Friday, April 16, 2010

Goldman Sachs, Maybe Not The Smartest Guys In The Room After All

Goldman Sachs, prides itself on being a principled business which espouses:
  • Our clients' interests always come first.
  • Our experience shows that if we serve our clients well, our own success will follow.
  • Our assets are our people, capital and reputation. If any of these is ever diminished, the last is the most difficult to restore. We are dedicated to complying fully with the letter and spirit of the laws, rules and ethical principles that govern us. Our continued success depends upon unswerving adherence to this standard.
Turns out they didn't always operate that way. Today the SEC dropped a bombshell and charged Goldman Sachs with fraud in structuring and marketing of CDO's tied to subprime mortgages.  The charges include:

The SEC alleges that Goldman Sachs structured and marketed a synthetic collateralized debt obligation (CDO) that hinged on the performance of subprime residential mortgage-backed securities (RMBS). Goldman Sachs failed to disclose to investors vital information about the CDO, in particular the role that a major hedge fund played in the portfolio selection process and the fact that the hedge fund had taken a short position against the CDO.
This flies in the face of their stated business principles and it seems that real damage has been done to Goldman's reputation. As Goldman says. "This [its reputation] is the most difficult to restore." I predict the problems for Goldman and the repercussions have just begun.

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