Yesterday the Wall Street Journal wrote a love letter to Goldman Sachs, the blue chip investment firm now facing SEC fraud charges, and Barry Ritholtz nearly exploded while reading it. Ritholtz is the widely read author of The Big Picture Web site for and about investment professionals, and author of Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy.
Take it away, Mr. Ritholtz:
I have no idea what goes on in the WSJ OpEd offices. I cannot tell you for sure their water cooler is laced with LSD. I have no idea if they are drunk by the opening bell every morning. I've never done the research to see if key persons there played college football sans helmets.
But I can tell you that any one of these excuses explains the unfathomably bizarre utterances that spew forth from that alternative universe on a regular basis. The asylum inmates there are willing to give even the most egregious offenses a free pass -- so long as said offenses originate from a corporation.The latest evidence of collective dementia was today's syphilitic venture titled The SEC vs. Goldman. The editors, hellbent on proving they are only visiting here from Alpha Centauri, defend the actions of Goldie as "more a case of hindsight bias than financial villainy."
In their op/ed piece, the WSJ brain trust asked -- but never answered -- a key question: "Did Goldman have an obligation to tell everyone that Mr. Paulson was the one shorting subprime?"
Yes, geniuses, they did. It's called Rule 10b-5, which prohibits public companies, their officers, and employees from making:
...any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person....
Is it possible Goldman Sachs, the gold standard of investment banking, forgot about Rule 10b-5? Investigative journalist Gary Weiss offers this theory: "Wall Street dwells in a kind of moral twilight." Weiss is the author of Wall Street Versus America: The Rampant Greed and Dishonesty That Imperil Your Investments.
Take it away, Mr. Weiss:
In its quest to make larger and more impressive profits, ordinary concepts of ethical behavior just don't apply. Since the markets are restrained only by the limits of their own interests -- or "self-regulation," as this is known -- the Street has a way of behaving like an infant child testing mummy and daddy's tolerance, with the feds acting in loco parentis, stepping in now and then to set boundaries and send transgressors to the corner.
Weiss compared the written SEC complaint with the written Goldman Sachs statement, and found "significant daylight" between the two.
The most significant thing in the [Goldman] statement is what isn't in the statement. Goldman doesn't deny its marketing materials didn't mention that Paulson -- the biggest short-seller since Genghis Khan -- was involved in designing it. I guess Goldman isn't denying it because their marketing materials are all over the Internet. And guess what? They don't say a thing about Paulson "providing input" into the selection of the CDO portfolio.
These two issues involving Paulson did not appear in the op/ed. The clever folks at WSJ concluded the whole mess is nothing more than Washington politics as usual and "Goldman makes a convenient villain."
Ritholtz to the Wall Street Journal: "Go sell crazy somewhere else -- we ain't buying."
UPDATE 4.22.10: During Goldman Sachs recent conference call, the company did not deny the two allegations here. (Both issues are also in the SEC complaint.)
UPDATE 4.24.10: This morning Alan Abelson and Ritholtz discussed in Barron's why the SEC's case is anything but weak and complex. Ritholtz put his money where his mouth is: "I have $1,000 against any and all comers that Goldman Sachs does not win -- they settle or lose in court. Any takers? My money is already in escrow -- waiting for yours to join it. Winnings go to the charity of the winner's choice." Abelson said the rush to take the other side of Ritholtz's bet "has been underwhelming."
UPDATE 5.1.10: Bahl & Gaynor Inc. analyst Matt McCormick said in a Bloomberg Television interview the pressure is on Goldman Sachs to "settle sooner rather than later." In terms of public opinion, McCormick said, Goldman Sachs has "already been condemned, the question is the price."
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Charles H. Green: The SEC Chose Its Charges Wisely Against Goldman
The SEC chose to charge Goldman Sachs with something that's not only illegal, but resonates easily with Main Street as also being unethical. This is a welcome sign -- a charge that at least tries to re-unite the legal and the ethical.
They are trying to protect their base, no matter how corrupt, no matter that billions
have been stolen or lost because of immoral, and likely illegal, actions.
If the government does not throw it's full weight into going after Wall St. crooks, and
uses honest judges, then we should let out all the crooks who have stolen
" only " thousands, not millions and billions. Any of these Wall St. crooks
should get at least 10-30 years, and not in a jail with tennis courts.
Why is this any different? Goldman is in the business of putting buyers up against sellers for securities that are not listed on the exchange. It's normal practice to protect the anonymity of the buyers and sellers. Why shouldn't they? Especially when dealing with professional buyers and sellers. It's also normal practice for buyers and sellers to pick the securities they want to buy or sell and the market maker to find the other side of the transaction. It happens everyday, just as it should.
Spivvy hedge funds lose money on these types of transactions all the time. In this case, the hedge fund didn't lose money but the big asset manager did. I still don't get what GS did wrong here, other than protect the anonymity of a customer and have a verbose 29-year old member of a team that wrote dumb emails to his girlfirend.
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