Amongst the regular complaints I have about the financial media is the lack of accountability of alleged experts. The bad stock picks, the terrible market calls, the unsupported opinions, all blithely made and forgotten. Yet the same experts are trotted out week after week to give more money losing advice.
The silver lining to this institutionalized incompetence is that its good for business for those who are not incompetent. Nonetheless, it is horrifying to watch on a daily basis.
Nowhere has the lack of qualifications been more evident than in the coverage of the SEC indictments of Goldman Sachs. The parade of pundits who opined about things they knew nothing about was an impressive display of the blind leading the foolish. The silliness got so bad that it forced to stop doing more important things to post 10 Things You Don't Know (or were misinformed) About the GS Case. I was surprised that this became the single most read post in the Big Picture’s history.
Now that Goldman Sachs has lost their will to fight and settled the case for a record breaking amount, the same media fools who told you a) this was a weak case and b) GS was going to win are now spinning this massive Goldman Sachs defeat as some sort of a Goldman victory.
Don’t believe them. This is a painful loss for Goldman Sachs, with expensive repercussions likely to last far into the future:
"¢ Our “no-brainer” bullet point proved to be dead on: GS conceded misleading disclosures, and hence was forced to settle. This will be important in related actions (keep reading).
"¢ As we noted yesterday, Goldman paid the highest fine/settlement in the history of the SEC. For an ego-driven corporate culture such as Goldie, that is a painful loss. Silver lining: Settlement was under a billion dollars. Regardless, expect some high profile resignations to follow.
"¢ Goldman admitted material omissions/misstatements in their marketing materials; They disgorged profits and made up investor losses (Yves notes IKB and ACA were made whole). When you admit to misleading investors, you open the firm to future liability from all clients who bought money-losing synthetic derivative products. Hence, this is a significant litigation risk for GS — client civil suits to follow.
"¢ The latest brain dead spin: “The settlement is only the price of a few days’ revenue.” See here and here. This is a classic example of conflating two unrelated issues: 1) The biggest SEC settlement ever; 2) GS is an incredible money machine. But the latter says absolutely nothing about the former. The bottom line remains this is a black eye, and an early Christmas present for the litigators who represent Goldie’s clients who lost money on CDO deals.
"¢ Bloomberg reports that the settlement changes the vetting and approval process for the marketing of structured securities. “Those changes will probably lead to a new industry standard for disclosures in private sales of securities, even to the most sophisticated investors.”
In other words, the entire street, and not just Goldman Sachs, lost this case.
"¢ Here is a question for GS shareholders: Why didn’t Goldie write a $20 million check to settle this a year ago? What sort of bad legal advice did they get, and from whom? What executives allowed what should have been a simple action to turn into a record setting settlement?
"¢ First Moody’s now Goldie: Warren Buffett is the other loser in the case. His claim that GS didn’t commit fraud was wrong. Now Buffett looks like just another shareholder defending an investment, right or wrong. There is mud on his formerly squeaky clean reputation.
~~~
Which leads me to our headline question: What media pundits, talking heads, and other fools completely blew this one?
I don’t mean honest analysis that turned out to be incorrect — that is part of engaging in informed debate, using imperfect information, about unknowable future outcomes. What I am referencing is — who really shat the bed on the Goldman Sachs case? Who got this totally wrong? Who continues to get this wrong?
More Yves:
Paulson, by implication, earned his money on the ACA trade thanks to Goldman's misrepresentations, rather than his shrewdness. The settlement thus tarnishes the popular myth that the subprime shorts were insightful outsiders who executed "the greatest trade ever". Paulson's purported $1 billion in profits from this ACA deal depended, in part, upon inaccurate statements made by Goldman for his benefit. In effect, Paulson's gain cost Goldman $550 million while the parties on the other side of Paulson's trade (the ones that are still around, since ACA is defunct) got most of their money back. This implies that had Goldman not made the inaccurate disclosure about the deal, the investors might not have bought the bonds and Paulson would not have made such a killing. The settlement does nothing to discourage the notion that other CDO transactions had similar inaccuracies which resulted in ill-gotten gains for the shorts and unwarranted losses for the long investors.
http://www.nakedcapitalism.com/2010/07/tom-adams-is-the-sec-settlement-really-a-win-for-goldman.html
BR….interesting that the SEC case was decided along party lines…dems for it…gop against…politics as usual…. NY pols short on campaign cash perhaps?
BTW….ur overall assessment of the state of the dysfunctional MSBM is right on….zero accountability….following my own cnbc appearances i have attempted to get producers to focus on track record of recomendations, focusing on one of their media stars in particular, for that at attempt to point out lack of transparency and honesty, i have been sitting in penalty box ever since…i believe u have had similar experience….life’s too short
More hollow GS victory:
Robert Khuzami, the SEC's director of enforcement, said at a news conference yesterday that his agency means to send a signal to the entire industry.
