Unstructured Finance

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.

The case for an uber-regulator

FDIC chief Sheila Bair banged the gavel loudly this week with her op-ed piece in the New York Times railing against calls for a single regulatory body to oversee the many complex and disjointed elements of the financial marketplace. It seemed a bit odd. Even before Obama backed Ben Bernanke for another run at the helm of the Fed, it didn’t seem that anybody was seriously pushing for the creation of such a mighty organ of government. White House moves to streamline banking regulation – which Bair supports – are probably at the root of concerns about overconsolidation.

The White House wants a more streamlined approach to financial regulation and has called for one national bank supervisor through the merging of the Office of the Comptroller of the Currency and the Office of Thrift Supervision. State bank supervision would be left to both the Federal Deposit Insurance Corp and the Federal Reserve.

The debate encouraged fierce fief defense efforts at all regulators involved, and can be seen playing out elsewhere in the halls of power. Today and tomorrow, the two main U.S. agencies regulating securities and futures markets, the SEC and CFTC, try to kiss and make up after a long turf war about who gets to oversee what.

GE’s Immelt’s subtle defense

General Electric Co Chief Executive Jeff Immelt went to Michigan, the bleeding heart of the U.S. industrial heartland, on Friday to call for a resurgence in American manufacturing.Jeffrey R. Immelt, Chairman and CEO of General Electric, speaks after being honored by the national non-profit group "A Better Chance" in New York
But even as he warned against relying too heavily on the financial industry to drive economic growth, he subtly set up a defense of the largest U.S. conglomerate’s hefty finance arm.

Analysts and investors are worried that the Obama administration’s proposed overhaul of U.S. financial regulations could force GE to spin off GE Capital, which has businesses ranging from leasing jet planes to investing in commercial real estate.

“We also need a financial system that is built around helping industrial companies to succeed,” Immelt told the Detroit Economic Club. “GE is an important part of this financial services approach. We plan to focus GE Capital on financing small- and medium-sized customers in industries that we know the best.”

GM, Rewind before hitting fast forward

A quarter century ago, when GM was first experimenting with Toyota-style lean manufacturing, then-GM board member Ross Perot famously complained that “Revitalizing GM is like teaching an elephant to tap dance.”

gm1Now it’s the Obama administration’s turn to call the tune for GM as it attempts to remake the 100-year-old company in a fast-track bankruptcy process it aims to complete by August.

The goal: $50 billion in taxpayer funding to turn around GM and not a dime more.