Thursday, July 15, 2010

Coincidences in our time: Finreg becomes law, and the SEC settles with Goldman Sachs 

Congress has sent the financial regulation bill to President Obama for his signature. In no doubt wholly unrelated news, the Securities and Exchange Commission has settled its case against Goldman Sachs. The government got some good money by the standards of these actions, but everybody thinks this is a huge win for Goldman: No admission of wrongdoing, no change in management, no material change in business practices, no ongoing monitoring, and -- above all -- no disgorgement of documents to the plaintiff's bar. Notwithstanding the SEC's chest-beating victory lap, Goldman's stock is soaring for a reason.

Anybody out there still think that this case involved anything other than preparing the political battlespace for Finreg?


By Blogger Escort81, at Thu Jul 15, 06:34:00 PM:

OK, I have to own up to a bad prediction -- I am pretty sure when I blogged about the case when it first broke, I figured it would be in the neighborhood of $100 million, tops. This is $300 million in fines to the SEC plus $250 million to the parties on the other side of the deal. A nice scalp for the SEC attorneys working on the case, and they clearly had a stronger case than I believed. Mea maxima culpa.

Even the $550 million settlement is perceived as a wrist slap, since this figure is less than 5% of 2009 net income, and, including after-hours trading, GS is up double digits in dollars.

Evidently, the stake is out of the heart of the "vampire squid."  

By Anonymous Locker Room, at Thu Jul 15, 07:06:00 PM:

I worked for ten years for a former member of the Goldman Sachs Management Committee who made partner when the firm was about more than just making as much money as fast as it can, any way it can, risk be damned. He was the finest gentleman I've met in my thirty-plus year business career. TH - you know who I'm talking about.
I've never seen a more blatant example of transparent insincerity than when I hear Blankfein heave up his garbage about the firm's devotion to its clients. Goldman doesn't have clients, it has counterparties.
I feel badly for my former boss, having to live out his days seeing the firm he devoted his life to converting itself into a huge hedge fund and sinking to the disgusting level it has. The lightning speed with which Goldman converted itself to a bank holding company was laughable, but nothing could top hearing Blankfein say the firm had its CDS positions with AIG fully hedged and was in no danger - none at all - had AIG done a face-plant in the turf. Hey Lloyd, I may not be smart enough to work in your shop, but that doesn't make me a complete moron. So please, refrain from pissing on my shoes and telling me it's raining.
Were these guys still playing with their own capital, Goldman would not be populated with all the grasping snakes now in residence there. When Wall Street's private partnerships converted to public ownership, the respect for firm capital vanished. The Street treats shareholders' capital the way Congress treats taxpayers' funds - it's strictly Other People's Money. And sadly, 99% of people on earth treat OPM with no more caution and respect than they do a glass of water. Tap water.
I grew up in business having the strongest respect for the name Goldman Sachs and now everything about the place makes me want to puke.  

By Anonymous Anonymous, at Thu Jul 15, 07:50:00 PM:

Neville Chamberlain would be so proud.

This was a shakedown pure and simple and at some point you need to fight it. the stock may be rising because they got this behind the but the American Business Community has to stop settling with these film glam Community Organizer shyster lawyers. Sharpton and Jackson and Obama have made a (shameful) Life ofi this extortion but it's suicide to pay up when you are Right.

Of course the previous commenter has it right. It's not their money so they don't care. When American Business is owned by Fidelity and Vanguard and index ETFs instead of by real owners then the scumbags of the world will prey on it and the scum bag managers like Blankfein will appease them  

By Anonymous Personal Injury Liverpool, at Fri Jul 16, 02:54:00 AM:

Nice Blog....  

By Blogger Gary Rosen, at Fri Jul 16, 03:52:00 AM:

"When American Business is owned by Fidelity and Vanguard and index ETFs instead of by real owners then the scumbags of the world will prey on it"

So what are the millions of Americans who have invested large portions of their life savings (such as myself) in stock mutual funds supposed to do?  

By Anonymous Ignoramus, at Fri Jul 16, 08:59:00 AM:

"Goldman doesn't have clients, it has counterparties."

I've got a long rant below
about how FinReg will turn Goldman and a few other big banks into GSEs. Lloyd owns the upside, we've got the downside. There's delicious irony in our forever calling this POS legislation "Dodd Frank."

"..., Goldman will make a lot of money most of the time ... but at the risk of fucking up big time and leaving us with the tab. "Financial Reform" is nothing but. We've written "Too Big to Fail" into legislative stone."

Bienvenidos a Argentina!  

By Anonymous Ignoramus, at Fri Jul 16, 09:37:00 AM:

The SEC settlement is over just one deal. German Bank IKB got $150 million out of the settlement, which covers all its losses. Royal Bank of Scotland got $100 million, and today says it may sue for the rest of its ABACUS losses.