"We would strongly encourage other institutions to adopt any kinds of best practices that they see across the street in order to prevent this kind of wrongdoing," said Khuzami, 53. "The deterrence, and preventing a fraud before it occurs, is a much better outcome than picking up the pieces afterwards."
The SEC is still investigating other companies and a range of products that fueled losses during the financial crisis, Khuzami said. Last month, the agency sued New York-based ICP Asset Management LLC on claims that it improperly traded assets in CDOs it managed. ICP has denied wrongdoing.
For the securities lawyers among us, this was obvious – GS omitted to state (or misstated) a fact that was material (or at least arguably material). There was no way GS was going to trial, it’s just too large a risk.
Most people I know that got it wrong were claiming that because the investors were very sophisticated and had the opportunity to ask questions, GS was not liable. While that argument is intuitively appealing, it is not the law.
Also not many practicing securities lawyers would ever be quoted criticizing GS. It’s too big, well connected and a potential source of business.
BTW, that it’s a few days revenue is irrelevant. It’s more than a few days earnings.
Sanity! It’s what’s for breakfast…
BTW BR….any thoughts on the late day pop in GS just before close…i believe it ran up about 7% in last half hr of trading on “rumors” of settlement….wouldn’t it be ironic that on the day finreg was passed with regs to limit prop trading that GS’s prop trading desk front ran the news about their mother ship’s SEC settlement???….nah…that would never happen….they’re a bank….and banks don’t do that sort of thing!!
Excellent synopsis, but you left out one thing, what is going to happen to Fabulous Fab?!?!?! Looks like he’s on his own.
admitting to material omissions/misstatements in their marketing materials” is by no means equivalent to “admitting to misleading investors”; the first is an “oops, sorry about that” whereas the second is fraud. It is hard to see how civil lawyers seeking compensation for material misrepresentation were aided by this settlement.
ACA can’t be made whole, they are out of business. i believe they were insured by ABN Amro, which was glommed into RBS, which according to Reuters lost $841MM on the deal, but was reimbursed $100mm.
http://www.reuters.com/article/idCNLDE66F0TD20100716?rpc=44
There’s a couple ways the plaitiffs bar is helped 1) GS can’t use any of this settlement money as an offset to any future litigation awards; 2) that leaves open the litigation casino; 3) the mere fact of the settlement implies GS may be in check cutting mode and may seek some sort of global settlement once all the class actions are consolidated.
In addition to who really got it wrong, it’s worth noting who really got it right. Jim Crammer is at the top of the “got-it-right” list. Crammer is a former Goldie, often considered to be the top PR shill for Goldman. But he saw the Abacus deal led by Fabrice Tourre as the soft underbelly of GS and said so. Does that make Jim the fountain of knowledge to blindly follow for investment gold? I leave that question open.
Here are my candidates.
Jim Crammer, Slammed Goldman and Was Dead On. http://www.youtube.com/watch?v=uf42yWwDFRA
Kevin M. LaCroix, Blogger Lawyer, Nailed It http://www.dandodiary.com/2010/04/articles/subprime-litigation/ok-so-the-sec-sued-goldman-sachs-now-what/
Wall Street Journal, They Really Blew It http://online.wsj.com/article/SB10001424052748704508904575191882961621478.html
What can we learn from the Goldman fine?
Watch those loose-lipped emails, like the one the Fabulous Fab sent off. Bill Gates too hit send on a couple of missives he wishes he had not sent out.
GS delayed nine months in responding to a Wells Notice on this case, and failed to notify stockholders. The point of law in all this is in the fine print. Goldman had bad fine print. If Goldman can edit it’s fine print, and get those disclaimers more pointed, it can go back to business as usual. It’s not a good idea to spit in the regulators eye. But it is a good idea to edit your own fine print from time to time.
There are a lot of lessons from the GS fine!
“Now that Goldman Sachs has lost their will to fight and settled the case for a record breaking amount, the same media fools who told you a) this was a weak case and b) GS was going to win are now spinning this massive Goldman Sachs defeat as some sort of a Goldman victory.”
I have not followed the details, but a quick internet search I find:
“The biggest loser in the alleged fraud was ABN Amro, a major Dutch bank, and the Royal Bank of Scotland, which acquired major portions of it in 2007. The SEC said the Royal Bank of Scotland paid Goldman $841 million to unwind ABN transactions.
(http://finance.yahoo.com/news/SEC-accuses-Goldman-Sachs-of-apf-1523020722.html?x=0)
It looks like they got off easy compared to RB of Scotland’s losses. Am I missing something?
Kid D, I am trying to not confuse people, but since you brought it up:
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