Ding-Dong, Goldman Sachs $GS Gets Served

bigdog posted on 06/09/11 at 09:30 AM

...with subpoenas, that is. By now you've probably caught wind of the news that Goldman (GS) was served subpoenas by a Manhattan district attorney for evidence the WSJ called "scathing" on GS's role in the mortgage securities crisis. 

It's hard for many to resist doing a little jig at their bad news - and it's clear plenty of investors, big and small, have that opinion and are crowing in glee. It's true, the WSJ article suggests GS may be only minorly nicked by this development, but one can't help but wonder if this is the start of their death by a thousand paper cuts. The AP news report on the news pointed out: "To date, Goldman also is being investigated by Massachusetts state regulators, the Commodities Futures Trading Commission and the Financial Industry Regulatory Authority, according to Brad Hintz, an analyst at Sanford Bernstein." So I suppose there's plenty still to follow for Goldman-naysayers (even though the stock continues to trade at fairly battered levels).  

What do you think: Does this signal the beginning of an era of real trouble for Goldman? Or is it just the latest round of bureaucratic paper-pushing, likely to do no more than contribute to increased job security for regulators and lawyers aplenty?

[image: Ding Dong the Witch is Dead by Garland Cannon on Flickr]


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Posted by bigdog on 06/09/11 at 09:30 AM


corbinb2 posted June 09, 2011 (10:13AM)

I can see some backroom mutually agreed upon fines at the end of this, and on the plus side, some job creation during all this 'probing' and and a healthy public slap from figure heads, but the ties between governmental finance and this company are too great and long standing for it to go away.

GS Execs and others in the know, may very well be looking for ways to legitimately short their own stock holdings though. I would be watching the insider trading activity closely from this point.

incubus posted June 09, 2011 (05:02PM)

Cramer had comments on GS and, more importantly, the financial sector last night that can lead to some deductive reasoning (my dear Watson)

He displayed a pie chart of the S&P broken down by share per sector, financials currently account for 16% of the total S&P market cap.

Just a simple matter of economics, too much banking and not enough real GDP, to me means either the rest of the S&P has to catch up or banks have to slow down.

(and it's not looking too good for everything else just now....)

Where financials account for so large a portion of the economy, at a time when consumer credit is at such a historic high at the same time that wages are stagnant and unemployment at a 30 year high, it means lending is going to stumble as consumption does, which then means banks are going to need to resort to alternative sources of income.

In two words - Dodd-Frank, those alternative sources of income have been crippled and after yesterdays vote on swipe fee's, it's looking bad all around for the industry..

Last year, Meredith Whitney stated that financials were extremely over-valued, and it's starting to look as though she was spot on.

As for legal actions against Goldman's, JPM, WFC, C, BAC and the others, I have been talking about the reality of public sentiment for over two years now, as far back as late '08 when I was ranting over the nefarious nature of the MBS market, post Glass-Steagall.

Blankfein might as well have painted a "kick me" sign on GS in '09.

When he opted to dole out all time record breaking bonuses while mass lay-offs and home evictions were going on as a result of their participation in "proprietary" trading, I knew it then that the writing was on the wall, they'd made themselves the poster child for public scrutiny.

Jamie DImon might do well to be less confrontational in public as he was with Bernanke yesterday, he may feel justified to fight back, but he may also be painting a target on JPM as well.

corbinb2 posted June 10, 2011 (09:44AM)

Quote: Where financials account for so large a portion of the economy, at a time when consumer credit is at such a historic high at the same time that wages are stagnant and unemployment at a 30 year high, it means lending is going to stumble as consumption does, which then means banks are going to need to resort to alternative sources of income. What banks need to do is start lending again. Not stupidly, but the current hoops and standards they use are over the top as is indicated somewhat by this article: http://finance.yahoo.com/news/Bank-Said-No-Hedge-Funds-Fill-nytimes-3723977563.html They are not going to be able to maintain growth and profits on the backs of those subject to their myriad of fees either. There are numerous ways no in which banks can be excluded entirely from your life, albeit more expensive, certainly much less of a hassle for many who have already chosen or been forced to choose this route. The public sentiment is that banks are the problem and with elections right around the corner, all banks are going to have a target on their back if that is the direction the political wind is blowing.

corbinb2 posted June 10, 2011 (09:57AM)

Sorry for the crowded text above....formatting would not take after MANY attempts.

incubus posted June 10, 2011 (03:49PM)

Corbin, though I agree banks could lend more to stir economic activity, the problem runs deeper.

The promiscuous lending through mortgages and equity loans of the past decade were only done for the fact that the banks were able to ignore the fundamentals and high risk of the actual loans themselves (liar and sub-prime) by converting them into fraudulently rated "triple A" assets.

That's where the banks made money, not so much the actual loans themselves.

If they hadn't been able to make money off the derivative side of the lending, they probably wouldn't have loaned back then either.

It turned out to be a candy bar for a starving man, rather than deal with the fundamental problem of median wages to fuel consumption, Greenspans free market approach gave the banks a huge short-cut around that problem.

The end result is now obvious, the original problem still exists but it's now exacerbated by the massive debt and further jobs lost in the aftermath.

In a nutshell, where it pertains to Goldman Sachs, the big banks have pretty  much been backed into a corner, there is a natural limit to the total market share an industry that doesn't manufacture or produce anything can have.

Banks are important, but an economy cannot revolve around derivatives, prop trading or promiscuous lending, this is where Peter Schiff is right - America has to get back to making stuff.

guitarmanken posted June 14, 2011 (08:20PM)

              I too am doing the jig right now!  Whoooooo! I love when these guy's have to answer for what they have done. They have been in the hot seat quite a few times in the last couple yrs. I think its more than paper pushing. I think the world is pissed and they are not going to forget.  I want to see some jail time!                                                                                   Ken.

bigdog posted June 17, 2011 (09:18AM)

Another great discussion I missed in my travels! Let me chime in briefly, if a little late:
Sadly, Corbinb2’s first point about GS is probably right. I see your point about the insider-trading activity, too - although if anyone can play within the disclosure rules but effectively game the stats, GS execs probably can. That might go as well for JPM and the other biggie banks.
Incubus, I’ve also read in numerous sources now that financial-services has ballooned to a larger-than-sustainable slice of GDP. And I agree with you and Corbinb2 – I can’t imagine any amount of nickel-and-dime fee revenue is going to take the place of good old-fashioned lending. But who’s going to take the plunge and start borrowing again? That’s the right rub, I’d say.

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