Goldman doesn’t need to be guilty, just smelly
If Goldman’s business starts suffering from the stain of the SEC’s lawsuit after a stellar quarter of earnings, the investment bank’s role in the rehabilitation of the financial sector could look more like a quadruple bypass at the heart of the matter.
Goldman’s stunningly hot earnings are nothing new. The company routinely throttles forecasts. So it almost didn’t matter how much money they earned. Think about that for a second. The nation’s most celebrated money maker getting no love from investors for making more money than it was expecting. What else is it supposed to do? Or, more importantly, are investors finally beginning to begrudge Goldman Sachs its success? If clients start to become fearful about doing business with the bank because of the lawsuit, its earnings-generating power will take a hit.
In fact, the smell test in this case could ultimately prove to be more important than the legal one. If the perception of unethical behavior at Goldman helps the Obama administration pass more stringent financial reform, then the SEC’s action will have been a bigger boon than any fine or penalty the bank might be made to pay down the long legal road ahead.
That may turn out to be of bigger value to a reformist government than a Goldman guilty plea. And if it turns out Goldman is not guilty, then the SEC will take it on the chin again, and the market is almost as familiar with that result as it is with another blowout quarter from Goldman Sachs.