http://www.npr.org/blogs/money/2010/04/is_goldman_sorry_it_sold_a_sec.html?ft=1&f=1001

There was an interesting exchange between the Goldam executives and the senators looking at the charges of improper behavior from Goldman.  Goldman essentially took the defence that when they are selling something it is not their job to advise clients.  Clients are supposed to do their own due dilligence and since they are buying these securities of their own “free will” and there is no coercion, Goldman can’t be blamed.  This is a very coherent argument that is based on the system which recognizes all of us rational, independent, intelligent beings, who are all maximizing our “individual” benefit. 

However, it ends up because, the smarter ones will always find ways of maximizing their gains at the cost of others within the rules of the game being set up.  This will lead to some winners (Goldman) and some losers.  The losers then will want to change the rules of the game (more disclosures, conflict statements etc.) and the game will be played in the same exact way again. 

1. Some people win more

2. Some others get together to convince people that rules need to be changed to make it fair

3. New rules create new winners

4. New winners prompt people to change the rules again…and so on.

The problem is with the concept of individual maximization in the short term without understanding the interlinkages.  So now we have a case, where Goldman will suffer some brand damage, will lose trust, will get regulated more, and so on.  This will lead to diminished ability to profit in the future.  Now even they maybe have been playing within the rules at that time, they ended up creating a problem for themselves in the long run.