Goldman is already being sued on other deals ... some of these involve claims that are worse than ABACUS. There's enough dots on the page that you can draw the cat: Goldman was in cahoots with collateral managers ... together they screwed clients by substituting shitty collateral. This may go nowhere, but if it develops Goldman has serious exposure -- these involve the deals that brought down AIG.  

By Anonymous Anonymous, at Sat Jul 17, 06:28:00 AM:

This so-called financial reform bill passes on the fifteenth and on the sixteenth the DOW falls 261 points. Coincidence...I think not.


By Anonymous Ignoramus, at Sat Jul 17, 01:05:00 PM:

A follow-up on the SEC-Goldman settlement.

Some months ago, Judge Rakoff of the SDNY castigated the SEC over its proposed settlement with Bank of America over failing to disclose Merrill's "material adverse change" prior to asking shareholders to approve their merger. Rakoff was furious that no one at BAC got named personally ... there was only a $30 million fine ... which in effect would be paid by the same shareholders who had been misled.

Flash forward, and it's happening again in the Goldman case.
Unlike some here, I think the SEC has a case against Goldman. But if the SEC is going to charge serious fraud against a serious firm, they should go to trial and prove it.

The SEC has no balls. This is a travesty.

The SEC also sucks at most investigations. They bring a lot of insider trading cases because they work backwards from suspicious trading activity. Otherwise they couldn't find their ass with both hands. The Goldman case was handed to them by Levin's committee and pissed-off Goldman clients who "dropped a dime."

Lately, the SEC has been riding the coattails of Justice by bringing Foreign Corrupt Practice Act charges. The settlements are often in the hundreds of millions, so it's a big profit center for the agencies.  

By Blogger Gary Rosen, at Sat Jul 17, 04:40:00 PM:

Verrrry interesting editorial today by the WSJ on the Goldman settlement. The Journal has mostly taken a "pro-Goldman" view echoing TH's assertion that the case had little merit and was brought primarily to help pass FinReg. But after reiterating that they took some pointed shots at the relationship between GS and the govt such as "Maybe the best way to think about the $550 million is as Goldman's bailout fee - a political reckoning for the assistance Goldman received during the financial crisis" and "the ... case is ... a prototype of the relationship between Washington and Wall Street we are likely to see even more of in a Dodd-Frank world." (Trying not to quote too much for copyright reasons).  

By Anonymous Anonymous, at Sat Jul 17, 09:10:00 PM:


(Not related.)  

By Anonymous Ignoramus, at Sun Jul 18, 10:52:00 AM:

We've gone insane, truly.

Law firm Davis Polk has an interesting slide presentation on Dodd Frank. Can you say Rube Goldberg?

Dodd Frank will require 243 rulemakings and 67 studies. The SEC alone is to do 95 rulemakings -- Sarbanes Oxley only required it to do 16.

My over/under is that it will add 25,000 pages to the Federal Register over the next two years.

The winners here are lobbyists, lawyers and bureaucrats.

The root causes of the financial crisis haven't been dealt with. This is just another Beltway political class power grab.

The new Bureau of Consumer Financial Protection is the joker in the deck. Expect it to lead to de facto credit quotas.  

By Blogger Gary Rosen, at Sun Jul 18, 03:37:00 PM:

Without knowing the details, Dodd-Frank smells to me like the health care bill - thousands of pages of government regulations that the people voting for them did not read or understand. Very bad policy.

It seems to me the best financial regulation would be the simplest. Enforce fundamental rules about disclosure and capitalization, then let the market take its course. Disclaimer: I don't really know what I'm talking about.  

By Anonymous Ignoramus, at Mon Jul 19, 08:27:00 AM:

"I don't really know what I'm talking about. " Yes, you do. Disclosure and capital requirements have been (and should be) principal levers.

A shout out to Billy Bob Corncob: you want to defend Dobb-Frank?

Dobb-Frank was sold to us as common sense reforms to prevent another crisis, but it's nothing but. It'll be sand in the gears of our financial system for the two years that rules are getting written -- and then more sand as it gets applied.

Just wait for the EPA to work its magic.

2011 growth won't reach 2%, despite our running another trillion dollar deficit. Unemployment won't come down. No matter how much we push the gas pedal of deficit spending, we won't overcome the drag. In effect, we're already in a double dip recession.

On current course we'll be lucky to get 1% annual GDP growth for the next decade -- that'll have significant consequences.

Illinois isn't even bothering to pay in scrip -- it just doesn't pay its bills. A sovereign can get away with that for awhile. Expect private suppliers to stop supplying and/or that they go bankrupt. This ought to hit by November.  

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