Today's topic of debate centers on Goldman Sachs. Do you believe Goldman and/or its executives questioned in Congressional hearings Tuesday did anything wrong? Give your 2 cents via the banner link below.
I listened to the Goldman Sachs (NYSE: GS) hearing all day long on Tuesday, which delayed the publishing of our weekly copy (in case you missed me). The spectacle of Congressional questioning of a man self-nicknamed "The Fabulous Fab" and other fabulously shady fellows, who smartly sought to game the process by attempting to confuse and frustrate the Congressmen, had all of Wall Street's attention. The contrast between the panel members' financial illiteracy and the likelihood of real wrongdoing on Wall Street offered a riveting radio experience perhaps not seen since the days before television. We know many of you had to listen to the radio broadcast, while sitting in your cubicles pretending to work, so we sympathetically tuned in to Bloomberg Radio with you.
There are two ways to look at the situation. While it is true (and unfortunate) that many of the Congressional questioners knew not what Goldman did, it is also true that greed and selfishness drove ethical missteps that led to the worst financial crisis since the Great Depression. While it seems clear to us that the credit rating agencies overlooked (negligence might be the word we are looking for) a few light risks (Congressmen: this is sarcasm) for the sake of making money, market-making (what the Goldman execs in question do) is a necessary task of the market and is delegated to some of its participants.
We are sure Congress is going to try to figure out a way to break up market-making and proprietary trading, and perhaps unemployment is high enough now to get that done. Market-making is not the greatest business, though if the activity is significant enough, the numbers on paper thin bid/ask spreads can add up. Wall Street firms have always been best equipped to get the job done properly and keep markets moving efficiently.
Still, back to the question at hand: Can we really blame Goldman Sachs for doing its job? Yes, its prop-trading desk held directional positions, but its market-making efforts sure seemed kosher to me. The SEC charge against Goldman and the Fabulous Fab may hold merit, especially since Paulson was allowed to choose certain credits and kick the strong Wells Fargo (NYSE: WFC) credits out of the pool, but the legal system will decide that.
That is a separate issue than the "sh_t" Senator Carl Levin said Goldman was selling. The company was only selling sh_t, because people wanted to buy sh_t. Some folks had a taste for that sh_t, and they wanted it now! Goldman made a market it that sh_t, meaning it had to put buyers and sellers together in the sh_tty trade. Yes, I enjoyed that...
So anyway, please tell us what you think. Did Goldman Sachs do anything wrong? How might Congress screw this up? Will the true wrongdoers face their due punishment or will our government blunder it all up and create fences around parakeets while letting wolves run free?
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