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Goldman Slaps The S.E.C. and the Senate Subcommittee Down To Size

Politics / Credit Crisis 2010 Apr 30, 2010 - 04:32 AM GMT

By: Andrew_Butter


Best Financial Markets Analysis ArticleLeading-up to the hearing on the 28th in front of Senate Permanent Subcommittee on Investigations, Goldman were…“going-to-get-roasted like-a-Louisiana-Catfish”.

The Media and the Blogs were full of it, we even had “a famous New-York lawyer…with connections in the SEC” handing out FREE legal opinions.

And now that those “shit’s” from Goldman got “dragged-over-the coals”…there is hardly a whimper. The Silence is deafening, except of course for the Muzak in the background:

Where have you gone, Joe DiMaggio
A nation turns its lonely eyes to you (Woo, woo, woo)

Not much of a “dragging” actually, more like a yawn, and oh, now we hear that there may be CRIMINAL CHARGES…Woo, woo, woo!!

This was Barrons’review of the FT commentary:

…. Blankfein “seemed to strain” under the attack of Panel chair Carl Levin (Dem., Michigan). The Lex column concludes that “Goldman needs to do more” than just conceding the complexity and obscurity of derivatives trades. The Goldman trades were legit, but they’ve become mired in confusion, the column seems to suggest, preventing any real progress on financial reform. Why that’s a problem for Goldman isn’t really clear from the piece.

The “evidence” that “material” information was held-back from clients appears to boil down to the idea that if salesman brags (privately) that he thinks the stuff he is selling is “junk” and that some customers are “much too smart to buy it”, that’s perhaps not a crime, but it is somehow (no one is quite sure how), contrary to SEC rules.

Well that’s an interesting concept, I don’t think I ever met a salesman who didn’t at some point in his career boast that what he was selling was junk (privately – like to impress the girls), many say that to prove what a great salesman they are…”I sell junk – but then again I am a great salesman…so how about it sweetheart?”

About the smartest thing that the “inquisition” said was something along the lines that Monsieur Fabrice et sa bande de merry-men were operating a gambling den with less regulation than a croupier in Las Vegas.

Well Duh!!

But its nice to see that the venerable assembly of honourable pork bellies are managing to get their heads around…the “complexities”.

I just wonder how long it’s going to take them to figure out where that piece of logic ends up.

Like who shut Brooksley Born down?

Err well it was a committee just like the one they are sitting on. Sure Rubin, Greenspan, and Summers all put their point of view, but it was the committee that made the decision.

And who ruled that a CDS which is something that walks like an insurance policy, talks like an insurance policy, and quacks like an insurance policy…is NOT an insurance policy? And is thus not subject to the type of regulation that “normal” insurance policies are subject to.

Err…that would have been Larry Summers.

Like who encouraged Fannie & Freddie to underwrite all those crappy RMBS in the first place? Err…Congres.

And might they have gotten little help from pork-bellies who were getting paid off, or on the shortlist to the “Revolving Door”?

And will the Financial Reforms that are winding their way into law change any of that? Err well apart from creating a regulated market for what was once OTC (which is what Brooksley Born suggested more than ten years ago), it won’t stop “that sort of thing”.

Apart from that, plus the inherent complexity that comes out of 1,300 pages of self-serving, waffle, all that package does is provide for more efficient and powerful fire-engines for the next time the system burns down.

My mind wanders back to the idea in the Bible about before you start talking about the piece of sawdust in someone else’s eye, why not think about the plank of wood you have in your own eye?

But it’s good to see that the journalists are finally waking up to the realization that the decision by Goldman to shift the very long position that they had built up in the preceding few years, onto their unsuspecting customers, was probably made mid 2006.

I wonder how long it will take them to figure out that what went wrong was a failure of government, as massive (in financial terms) as how the German population was failed by the government of Hitler, the Russian population was failed by the government of Stalin and the people of Zimbabwe were failed by the government of Mugabe.

What caused the credit crunch is simple…too much pork.

And to those who say “Goldman’s reputation will be ruined by this”, all I can say is “please…give me a break”. Everyone knew, everyone knows, that Goldman Sachs are a bunch of sharks, and that you had better count your fingers if you do business with them.

That’s why you hire them, because they are the best sharks in town, if anything this whole affair will do their reputation, (as a bunch of very smart sharks), a pile of good.

Whether it’s a good idea for American Taxpayers to be the “counter-party of last resort” to a bunch of sharks running an exclusive (but not un-lawful) regulation-free gambling den, is a good idea; might be a subject the pork-bellies could profitably debate some time.

But that’s about as unlikely as reading any (private) e-mails between members of Congress and Fannie and Freddie, or e-mails they might have sent to their girlfriends talking about that.

So don’t hold your breath. Something went very wrong, the damage to America is immense, but drama-packed reality shows where pork-bellies have their chance to sound clever in public, are not going to solve the problem.

By Andrew Butter

Twenty years doing market analysis and valuations for investors in the Middle East, USA, and Europe; currently writing a book about BubbleOmics. Andrew Butter is managing partner of ABMC, an investment advisory firm, based in Dubai ( ), that he setup in 1999, and is has been involved advising on large scale real estate investments, mainly in Dubai.

© 2010 Copyright Andrew Butter- All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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