Why Goldman didn’t see the SEC suit coming

By Felix Salmon
April 19, 2010
Jim Surowiecki is right about one thing: the SEC/Goldman/Abacus story has, at its heart, a story of people who were looking backwards at what had happened in the past, and therefore couldn't see in front of their noses to what was just about to happen in the immediate future.

Yes, I'm talking about ACA, IKB, and the housing crash. But I'm also talking about the relationship between Goldman Sachs and the SEC, and Goldman's bizarre decision not to disclose the fact that it received a Wells notice in July 2009.

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Jim Surowiecki is right about one thing: the SEC/Goldman/Abacus story has, at its heart, a story of people who were looking backwards at what had happened in the past, and therefore couldn’t see in front of their noses what was just about to happen in the immediate future.

Yes, I’m talking about ACA, IKB, and the housing crash. But I’m also talking about the relationship between Goldman Sachs and the SEC, and Goldman’s bizarre decision not to disclose the fact that it received a Wells notice in July 2009.

Why didn’t Goldman disclose the existence of the Wells notice? Because it reckoned that the SEC wouldn’t file a suit against it. After all, for years now the SEC has been a comatose beast run by supine Republicans, and, as Joe Weisenthal puts it, elephants love the squid.

And as it happens, both of the Republican commissioners on the SEC voted against suing Goldman. The two Democrats voted in favor, and chairman Mary Schapiro voted with them.

And somehow Goldman failed to notice that there was a Democrat in the White House, that Hank Paulson wasn’t at Treasury any more, and that they couldn’t rely on SEC toothlessness going forwards in the way that they had done in the past. At the very least, they expected that the SEC would give them the heads-up that a suit was coming, and maybe give them the opportunity to settle.

But that’s how the old SEC worked, not the new SEC with a chairman desperate to look tough in public. And Goldman, somehow, was oblivious to the change.

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Comments
10 comments so far

I think “a chairman desperate to look tough in public” is the wrong way to characterize this.

How about “a chairman finally willing to do her job”

EricinAustin

Posted by ericinaustin | Report as abusive

This one is very good. Keep it up.

Posted by IanFraser | Report as abusive

To suggest that Republicans are cozy with banks and Democrats mean the sheriff is keeping order is shameless politicking.

Larry Summers, Bob Rubin and Barney Frank tower above almost everyone else (Alan Greenspan excepted) as authors of the present global travails.

The two figures I can think of who would take the severest stance toward banks (by ending the Federal Reserve policy of interest rate charity and undemocratic wealth transfer to banks) are Ron Paul and Mike “Mish” Shedlock.

Posted by DanHess | Report as abusive

DanHess, what he means is that the gop when in power has systematically appointed regulators who have no interest in regulating, whereas sometimes the democrats do appoint regulators who have an interest in regulating.

this is empirical observation, not shameless politicking.

Posted by howard7 | Report as abusive

Perhaps there is a narrow point there, in terms of the SEC.

But still it has to be said that Wall Street’s greatest friends in Washington are Democrats, starting with Chucky Schumer and the New York delegation. Chris Dodd is running a close second.

Get ready for Wall Street reform, written by Wall Street, like we had health care insurance reform, written by the insurance industry. Oh, joy.

Posted by DanHess | Report as abusive

If it’s really as political as some are suggesting, those two Republicans are in for one hell of an IRS audit.

Posted by HBC | Report as abusive

Apparently, GS was negotiating with the SEC and then, right in the middle of the negotiations, the SEC files this suit. So, it sounds like GS knew the SEC had an issue.

Posted by Storyburncom_is | Report as abusive

Dan Hess:
Ha ha ha ha. Oh Ron Paul has really had a lot of influence over Republican governance. What a sense of humor.

Posted by rootless | Report as abusive

So the World’s future is dictated by 5 people, one of which turned on her own ?

Posted by Ghandiolfini | Report as abusive

Nice to see some justice, it is the ancient and only cure for a society deceived by leaders and cheated by bankers. It is a shame, going to be hard to change so until we invent and honest with no greed pill then we need to try to create ever more effective regulators so that markets can be trusted.

Once you have trust then money flows, jobs are created and society prospers, we did it the last century with a safer system to provide financing for businesses and individuals, we need a safer and different set of tools that are up to the task of modern markets.

Moving the CDO’s to Vegas would be a step in the right direction also so that money can be invested in companies instead of hedge funds in bank clothing.

Posted by jstaf | Report as abusive
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