The Great Debate UK

from The Great Debate:

Don’t bank on clients to punish Goldman

So remind me, why will clients continue to do business with Goldman Sachs?

I know, it is a stupid question; investors and corporations will continue to do business with Goldman even after the bank has been charged with an alleged fraud for the same reasons they always have: because they hope, like every gambler, to beat stacked odds and because they flatter themselves that they are not the sucker at the table.

There is also the small matter that for most of the clients of Goldman -- or more particularly the people at those institutions making decisions -- the money really isn't theirs but the rewards definitely will be.

Goldman has been charged by the Securities and Exchange Commission with alleged civil fraud for, among other things, failing to disclose a juicy detail to investors in a security it helped to create -- that a hedge fund firm that was betting against the security also played an important role in selecting the underlying instruments on which its performance was based. A bit like selling tickets for a ride to the moon on a rocket designed by an engineer who had bought insurance that would pay off when the rocket exploded, as it did, more or less on the launch pad. It meets my definition of material.

Goldman appears to understand its clients and their motivations and thus has decided to fight the case, maintaining that the way in which it operated in this instance is just fine. The strategy, I would guess, is to hope to beat the rap on the basis that this is how business is done and wait until outrage is, as it always is, overtaken by greed. Either that or the people who are making the decision to fight are the same ones who would have to step down if they admitted they did not or could not manage the risks of a large complex institution.

"I do not believe that institutions will stop trading with Goldman Sachs over this issue. The company's presence, systems, capital, and expertise in trading markets make it number one in the world in this activity. It cannot be easily replaced. Similarly, I do not believe that the company will lose its corporate customers," Dick Bove, bank analyst at Rochdale Securities, wrote in a note to clients.

Punishing investment bankers: the nanny-state goes global


Laurence_Copeland- Laurence Copeland is a professor of finance at Cardiff University Business School and a co-author of “Verdict on the Crash” published by the Institute of Economic Affairs. The opinions expressed are his own. -

In a previous blog, I expressed the fear that in the aftermath of the financial crisis we were going to see either the innocent punished or guilty men convicted of the wrong crimes, or maybe both.

from Breakingviews:

Europeans won’t be amused by alleged Goldman scam

Europeans won't be amused by the alleged Goldman Sachs scam. ABN Amro, and therefore ultimately Royal Bank of Scotland, ended up losing $841 million in the allegedly fraudulent collateralised debt obligation investment concocted by the investment bank. Meanwhile, IKB, the bust German bank, lost nearly $150 million.

These European banks were some of the biggest financial mugs in the last years of the credit bubble. But the allegations levelled by the Securities and Exchange Commission don't concern the folly of the buyers and insurers of subprime mortgage investments. Goldman is accused of misleading investors. The UK and German states, which bailed the banks out, will be livid if the case is proved. Goldman denies the charges.

from The Great Debate:

Goldman makes financial reform passage certain

-- John Kemp is a Reuters columnist. The views expressed are his own --

It is now virtually certain financial reform legislation will go sailing through the Senate, following the complaint filed against Goldman Sachs  and an employee in the U.S. District Court for the Southern District of New York by the Securities and Exchange Commission this afternoon.

Filing a complaint is not the same as proving it. Goldman Sachs has already stated that "The SEC's charges are completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation".

from Breakingviews:

Goldman Sachs needs to admit it made mistakes

By Chris Hughes

Even the mighty Goldman Sachs makes mistakes. The Wall Street bank's decision to help Greece keep some of its debts hidden from public view in 2001 was one of them.

The transaction allowed the Greek government to present accounts which understated the state's liabilities by 1.6 percent of GDP.

from Breakingviews:

Four factors to determine bank returns

larsen.jpgWhat is an acceptable return on equity (ROE) for a bank? That question is likely to dominate the debate among executives, investors and regulators in the coming year. After the spectacular losses of the crash, there is no doubt that banks' future returns should be lower than the super-charged profits earned during the credit boom. But if ROEs fall too far, the consequences could be severe.

Returns are already on the way down: just look at Goldman Sachs. Between November 2007 and September 2009, the Wall Street bank's tangible common equity swelled by 74 percent. In 2007, its best-ever year, Goldman earned a 38 percent return on that equity. This year the bank is expected to report the second-highest profit figure in its history. But its ROE is likely to be just half its level of two years ago.

from Commentaries:

Is Goldman’s Chinese convertible really a taxi?

BRITAIN/The number of London's trademark black taxis booked and waiting outside the European headquarters of Goldman Sachs -- meters running -- was once used by some as a barometer of the health of London's investment banking business.

When times were good, the queue was long and it was impossible for anyone else in the vicinity to hail a cab. But when the fees dried up, or markets turned, the cabbies who'd been at Goldman's beck and call suddenly had to find new customers.

from Commentaries:

Shock! Goldman favours big clients

Susanne Craig uses 2,200 words in today's Wall Street Journal that state the obvious: Goldman Sachs treats big clients better than small ones.

In any other industry, a company giving favourable treatment to its best customers would stand accused of nothing more than sound business practice.

from Commentaries:

Citi’s dirty pool of assets

Hard as it may be to believe, shares of beleaguered Citigroup are on fire.

The stock of the de facto U.S. government-owned bank is up some 300 percent after it cratered at around $1 back in early March.

The over-caffeinated stock maven Jim Cramer keeps calling Citi a "buy, buy, buy" on his nightly CNBC television show. Even the more sober-minded writers at Barron's are pounding the table a bit, predicting Citi shares could double in price in three years."

from The Great Debate:

Matt Taibbi Is just plain wrong about Goldman Sachs

-- Heidi N. Moore is a business writer in New York City. This article originally appeared in The Big Money. The views expressed are her own. --

bigmoneyCan one firm create a bubble? Can one firm create four bubbles?

Maybe, but it's damn hard to prove. That's why it's so unimpressive that a fervent 10,000-word rant by Matt Taibbi in Rolling Stone's July 9 issue-devoted purely to "Goldman's big scam"-spent 12 pages on the subject of Goldman Sachs' "Great American Bubble Machine" but never delivered any plausible proof. The mammoth article disappointingly failed to provide the smoking gun that so many people on Wall Street-who have envied and admired and hated Goldman for much of this decade-would have been delighted to see.