Unlocking Real Value Blog

Top Ten Thoughts on the Goldman Sachs Mess

I use the word “Mess” intentionally because there is so much noise surrounding the SEC’s actions – the timing of the charges, whether other firms will be charged, etc. In fact, I would venture to guess that few people know what the actual charges are! They just know that another large Wall Street firm is in the news – and not for a good reason.

So here are my thoughts on the matter:

10 – This is not an isolated incident – more dealers such as Goldman Sachs will be charged in the weeks and months to come; I wouldn’t be surprised if Goldman is charged in other cases as well.

9 – The greatest risk to Goldman Sachs is its reputational risk – not whatever fines they have to pay or other actions are filed (by New York Sate for example).

8 – Without passing judgment on Goldman Sachs’ culpability, the firm will survive this, and while they may lose some clients shorter-term, it will not significantly impact their long-term business. But their reputation and standing as an industry icon is diminished, regardless of the eventual outcome.

7 – The timing of these charges is suspect at best – coming in the middle of the financial reform debate and on the same day that the SEC is faulted for its handling of the Stanford Scandal and other cases. The SEC is attempting to revive its reputation and, as mentioned above, this is just the first of many announcements to come.

6 – While few oppose the idea of financial reform, I fear that the public outcry and political posturing will turn the debate and eventual regulation into more than it should be. Adding further bureacracy – as seems likely – is not the answer.

5 – It is not about the level of sophistication of the client – it is about the fiduciary responsibility for full disclosure. In fact, the mantra of our industry must be “Disclosure, Disclosure, Disclosure.”

4 – This and similar cases will demonstrate how little upper management at many firms really understand some of the most sophisticated derivatives products that they are selling – and that in and of itself is pretty scary!

3 – The actions of a few (individuals and firms) will continue to tarnish the reputation of the industry and the “us v. them” argument will continue in the headlines through this and perhaps the next election cycle.

2 – Proactive client service is more important than ever – need I say more?

1 – Did I mention the importance of disclosure?

One Response to “Top Ten Thoughts on the Goldman Sachs Mess”

  1. Rob Farrington says:

    Great post and I’m with you on most of the points like the extension to other firms, limited impact on Goldman, and disclosures (although I think if Goldman had provided full disclosure they would have sold a lot less of this deal and would have ended up with more than a $90M loss).
    I agree with the timing being suspect and a way to divert from Stanford. The SEC obviously has a reputation to repair, but that will be increasinly hard to do if all votes are along dem/rep lines. But I think the timing coming in the middle of the regulatory reform is a good thing. The recent Dodd proposal was limited at best, there appeared to be a little bit of market collapse amnesia. This case in my opinion revives the memory that the people assembling the deals knew full well the implications and they are fee driven. These fees incent them to get the deal done, not fully disclose to investors. It’s this level of omission that I think needs to be highlighted, very clearly to the american bailout taxpayers. I think upper management knows full well what’s going on but I they view themselves akin to Jack Nicholson in a Few Good Men “Somewhere you don’t like to talk about at parties, you want me on that wall, you need me on that wall.” Do we? I’m not so sure…

Leave a Reply