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Jul. 16 2010 - 4:12 pm | 94 views | 0 recommendations | 8 comments

Goldman Closes a Chapter…But Probably Keeps Writing the Book

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So I said all along Blankfein would keep his job as Goldman Sachs’ chief, no matter what happens — the firm has made yacht-loads of money under his leadership, and when all is said and done, that’s all the Goldman partners and their shareholders care about. Moreover, if they fired the chief, they’d be admitting that they did something wrong — and considering that they settled the SEC suit so they could get on with business as usual, that’s something they are simply not going to do.

So, has Goldman learned anything from this whole horror?

I doubt it. Lots of reporters have been referring to this as a “humbling settlement” for Goldman. No matter where I look, I don’t see any “humbling” going on. Way I see it, the firm has yet more proof that there is absolutely no down side to getting rich on the broken backs of others.

First of all, the $550 million fine. Yeah, that’s huge by normal-people standards, and it’s huge by SEC standards, too. But it’s not a lot of money when seen in the context of the record profits Goldman’s been raking in (almost $13.4 billion last year). We’re talking maybe half a month’s earnings here, no more than that. Goldman can absorb that expense as easily as normal folk can absorb the cost of an occasional over-priced dinner.

And even if it couldn’t — Goldman shares went up more than 5% when the settlement was announced, adding a lot more than $550 million to Goldman’s market cap. (Yeah, the stock price could plunge again, while the fine is a concrete outlay, but still….)

But maybe the most disheartening aspect of Goldman closing this chapter is that it doesn’t have to tinker with the plot-line of its book.

Remember, Goldman was charged with defrauding its own clients by persuading them to buy a mortgage security that Goldman itself knew would tank.

Goldman denied it had done anything wrong — but it did NOT deny that it had withheld the fact that it had created the toxic security for the sole purpose of letting John Paulson, a mega-respected investor, bet against it. That’s kinda like telling me to invest my 401K in a new class of stock without mentioning that it was created just so that Warren Buffett could short it. Goldman’s grudging admission: it was a “mistake” to withhold the information, a mistake it regrets.

So have clients fled the firm in disgust? No sign that’s happened. Apparently, what looks like fraud and malfeasance to people like me looks like the kind of sophisticated savvy that existing and prospective Goldman clients want on their side.

Are shareholders fleeing? Nah, as I noted above, they’re bidding up Goldman stock. And they don’t even seem overly upset that Goldman didn’t immediately tell them that it was being investigated by the SEC (definitely material information). Sure, a few have sued — but many more are applauding.

Nor am I seeing any signs that Goldman will be forced to give up its bank holding company status. Remember, it switched to that so it could have access to real cheap money,even as it got rich from bailout funds and AIG payouts. Wanna bet it continues with that, too — unless new financial rules make that onerous. If that happens, Goldman will find yet another way to turn back the clock, publicly offering “regrets,” privately patting itself for another job well done.

It’s all pretty depressing, dontcha think?


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  1. collapse expand

    I agree with everything you wrote, Claudia. The article ended a little early. What is way way more dastardly is what the politicians did and didn’t do and why. Our entire system of government is owned by these guys, As Senator Durban so plainly stated. I don’t like Lloyd Blankfein because of his feigned innocence and allusiveness under oath. But he is doing what he knows. He is plying greed-based trade that used to serve a more noble purpose. The real villains in this tragedy are the vile politicians that aid, abet, and profit from their obscene enabling symbiotic relationship with the likes of LLoyd and Jamie. Apparently Washhatan is going to have to ruin things completely before the people of our nation wake up to the screwing they have been getting. As long as I hear leftists defend Barack Obama, and right wingers defending George Bush (right here on True Slant) the pols and bankers will continue to eviscerate America. Apparently things have to get real bad before they get better.

    • collapse expand

      but things did get really bad, and they are getting better. Come now — I’m the first to admit that the new financial reform bill is not perfect. But you don’t think it’s an improvement over the status quo? There are going to be consumer protections, there will be transparency on derivative trading…
      By way of saying…
      The Blankfeins of the world will continue to be driven by greed. But the Obama Administration has at least put a few new roadblocks in their path.

      In response to another comment. See in context »
      • collapse expand

        I understand what you are saying. I just think that the American people are at the end of the chow line in all of this (unless you are a resident of the empire state, perhaps). The idea that we have 2 places on the planet that work symbiotically to preserve their power over the people is incredibly discouraging. The middle class is disappearing. The plutocrats and politicians (specifically Obama) are to blame. I despise them both. I run a factory that is growing. My family live the 3 bedroom house, 2 car life (which we cherish. What saddens me is that my workers are poor. It’s 2010 and factory work pays shitty. America is broken.
        “The Obama Administration at least…” is not acceptable. As I have mentioned many times: If the investment bankers keep doing bad things, they will eventually suffer bad consequences. It looks like that got a “Get Out of Jail Free” card. If they continue to engage in non-value-adding greedy behaviors, they will suffer the backlash eventually. Just because they bought off the current government, doesn’t mean that Karma isn’t real. BTW: You are dead wrong on Blankfein keeping his job. He will retain his job as a Kabuki face-save in the near term. In less than a year, he will not be chairman. Wanna bet on it? Enjoy your July weekend!

        In response to another comment. See in context »
        • collapse expand

          Now this is interesting: on the one hand you think Wall Street and Washington are corrupt beyond repair. Yet you believe Blankfein will be forced out. By who? Goldman shareholders aren’t suffering, the government can’t seem to find a way (or maybe doesn’t want to find a way) to rein Goldman in, and the partners and traders are making boatloads. I would think, if you’re right about the screw-the-little-folks environment, that Blankfein would be celebrated and given extra bonuses, not sacrificed.

          In response to another comment. See in context »
  2. collapse expand

    Six months ago, when I was a childishly naive 54 years old, I though Lloyd Blanklook would suffer the purgatories of hell. I was just dumb. You are correct, “It’s all pretty depressing…”.

  3. collapse expand

    Your question: So, has Goldman learned anything from this whole horror?

    My answers: Yes, it learned that absolutely nothing has changed. That it still can buy the government and run the country. That the Obama Administration is its friend. That the soon-to-be passed financial reform package is more public relations than public reparations.

    There was no gray area in this case. Goldman Sach screwed their clients. “Oops, I’m sorry,” a meaningless fine, and no changes in leadership tells us that its still business as usual.

    How do things change? Well, instead of voting for president, maybe we can vote for the CEOs of the major investment houses. After all, they are the ones who run the country.

    • collapse expand

      I disagree with only one of your points –but I disagree vehemently. I don’t think the new financial reform bill is perfect. But I think it is a HUGE step toward reining in some of the worst practices. I don’t even know what you mean by public reparations in that context…

      You were joking in your last comment,but hey — I’ve long been an advocate of proxy access for shareholders. Let them elect the directors who will appoint the right CEOs

      In response to another comment. See in context »
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    About Me

    I graduated from Cornell with a degree in child psychology, enough years ago so that all you needed to break into journalism was willingness to starve. I went into business journalism because, in the 60s, the business press was the crusading press, the ones that wrote about environment, race relations, etc. Since then I have worked for Business Week, Chemical Week and, from 1984 through May 2008, BizDay at the New York Times. I remain bored by and ignorant of esoteric financial instruments; I remain fascinated and pretty knowledgeable about management, marketing, environment, all the non-financial aspects of business. But my true passions? Tennis, both playing and watching, and food, both cooking and eating.

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