Goldman Closes a Chapter…But Probably Keeps Writing the Book
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?