Now that the world has recovered from the shock of the SEC’s Friday-morning cannon-blast against Goldman Sachs, it’s worth stepping back and looking at the bigger picture.
As it decides how to deal with the SEC’s fraud charges, Goldman Sachs has three big advantages (relative to the worst-case scenario), and one big disadvantage.
Goldman’s advantages include:
- The SEC’s case sounds strong, but, upon examination, looks weak. Unless the SEC digs up additional evidence, or another agency files follow-on charges, the worst is over for Goldman. Based on our initial reading of the evidence, we think Goldman would have a good shot at winning the case in court. As time goes on and the headline value of the charges recedes, the SEC will probably become more eager to settle the case to be sure it still appears to have notched a victory.
- The parties who lost money on the securities in question were not sympathetic mum-and-pop investors–they were highly sophisticated German banks who knew (or should have known) exactly what they were doing. Most people will likely agree that the SEC’s limited resources should not be devoted to protecting highly sophisticated German banks.
- The stock-market and economy have recovered, so the public outrage against Wall Street has greatly receded. If these charges had been filed a year ago, an angry mob would have stormed Goldman’s headquarters with pitchforks and torches. As it is, although there is still plenty of anger left, the public has basically moved on. Goldman Sachs won the financial crisis. It will now have to pay a penalty tax. But unless the market and economy crash again (possible), the SEC has likely missed its moment.
And now for Goldman’s big disadvantage:
- Goldman symbolizes everything that the public currently hates about Wall Street. A firm that makes billions of dollars a quarter for its shareholders and employees while the rest of the country collects unemployment checks. A firm that wields so much power and influence that everyone who has the power to control it either worked there, knows someone who works there, had his or her campaign funded by people who work there, or hopes to work there. A firm that is still very much “too big to fail” and therefore enjoys huge hidden subsidies at taxpayer expense. A firm whose average partner in an average year makes 100X+ the country’s average family income. And so on. Goldman will NEVER be a sympathetic defendant. In fact, the vast majority of people think its success in the face of the rest of the country’s pain is all the evidence anyone will ever need of its enduring guilt.
Goldman could probably fight this case and win. In the end, though, it will probably decide that taking a bullet and settling for a relative pittance (~$100 million?), is smart business.
Business Insider Emails & Alerts
Site highlights each day to your inbox.