Goldman Sachs, The SEC and Media Perception – Update 2

04.26.2010 original publish date
02.13.2016 page format update

Goldman Sachs, The SEC and Media Perception – Update 2

original article written by Net Advisor™

follow up article from:
Goldman Sachs, The SEC and Media Perception

WASHINGTON DC. CNN published several recent articles in regard to Goldman Sacs and the recent SEC case.

After reading these articles I have found that they fairly cover citations from both views, however does the headline make accurate insinuations.

Soul Searching?
As for Goldman “selling it’s soul” might be seen as a bit melodramatic and that level of drama just doesn’t seem to support accuracy in media. Goldman was only one of many Wall Street investment banks, U.S. and foreign financial institutions that traded in the CDO and other derivatives market.

The following table refers to “the ranking – by size of liabilities – of CDO managers at the end of 2004 and in the autumn of 2005” [Source: Moneyweek (09-05-2007)].

  • Notice at this time in question, Goldman Sachs is not even in the top 25 CDO players.
  • Notice bankrupt GMAC was ranked #7 in 2004 and #11 in 2005.
  • Notice bankrupted Bear Stearns was ranked #13 in 2005.
  • Notice Fortress, an investment firm whose holdings include casinos and horse racing, and who allegedly lost $125 million in an unrelated ponzi scheme it was a victim of, was effectively bailed out by the FED under TALF and was ranked #15th largest CDO player in 2005.
  • ACA Capital Holdings is one of the big firms who is named to be associated in the SEC-Goldman complaint and who claims is one of the two investors who stated they lost $840 million in the Goldman deal. Notice that in 2005, ACA had $5.77 billion in CDO liabilities. Thus, ACA cannot be called “unsophisticated,” or claim ignorance when they have over $5 billion invested in a complex and sophisticated market – the #9 largest CDO player in the world in 2004, and ranked #12th largest CDO player in 2005. I have not researched to evaluate the other companies named on this list. Kudos to Moneyweek’s Paul Tustain who wrote the 2007 article and got it right.

The bottom line here is Goldman Sachs was not the only firm selling or involved with CDOs, and they were not even in the top 25 global firms by 2005, effectively, “Everyone was doing it.”

Should GS overhaul its board because of the SEC suit?
I have not seen a good argument here in favor of changing up the board. What I would look at is Fabrice Tourre‘s supervisor, his immediate supervisor, then investigate the trading, and the selling of securities and how that foreign office was operating. Again, keep in mind this is a civil case, not a criminal case, and no one on GS’s board (of directors) are named in any complaint. I would stick to the people who are named and act accordingly through discovery and let the evidence play out in court.

“Goldman knew it profited in crisis”
As if it was illegal to try and make a profit. For the last couple years (2008-2010) there has been plenty of TV, on-line and print media stating who made money and who lost money during the mortgage mess. Now if a court having jurisdiction finds the GS gains in question are ill-gotten, the SEC can go after the $15 million in fees it received from Paulson & Co., and possibly double that fine.

“4 tough questions for Goldman Sachs”
A CNN journalist asks a series of questions about GS. I have provide my responses under “My Answer”

1. Q: “Is this the work of a single employee?”

My Answer:
That was also my first question. It would seem to me that there should be others, unless GS alloys certain people to work independently. This I would agree and would argue could be a compliance supervisory issue.

2. Q: “How should Goldman and other banks be regulated to ensure these conflicts of interest are not hurting investors?”

My Answer:

Create transparency in the off-book derivatives market. Allow them to trade on major exchanges where everyone can click a symbol or look up the security and see what the current market prices are for the security. The exchanges collect fees on every transaction just like they do on all securities, commodities, options, and futures transactions. Keep in mind that there are no guarantees that no one will ever lose money investing.

3. Q: “You’ve (GS) spent a big chunk of money on lobbying efforts this year. What are you trying to accomplish?”

My Answer:
When you are ready to make lobbying illegal, please let me know so I can vote. No one is going to put that on any ballot.

4. Q: “The slogan on your Web site is ‘Our work enables growth.’ How does a company that generates much of its business from trading help the economy grow?”

My Answer:
Clearly some social agenda is built into this question. As if it is unlawful to trade and those who do should be banned from Earth is the impression I got from this question. Let’s take a quick look at these last four points:

  • GS employs over 36,000 full-time workers. That is a big pay roll, billions in federal personal income taxes, billions of dollars of money that will be eventually spent into the economy, and that spending (demand for products) helps create jobs. Goldman is scheduled to pay out $22 billion to employees (Source: ABC News).
  • “Investment Banks help companies and governments issue securities, help investors purchase securities, manage financial assets, trade securities and provide financial advice.” (source 1, source 2)
  • If one has ever bought any retail product, a house, a car, a TV, a phone, a computer, did anything on the Internet, watched a movie, flew in a plane, brushed your teeth with a tooth-brush, used soap etc., you can thank venture capitalists, investment bankers and the alike for helping entrepreneurs give them the investment capital to make all that possible.
  • If one would like to see what a world without these people would be like. Go to a deserted island, bring nothing, and see if one prefers a life like that.

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short link: https://www.netadvisor.org/?p=6038

Disclosure:
I have never worked, been a consultant for, nor have been paid by Goldman Sachs. But if someone is looking for help, I have collected over 1,000 files just on banking and finance from 2006-2010 thus far, and over 900 files on real estate from 2005-2010 thus far. I have more. I have been studying the issues.

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