La Multa della SEC a Goldman Sachs: troppo o troppo poco?



Goldman Sachs Tower & US Government : Perfect Together
Credit: SpoonMonkey

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19 July 2010. By David Caploe PhD, Chief Political Economist,
Well, it’s not supposed to be nice to say “we told you so” –
but just about three months to the day, on the ever-auspicious 4/20,
we did indeed tell you we had real doubts about the alleged seriousness of the SEC’s civil – not criminal – charges against Goldman Sachs:

Unfortunately, we are not yet convinced that even the seemingly dramatic events with Goldman and the SEC are anything more than,
to paraphrase perhaps Shakespeare’s second most famous soliloquy, from Macbeth, “a tale full of sound and fury, signifying not too much.”

Which, not to break our arms patting ourselves on the back, was precisely our conclusion
after going through an exhaustive analysis of the whole SEC vs. Goldman situation.
And so now, again, almost three months to the day the SEC announced it was bringing charges against Goldman, it’s all over –
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with Goldman having to pay a “whopping” $550 million fine to the SEC, the largest it has levied in its history,
according to its announcement of the settlement.
Sorry, but pardon us while we yawn.
And it seems we’re not the only ones.
No one can forget the brouhaha that accompanied the announcement of the action –
and all the “hopes” this was going to be the so-called “Pecora Moment”
that was finally going to bring some justice to the forces – not just individuals –
who had created the global financial and then economic disaster we call Black September 2008.
And yet, to use the over-quoted Yeats line – surely you’re relieved we’re not going to use a Shakespeare allusion AGAIN –
it all ended with MUCH more of a whimper than a bang–
which you could discern from the fact you could barely find a story or analysis about the “resolution” on major American news websites by the next day !!!
To be sure, there was the obligatory New York Times News Analysis on Saturday –
which, as we have made abundantly clear, is the slowest news day of the week in general,
and especially during a holiday, or in this case, a “global warming summer” that is driving everyone on the US East Coast insane with the heat.
And it did have some substance to it, since it came to the exact same conclusion we did upon hearing the news, namely:

The Goldman settlement — both its size and its legal implications —
brought a palpable sense of relief on Wall Street.
After two months of strident claims and equally strident denials,
the matter was finally settled, and for a price Goldman could easily afford.
The penalty amounted to about 15 days of profits.
On Friday, as other banking shares tumbled along with the broad market, Goldman’s share price rose again.

And why not ???
Goldman had become the villain not because of what they did:
as the Times’ outstanding bi-weekly Wall Street blogger, Bill Cohan, noted just a few weeks ago,
EVERYONE on Wall Street was doing more or less the same things,
as made clear by the Lehman Bros / Repo 105 maneuver
so clearly exposed in the Valukas Report, the one investigative effort –legislative / judicial / journalistic / blogosphere / whatever –
that has actually produced something of value, at least so far.
No, they became the villain because –
while everyone else pulling the same sleazy tricks was failing –
Goldman was succeeding !!!
Which was no doubt the reason our twisty friend Warren Buffett decided to make his bet on them in Black September 2008,
when the whole financial world seemed to be collapsing.
And in the end, you have to give him credit for making a smart bet with Goldman, because, as the Bloomberg report on the agreement noted,

The payment amounts to 14 days of earnings, based on first-quarter results.
It’s the equivalent of 93 cents a share, said Brad Hintz, an analyst at Sanford Bernstein & Co., who had estimated a cost of $1.05 …
“Bottom line: the SEC and the administration get a headline, and a ‘political win,’ and GS gets an ‘economic win.’”

Indeed, that is the bottom line here: Goldman gets away with a slap on the wrist,
making enough in the rise in their stock on Friday to more than cover the cost of the “fine”,
and the SEC and the administration get to look like they’re not just standing there, but doing something.
And that’s the whole problem in a nutshell.

The appetite for bringing another high-profile case has probably been diminished by the Goldman news,
as well as Thursday’s approval in Congress of an overhaul of the nation’s financial regulations.
“The S.E.C. got its big check, the legislation was passed, what more do they need to do?”
asked Adam C. Pritchard, a securities law professor at the University of Michigan Law School.

Indeed – which only underscores what a farce this whole thing has been from the beginning.

“The purpose of a villain is to create popular and political sentiment to achieve a legislative end,”
said Mr. Pritchard of the University of Michigan Law School.
In the 1930s, he noted, a Senate committee hauled in J. Pierpont Morgan Jr., which helped usher in legislation that reshaped Wall Street regulation.
In the 1980s, the prosecution of Ivan Boesky and Michael Milken helped pass crucial changes at the time, Mr. Pritchard noted.
“And for financial regulation and reform in 2010, the villain was Goldman,” Mr. Pritchard said.

All of which is true –and that’s what makes the whole thing so sad:
it’s like the birth agonies of an elephant –
though it hardly seems like either the SEC or GS suffered through very much in this Kabuki-like exercise –
to produce a mouse,
which is exactly what the so-called / self-styled / alleged financial “reform” is:
a mouse that completely avoids all the real issues –
above all, making mandatory the absolute transparency of ALL derivatives transactions –
but not limited to that radical omission either.
Forcing the TBTF banks to open their books,
and reveal just exactly how many toxic assets they are carrying,
would also be a good idea –
not just as a democratic principle, but also because, in the absence of such a move,
the US economy is heading down the exact same path as Japan after the collapse of its real estate market in 1989 –
now up to TWO “lost decades”, in which the stock market needs of the financial sector
take capital / energy / talented people away from the innovative economic activity
that is the only long-term solution for America’s economic woes.
Just ask China – because they’re doing what the US should be doing.
But that’s apparently too much to ask from the Obama administration –
which, despite its slavish devotion to every whim of Wall Street,
is still being vilified there,
and, partly as a result, could well lose control of Congress to, as Paul Krugman continually points out,
a Republican party that created – both through its actions and rhetoric – this mess in the first place.

David Caploe PhD