Reputation is everything. Ask Tiger Woods. His extra-marital affairs had his sponsors in a tizz. Accounting giant Accenture axed Tiger's multi-million dollar sponsorship deal, as did Pepsi's Gatorade. Bouncing back to become the world's No.1 golfer and restoring his reputation among his peers and onlookers will also take time.
You may have a certain amount of sympathy for Tiger. His "crime" was against his family. As for his fans who put him on a pedestal and worship him and feel betrayed -- need to get a life.
But you're unlikely to declare any such feelings for Goldman Sachs. Wall Street's infamous "vampire squid" got clubbed over the head with fraud charges on Friday for its role in the financial crisis. The financial crisis and subsequent recession that led to more than 8 million job losses in the United States. And governments around the world wasting $11 trillion propping up dysfunctional banks and saving the world from a depression.
Someone has to pay. And its going to be Goldman Sachs.
It denies all the charges laid out by the Securities and Exchange Commission, the US financial watchdog. And that's another organisation that needs to repair its reputation. It failed on numerous occasions not least in Bernie Madoff's ponzi scheme -- despite being warned about his dodgy dealing almost a decade ago.
In sum, GS&Co arranged a transaction at Paulson’s request in which Paulson heavily influenced the selection of the portfolio to suit its economic interests, but failed to disclose to investors, as part of the description of the portfolio selection process contained in the marketing materials used to promote the transaction, Paulson’s role in the portfolio selection process or its adverse economic interests.
Tourre was principally responsible for ABACUS 2007-AC1. Tourre devised the transaction, prepared the marketing materials and communicated directly with investors. Tourre knew of Paulson’s undisclosed short interest and its role in the collateral selection process. Tourre also misled ACA into believing that Paulson invested approximately $200 million in the equity of ABACUS 2007-AC1 (a long position) and, accordingly, that Paulson’s interests in the collateral section process were aligned with ACA’s when in reality Paulson’s interests were sharply conflicting.
In other words Goldman Sachs along with a leading hedge fund Paulson & Co. deliberately designed an investment product that would sour, allowing the latter party to profit financially. Its did to the tune of $1 billion.
So Goldman Sachs was willing to sacrifice some clients -- the hapless IKB of Germany and subsequently through its ill-advised acquisition of Dutch bank ABN Amro, the Royal Bank of Scotland, now largely in government hands -- for the benefit of others.
It's important to say that Paulson & Co did nothing wrong. And is not part of the charge sheet.
I guess we all know that banks are not altruistic institutions and neither are the people who work for them. But to sell out some clients for others in any business is a no no!
Goldman Sachs Chief Executive Lloyd Blankfein has already apologised in November for his firms role in the financial crisis.
"We participated in things that were clearly wrong and have reason for regret."
But the SEC's charges mean heads will roll and it is likely to be Blankfein.
Greed being greed on Wall Street, the square mile in London and elsewhere, as long as clients feel they aren't the butt of any losses will stick around. Some of Goldman Sachs' employees will be watching closely with one eye on the exit door.
IKB and the Royal Bank of Scotland will be gearing up their legal teams to get back the billion dollars they lost. Money that actually belongs to the taxpayers of Germany and the UK!
As for President Barack Obama it looks like he's finally making inroads into his campaign pledge to bring the banks to book. Earlier this month, Blankfein and other executives were told to stop blocking a financial services bill. It appears the White House is willing to take on the banks. The SEC's move will no doubt aid that bills passage, possibly with stiffer measures.
Goldman Sachs will most likely be fined heavily and will need to repay money. That won't be a problem for this institution. But we can expect more charges if Goldman did act fraudulently. The rest of Wall Street's big firms will be watching nervously as Goldman wasn't alone.
A change of name or break up of the bank could be possible to deflect criticism. The last thing Goldman Sachs wants is its name mentioned in the same breath as Enron.
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