Tuesday, 11 January 2011

Goldman Sachs clears the air

Stung by an avalanche of criticism, and the widespread belief that it puts its own interests ahead of its clients, Goldman Sachs decided to conduct a review of its business practices. After nine months of internal contemplation, what did it discover? All is well with Goldman; operations need  fine tuning, not a complete overall.

This fine tuning will involve some new disclosure rules, some additional internal controls to keep their more immature bankers under control, and greater transparency. Given this new found commitment to honesty, how would you rate the transparency of press release? It was issued by Goldman last year:

Court Approves SEC Complaint Settlement
July 20, 2010

New York, Tuesday, July 20, 2010 - The Goldman Sachs Group, Inc. (NYSE: GS) today announced that U.S. Federal District Court Judge Barbara Jones has signed the Final Judgment in Securities and Exchange Commission v. Goldman, Sachs, which makes the terms of the judgment effective and ends the case as to Goldman, Sachs & Co.

The Goldman Sachs Group, Inc. is a leading global investment banking, securities and investment management firm that provides a wide range of financial services to a substantial and diversified client base that includes corporations, financial institutions, governments and high-net-worth individuals. Founded in 1869, the firm is headquartered in New York and maintains offices in London, Frankfurt, Tokyo, Hong Kong and other major financial centers around the world.

After that short text, there is a contact, a phone number and punto - nothing more......

What was the case about? Did Goldman win the case? Did they lose.  What was the judgement? Did Goldman like the judgement?

An Internet search suggests that this press release might be connected to a $550 million settlement where Goldman was accused of defrauding investors in a sale of securities tied to sub prime mortgages. The SEC alleged that:

  • Goldman misstated and omitted key facts regarding a synthetic collateralized debt obligation (CDO) it marketed that hinged on the performance of sub prime residential mortgage-backed securities.
  • Goldman failed to disclose to investors vital information about the CDO, known as Abacus, particularly the role that hedge fund Paulson & Co. Inc. played in the portfolio selection process and the fact that Paulson had taken a short position against the CDO.
The allegation centres around a trade where Goldman sold a crappy sub-prime investment product while at the same time it was working with another client - Paulson.  This investor was both taking a short position on this product and choosing the crappy mortgages included in the subprime investment product.  Goldman clients, who invested in Abacus lost $1 billion on that deal.

Transparency is a treacherous word.


Vodka drinker said...

what was that quote about Goldman, a squid and the face of humanity?

Ian R Thorpe said...

Goldman Sachs do nobody any favours but I see on US liberal blogs a tendency to scapegoat them for America's economic ills.

That seems like a dangerous cop out from people who do not want to face up to the structural weakness of the US economy.

Hamish said...

Funny how Goldman always end on top.