All you need to know about the SEC vs. Goldman Sachs

This is yet another wave of government action against our large financial institutions.  Always late.  Always ineffective.  The essence of the situation is captured by a scene in the great western “Chisum”, based on the Lincoln County War.  Lawrence Murphy was the leader of the syndicate running Lincoln Country, based on its banking, retail monopolies, political power, rustling, and gunmen.  He explains the situation to his gang.

“There’s a fundamental difference between Mr. Chisum and me. Mr. Chisum is a man who respects the law. Around here I’m the man who owns it.”

In real life the bad guys won, aided by the US Cavalry.

Here’s a ironic summary of the SEC vs. Goldman from today’s Contrary Investor (subscription only; well worth the price):

So let’s see if we have this straight, the otherwise up to this point toothless and near blind SEC chooses a Friday morning right at options expiration to announce the Goldman investigation. We need to think about who wins and who loses in this perceptual game of chess.

  • The SEC actually “looks” like they finally have credibility, especially going after Wall Street’s top dog. Check.
  • As the November elections fast approach and the outcry over the banks and Wall Street bailouts has not subsided, the politicians need a perceptual win. Check, this makes them appear as though they will get tough with Wall Street, potentially address true financial sector reform measures, and who better a perceptual poster child target than Goldman? No one.
  • What does Goldman get from all of this? You may remember that earlier this year we suggested that if financial reform were truly coming and the Volcker plan really was to have even a semblance of a chance of becoming reality, our thought was that the sure sign would be Goldman takes themselves private. Get it? This is how Goldman perceptually loses, but really wins big time by getting their stock price down prior to an offer to go private.

Bottom line? Everyone wins in this little perceptual turn of events. SEC looks tough, politicians align themselves with “the people” prior to the elections, and Goldman gets the chance to take themselves out at a reasonable price into panic.

Posts about Goldman Sachs, the exemplar of our financial system

  1. Obama makes his first major policy error, 27 February 2009
  2. Please read this. For the sake of yourself, your children, and their children, 25 June 2009
  3. About Goldman Sachs, the exemplar of our financial system, 21 July 2009
  4. More about “Government Sachs” (they own America; we just live here), 31 July 2009
  5. A window into the hidden workings of our financial system, 12 August 2009

Afterword 

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