Goldman Sachs's Sad Fall From Grace

Charlie Gasparino The Daily Beast April 17, 2010

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Bloomberg / Getty Images The accusation that Wall Street’s top investment bank defrauded investors means the end of their golden reputation, says Charlie Gasparino—and only confirms what everyone suspected: They play dirty.

Before Goldman Sachs was lampooned in the media, famously labeled by Rolling Stone magazine the evil “vampire squid,” and became the symbol on Main Street for all that was wrong on Wall Street, the big firm was already the most hated investment bank among investment bankers.

This case represents… a road map into how a firm that was once considered the gold standard of Wall Street behaves like a two-bit thug when money is on the line.

But now Goldman has even bigger problems, having been accused by the SEC of securities fraud. The SEC claims that Goldman sold a complex type of mortgage bond, known as a collateralized debt obligation, to investors without alerting them that hedge-fund manager John Paulson had selected the same bonds as likely to default.

Paulson made money because he was actually shorting the bonds (a trade that becomes profitable when prices decline), as Goldman was selling the bonds to investors, suggesting they buy them because the housing market would continue to boom.

These allegations only further the case for Goldman’s dismal reputation on the Street. The reasons for that reputation are many: Goldman executives populated senior positions in government, particularly the Treasury Department, where they made decisions that always seemed to benefit the company (getting bailed out by ex-Goldman CEO Hank Paulson when he was Treasury Secretary, while Lehman roasted). The firm used sharp elbows to crowd out competitors and win big investment banking deals. In one outrageous example, Goldman pushed the ethical boundaries by serving as the investment banker on a deal in which it sold its own electronic trading platform to the NYSE, which was headed by former senior Goldman executive.

But the biggest complaint against Goldman involved how the firm treated its customers, namely the large institutional investors that buy and sell stocks and use Goldman’s trading ideas on a daily basis. The rap against Goldman is that it basically screws customers every chance it gets, stealing ideas, betting against their trading positions, and in general just being jerks so it can inflate its already bloated bottom line.

It was a charge Goldman has for years vigorously denied, while daring reporters (like myself) to come up with conclusive proof that it went on. In the past year, as the Goldman-screws-its-clients chorus has grown louder, the firm has taken extraordinary steps to refute the charge.

Goldman CEO Lloyd Blankfein recently took pains in the firm’s widely read annual shareholder letter to state explicitly that Goldman plays fair—or in his words, “did not bet against its clients” particularly in 2007, when it was possibly the only big firm that made money by shorting the bonds tied to the housing market (i.e. betting it would decline), even as it sold the same type of mortgage bonds to investors, who eventually lost billions as the housing collapse turned into the broader collapse of the entire financial system.

Well, thanks to the Securities and Exchange Commission we now have something close to conclusive proof. I don’t know if the charges in the SEC complaint filed today—which sent Goldman shares down more than 12 percent and the entire stock market down more than a 125 points—are proof positive that Goldman is scummier than any other firm. All of Wall Street, after all, knows how to play dirty.

But it does lend tremendous credibility to the long-held allegation that Goldman Sachs works not for its clients, but against them and only for itself. And if that notion sticks, the long-term impact on Goldman’s franchise will be far worse than being called a vampire squid, or the $1 billion in potential liabilities it faces if it loses the civil case filed Friday morning.

View as Single Page 12 Back to Top April 16, 2010 | 9:00pm Facebook | Twitter | Digg | Share | Emails | print var OutbrainPermaLink=document.location.href.replace(document.location.search, '').replace(/\/\d+\/$/,'/').replace(document.location.host, 'thedailybeast.com'); var OB_Template = "The Daily Beast"; var OB_demoMode = false; var OBITm = "1255455386150"; var OB_langJS ='http://widgets.outbrain.com/lang_en.js'; if ( typeof(OB_Script)!='undefined' ) OutbrainStart(); else { var OB_Script = true; var str = ''; document.write(str); } Goldman Sachs, Mortgage Backed Securities, Charlie Gasparino, Securities Fraud, John Paulson, Banks, News, Sec, Lloyd Blankfein, Business, Wall Street (–) Show Replies Collapse Replies Sort Up Sort Down sort by date: AlanD2

What fun it will be to watch Goldman twisting in the wind...

Flag It | Permalink | Reply 1:08 am, Apr 17, 2010 DakLak

"Junk bond king" and criminal stock manipulator Michael Milken did nothing when compared to these crooks. It als shows how little due diligence is done even by the big operators who were suckered.

Flag It | Permalink | Reply 2:10 am, Apr 17, 2010 octavio

Goldman's CEO's being jerks,screwing customers,screwing the tax payers, et cetera. The usual news.Wall Street is as crooked as the US health care industry;unethical medical doctors,dentists,hospitals, et cetera,overcharge --- they had been stealing money from the sick,from the US taxpayers, et cetera ---The US is broke, but the medical doctors continue making basket-ball player salaries. Large companies CEO's continue making 5 million,50 million dollar bonuses et cetera. Things to do: Divide the crooks,let them fail,stop bail outs,regulate the crooks 100%,pass political contribution reform,get rid of the insurance companies,lower medical costs by implementing a single payer health care system --- the one we have now stinks very bad ---,Reform the supreme court --- the one that we have now does not work,they allowed the criminal,crooked George W Bush steal the US presidency from Al Gore;they decided to let the large corporations keep making whores and lap dogs of our politicians et cetera.

Flag It | Permalink | Reply 2:22 am, Apr 17, 2010 djanimaequeen

Where's the wingnuts?

Flag It | Permalink | Reply 2:29 am, Apr 17, 2010 CheckerboardStrangler

This is RICO worthy. Goldman clearly practiced economic terrorism using financial weapons of mass destruction, fashioned from weapons grade financial instruments and Goldman behaved as an organized criminal syndicate.

Flag It | Permalink | Reply 4:59 am, Apr 17, 2010 GPatton

Didn't Bob Rubin, the guy who helped crater Shiticorp, work for Goldman? Wonder if Skilling, Fastow and Lay ever worked there. Maybe Enron's Dynamic Duo helped GB design the time bombs they offloaded to those saps in Europe. Remember the Goldman Rule: Do unto others before they do unto you. George Patton

Flag It | Permalink | Reply 5:12 am, Apr 17, 2010 wfleet

Remember that "bank" is a four-letter word. "Bank you, buster!"

Flag It | Permalink | Reply 5:54 am, Apr 17, 2010 $('#c_total span').html('7'); $('#c_total').show(); Share this comment on Facebook

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Goldman Sachs's Sad Fall From Grace

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