About That SEC Complaint Against Goldman

Now that it’s been disclosed that the SEC commissioner’s vote to sue Goldman Sachs for fraud came down to a party line vote, the action takes on the appearance of a vehicle to advance a political agenda. But there is a lot more to this story than just that. As Felix Salmon noted, Goldman should have seen this coming. Granted, Goldman poured a ton of money into the Democrat’s coffers during the past decade but apparently they weren’t paying much attention to what their money was buying during the past sixteen months. As the political sage Al Wilson said, Silly woman, you knew I was a snake when you brought me home.

In my opinion it doesn’t appear that Goldman did anything illegal in the Abacus transactions that are at the heart of the SEC complaint. But that doesn’t mean that there wasn’t some monumentally bad judgment exhibited by Goldman’s senior management when they approved the deals and later responded to the SEC. The SEC, having been publicly humiliated by the Bernard Madoff and Allen Stanford ponzi schemes, could be easily suspected of seeking some high profile payback. Enter Goldman Sachs, circa August 2008, when the SEC first inquired about the Goldman trades in question. Goldman never disclosed that they were under investigation and had received a Wells Notice. Goldman argues that it should have received some deference from the SEC before the commission publicly announced its action on Friday. About that argument Karl Denninger says this:

Here’s the problem with claiming that Goldman was “blindsided” by the filing – the firm never filed an 8K on the Wells Notice!

In my opinion Goldman was not entitled to deference of any sort. Remember, they are accused in this case of trying to deceive investors by not telling them that Paulson had a hand in selecting the securities that went into the Abacus deal in question, naming only ACA as the agent that performed that function.

But the fact that Goldman did not file an 8-K on the Wells Notice makes quite clear that the firm believed it would be able to dodge this one, perhaps through the pulling of “inside” strings in Treasury and the SEC.

That strategy – obscure, pretend and browbeat behind the scenes – failed in this instance as it damn well should in every instance.

You’re only entitled to have a regulator work with you if you don’t erect your middle finger in their direction, and Goldman clearly and unambiguously did by failing to file the 8K notice to the market that it had been served last year.

That this suit serves the political goals of the Obama administration is truly ironic because that same administration’s financial benefactor, Goldman Sachs, will have to pay up at some point and admit they became the sucker in this particular poker game. But more interesting is that Democrats, now released from the Goldman financial bonds, want to feast on the entire industry:

….the floodwall holding all the pent-up Goldman inquiries finally breaks. The latest comes from Hugh Son at Bloomberg who informs that Elijah Cummings and Peter Defazio now insist that the SEC should “widen its probe to determine whether securities backed by bailed-out insurer American International Group Inc. were improperly created.” And “should any of these transactions be found to include fraudulent conduct, any resulting contractual payments from AIG- issued credit-default swaps could be viewed as ill-gotten gains.”

Bankers should file this as Exhibit A on why not to give money to liberal Democrats that reserve for themselves the exclusive priveledge to rewrite the rules of the game. Instead they should remember the maxim that a snake is a snake.

Mr. Sensitivity
Spare the rod?