2010-04-20 07:08:04

GOLDMAN SACHS: Criminalized

Filed under: Business, Economy, Featured, Money
Posted by: Purple State of News

by JOHN MARKS

In a sense, no matter what the outcome of the SEC case against Goldman Sachs, the worst of the punishment has already occurred. A firm with the highest sense of its own self-worth, a company that has always believed itself to live in the very best neighborhood, has suddenly been moved across the tracks. It’s been criminalized.

The outraged response from Goldman doesn’t stem from a belief that the government has a case, though maybe it has. It emerges from a primal sense of public humiliation and comes just as news breaks of a better than expected first quarter. “Just when I think I’m out,” railed Al Pacino in The Godfather III, “They pull me back in!”

There is a silver lining here for Wall Street, but not for Goldman. Today, Reuters reports that the SEC’s case may be limited to Goldman and perhaps a few other companies. That’s because the manner of the issue of these particular synthetic CDO’s, or collateralized debt obligations, appears to have differed from other issues of similar products. Evidently, most investors knew as a matter of course that the CDO’s would be underwritten, in part, by firms that intended to short them.

That’s actually understating the norm, as I understand it. In fact, generators of mortgage-backed securities stacked the deck with product that was essentially doomed to fail and then sold it and then bet against it, knowing that they had an ace in the hole. It boggles the mind that investors went for this deal, but at least they were told. The SEC is charging that Goldman stacked the deck without full disclosure.

Or, as the Reuters piece has it: “The key is the disclosure part. Simply creating a situation where one party is long and another party is short is not the issue,” said Scott Berman, a securities lawyer who specializes in representing hedge fund investors. “The problem is the failure to disclose how the vehicle was created.”

To understand why such a charge stings so, it might help to read The Partnership, the Goldman bio written by Charles Ellis. Even in the introduction, we get a sense of the firm’s damaged noblesse oblige. “On one level, Goldman Sachs has recently been paying a substantial ‘penalty of leadership’, particularly in the popular press where just a few years ago it had been showered with persistent adulation,” writes Ellis. “The change in perception has certainly been unpleasant for the people of Goldman Sachs, who believe deeply that their firm is the best and strongest investment bank and is established today in its strongest ever competitive position.”

Those words were written a year ago, long before the SEC made its case public, and Goldman had every reason to believe that it was mostly out of the woods. After all, it had come out of the meltdown in better shape than almost anyone, and its former employees, figures like Treasury Secretary Timothy Geithner, had risen to the highest ranks of federal power. Now, abruptly, it is not just a high-hatting, narcissistic fat cat. It’s a hoodlum, a bad guy, a criminal, a crook.

One can only imagine the outrage within the corridors, but what about a newfound humility? Is that also part of the mix? Can this self-regarding giant use its public degradation to reform itself or does its corporate well-being depend upon never being this wrong? The government’s case sounds tricky, but the filing of it may be seen as an opportunity for examination of first principles.

For instance, is it healthy for firms as powerful as Goldman Sachs to cultivate a corporate culture of unimpeachability? Is high self-regard a part of the problem? How about unexamined self-regard? Asking tough questions of oneself demonstrates character.

If Goldman is truly “the best and strongest”, now would be the time to show it.

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2010-04-13 15:42:28

THE ATLANTIC: 7 Reasons to Be Optimistic and Pessimistic About the Economy

Filed under: Business, Economy, Money, Politics
Posted by: Purple State of News

There are two sides to every coin, especially so it seems when it comes to actual money matters. The statistics can sound encouraging (or can be manipulated to such effect), but at times they may also be tempered by reality and relativity.

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2010-04-07 02:00:49

THE NEW REPUBLIC: Bill McKibben Says Forget Cap and Trade. This is a Climate Bill You can Love.

Filed under: Business, Economy, Environment, Politics
Posted by: Purple State of News

In what could be one of the next major items after healthcare reform on President Obama’s agenda, author (The End of Nature et al.) and environmental activist Bill McKibben discusses variations on a theme of climate and energy legislation – and gives his recommendation between the two current bills.

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