Goldman: One Tough Opponent
President Obama's Securities and Exchange Commission knocked more than $12 billion off Goldman Sachs' (GS) - Get Report market cap on Friday with its complaint alleging fraud. The firm's lawyers aren't laughing and they may have a case.
Rather than ask you to take my word for it, I spoke to Bill Cohan, who wrote
House of Cards
, which chronicles the
Bear Stearns
meltdown, and is now at work on a book about Goldman.
Cohan, a former investment banker at
JPMorgan Chase
(JPM) - Get Report
, has earned a reputation for pulling no punches about the industry that used to write his paychecks.
I expected Cohan to tell me a Goldman bust by the SEC was long overdue, but he wasn't having any of it.
To recap a bit, the SEC has accused Goldman of creating a toxic brew of bubbleicious mortgages it sold to investors without adequately disclosing that it did so with the help of Paulson & Co., a hedge fund that got rich and famous by shorting the U.S. housing market at its peak.
Cohan says he finds it hard to believe that Goldman would be so dumb.
"They have more world class attorneys in their general counsel's office than anyone -- I cannot believe they would screw up on disclosure in this area," Cohan says.
To back up his point, Cohan notes that Goldman could have settled the charges and avoided a lengthy court fight. Instead, the bank has come out with a detailed defense of its actions -- a tactic the firm has used repeatedly during the roughly two years it has spent as the nation's high-priced punching bag.
Among other arguments, Goldman says it provided "extensive" disclosure, and that the bank itself lost more than $90 million on the transaction.
What constitutes sufficient disclosure is definitely one for the lawyers to decide, but Cohan thinks a sign the government's case is weak is that the only executive charged in the civil lawsuit is a measly vice president named Fabrice Tourre.
Tourre may be just a v.p., but Rochdale Securities analyst Dick Bove, who reiterated his buy rating on Goldman after the SEC filed its charges, has argued this case will ultimately lead to the resignation of Goldman Chairman and CEO Lloyd Blankfein.
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Bove may eventually prove to be right, but Blankfein and his army of attorneys surely won't go quietly. There's plenty of Wall Street behavior worth busting, but, as I argued Friday, one has the sense that the public needed a head on a platter, and that only Goldman would do.
For the public, Wall Street is the symbol of greed, and Goldman is the symbol of Wall Street. What the public may not understand is that Goldman is known on Wall Street for being "long-term greedy." It doesn't make stupid mistakes -- or at least it is better at avoiding them than any of its rivals.
When you pick a fight with Goldman, Mr. President, you had better hope you came prepared.








