Ten Things You Don't Know (Or Were Misinformed) About the Goldman Sachs Case (Barry Ritholtz)

[swag]

http://advisorperspectives.com/commentaries/ritholtz_042710.php

1. This is a Weak Case: Actually, no — its a very strong case. Based upon what is in the SEC complaint, parts of the case are a slam dunk. The claim Paulson & Co. were long $200 million dollars when they were actually short is a material misrepresentation — that’s Rule 10b-5, and its a no brainer. The rest is gravy.

2. Robert Khuzami is a bad ass, no-nonsense, thorough, award winning Prosecutor: This guy is the real deal — he busted terrorist rings, broke up the mob, took down security frauds. He is now the director of SEC enforcement. He is fearless, and was awarded the Attorney General’s Exceptional Service Award (1996), for “extraordinary courage and voluntary risk of life in performing an act resulting in direct benefits to the Department of Justice or the nation.”

When you prosecute mass murderers who use guns and bombs and threaten your life, and you kick their asses anyway, you ain’t afraid of a group of billionaire bankers and their spreadsheets. He is the shit. My advice to anyone on Wall Street in his crosshairs: If you are indicted in a case by Khuzami, do yourself a big favor: Settle.

3. Goldman lost $90 million dollars, hence, they are innocent: This is a civil, not a criminal case. Hence, any mens rea — guilty mind — does not matter. Did they or did they not violate the letter of the law? That is all that matters, regardless of what they were thinking — or their P&L.

4. ACA is a victim in this case: Not exactly, they were an active participant in ratings gaming. Look at the back and forth between Paulson’s selection and ACAs management. 55 items in the synthetic CDO were added and removed. Why?

What ACA was doing was gaming the ratings agencies for their investment grade, Triple AAA ratings approval. Their expertise (if you can call it that) was knowing exactly how much junk they could include in the CDO to raise yield, yet still get investment grade from Moody’s or S&P. They are hardly an innocent party in this.

5. This was only one incident: The Market sure as hell doesn’t think so — it whacked 15% off of Goldman’s Market cap. The aggressive SEC posture, the huge reaction from Goldie, and the short term market verdict all suggest there is more coming.

If it were only this one case, and there was nothing else worrisome behind it, GS would have written a check and quietly settled this. Their reaction (some say over-reaction) belies that theory. I suspect this is a tip of the iceberg, with lots more problematic synthetics behind it.

... much more at http://advisorperspectives.com/commentaries/ritholtz_042710.php

[quiet.american]

1. Good read. I like his style. nt

[whathehell]

2. +1

[MerryBlooms]

3. kicking n/t

.

[chill_wind]

4. Good stuff. K & R. n/t

[salguine]

5. And yet, in spite of all this, why am I ready to bet everything I have that

everyone will walk away scot-free, excepting maybe one designated sacrificial lamb; no new regulations will be put in place, nor will existing ones be enforced; and everything will be back to business as usual before the week is out?

[truedelphi]

6. Our household feels that way also.

I mean, who the heck is this Fabrice guy? If someone really wanted to, they could probably get Blankfein a couple years of hard time just for his false testimony at the deposition. But would that happen in a million years?

When Lewin was questioning Blankfein today, someone must have walked in the room, as B. turned and offered the person a huge smile.

Both of us turned to each other and started trying to figure out who Blankfein figured was being paid off? Dodd? Or some lesser person.

Often the lobbyists really go after the first and second year "new" House of Representative members. A lil bit of campaign money thrown their way really seems to get the action that the lobbyists want.