About 30 years ago, a major Canadian company acquired a U.S. company for around $800 million –  a very large acquisition at that time. Within months, at least 50% of the investment was written off. When the CEO was asked what went wrong, he answered feebly that he did not have enough time to do the proper due diligence. I was aghast at hearing this pathetic response. I was even more appalled that he was not immediately fired.

How can anyone spend a lot of the shareholders’ money and not do his homework? We are talking about real money and a lot of it. Even though I knew this person to be incompetent, it still caught me by surprise that he would admit to this. Over the years I have become much less surprised with each new case where an investor loses most of her/his investment because s/he did not bother to do her/his due diligence.

Regardless of how much time and effort is spent in performing the due diligence, it is impossible to know with any degree of certainty how an investment will play out. All investment decisions are forward looking, and the future is full of unknowns, hence risks and uncertainty. Thus, it is not surprising that many investments fail.

But there is no excuse for taking the easy way out by relying entirely on others – so-called experts – as a substitute for doing one’s own homework. (Maybe the MBAs we produce are incapable of doing the right homework.) Outsiders can play a useful role in supplementing one’s own efforts, either validating one’s conclusions or casting some reasonable doubts on the conclusions. However, it is a complete abrogation of one’s responsibilities to rely entirely on external advisors, whether they are investment bankers, credit rating agencies, lawyers, etc.

This brings me to the civil action launched by the Securities and Exchange Commission against Goldman Sachs – considered by many to be the evil empire of Wall Street. I am not an apologist for Goldman Sachs; but, the investors who bought the “synthetic” collateralized debt obligations (CDOs) peddled by Goldman were adults who were paid a lot of money to invest wisely for their institutions. What were they doing for the money they were being paid?

Johnny Carson used to do a satirical skit in which he paid “homage” to his lawyers who worked for the fictional law firm of Dewey, Cheatham and Howe. His satire was predicated on the common perception that lawyers cheated and lied. Anyone who has ever hung around Wall Street or its counterparts in London, Frankfurt, Hong Kong or Toronto, or has had direct dealings with the “bankers” knows that one can rely on their words only as far as one can throw them. Dewey Cheatham and Howe can accurately describe most of the players in this industry.

Thus, we have supposedly “sophisticated” and very well paid investors relying entirely on the words of one or more players on Wall Street or its counterparts elsewhere, and betting hundreds of millions of dollars each. I suspect that if they had been asked what happened when the house of cards collapsed and they lost most of their money, their responses would have echoed the words of the Canadian CEO: “We didn’t have time to do our due diligence”. They likely did not do any.

Have any of these losers been fired? I doubt that they have.

If John Paulson could figure out which CDOs were going to self-destruct, and he did an excellent job of doing this, then why couldn’t the investors in the garbage which Goldman sold to them have done the same?Wouldn’t it have been worth their time and money? Or have we just become fat and lazy, protected by laws which enable us to escape responsibility by relying on the words of “experts”?

The legal system would be doing most everyone a favor by finding in Goldman’s favor, and thus turn the ire of investors who lost billions towards the excessively paid and largely incompetent people who made the investments on their behalf.

Buyer beware, especially when you are dealing with Wall Street!

The opinions expressed in this blog are personal and do not reflect the views of either Global Brief or the Glendon School of Public and International Affairs.