimed if guard against by "walls of China" internal. Their seal is hardly credible when issues become large. The Goldman case is there to remind that in informational fraud self-discipline is not worth much. The cost in terms of reputation is too low, too short submissions, too rare punishment.

What should be done First of all give more resources to regulators of financial markets, to statistically monitor all transactions, even in the OTC markets. Integrate the management of the risk of investors, the risk of "moral hazard": to assess the risk of a product it must ask who designed it and who will lose (or gain) is he under-performs. Finally, we must stop to cash the ratings of credit rating agencies (their conflict of interest is now well known), and invent new forms of certification of financial products complex.