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Goldman Sachs and the Great Escape

I spent most of Friday thinking about the news of Goldman Sachs record $550 million fine from the SEC (here's the detail of what they were accused of).

The last fine of any consequence the SEC levied like this, in my memory, is the $100 million fine of UBS back in 2004 for supplying dollars to Iraq.

That was pretty serious and yet this fine is almost six times more six years later.

So it could be thought of as a big deal …

… but it’s not.

It’s actually peanuts.

It’s chump change.

It’s nada.

Goldman fine Source: BBC

In fact, it’s irrelevant.

It’s irrelevant because this case is all about politics, money and morals.

Politically, it is obvious that the case was purely introduced to assist in getting the financial reform bill through the senate.

The SEC accusations were announced on 16th April, just as the financial reform bill was sent to the upper house, and then it was resolved on 16th July just as the upper house signed off on the bill.

Obama and his team are arch politicos, and so they thought the bill needed an extra push to get through the upper house.

This is because the Bill is pretty draconian, with the idea of prop trading being banned and speculative investing being confined to the pure speculator community – hedge funds and private equity firms.

This is the Volcker rule – the bit that sends us back to the 1930’s and Glass-Steagall, or near enough.

Everyone thought the Volcker rule would be thrown out or watered down but, by having the Goldman Sachs case on the go during the process of dialogue in the Senate, Obama got his way.

Which brings us to money.

This case is about money.

It’s about lots of money.

Not the fine, where Goldmans is only paying a $550 million fine.

That’s two week’s profit, based on the $12 billion they made last year.

In fact, it’s less than two week’s bonuses, as they paid out $16 billion in bonuses last year.

To put that in context, imagine you’re earning £16,000 … this fine would be £550.

About the level of a fine for being drunk and disorderly.

Is that what the SEC thinks of Goldmans’ actions?

They were just being drunk and disorderly all over the markets?

OK, lesson learned. Big deal.

No, this was about bigger money.

For example, their stock price tanked 20% to just $140 in the months since the fraud investigation began, losing about $15 billion in Goldman's shareholders pockets, many of whom are Goldman's staff.

Since the fine was resolved, the share price has bounced 10% and will soon be back to pre-SEC charges levels.

But the market capitalisation the bank lost – about $15 billion worth – was a far bigger fine than the $550 million the SEC required.

With that gone, it’s going back to the good old times again, which brings us to the final point: morals.

Does Goldman Sachs have a moral compass?

Goldmans make money at the expense of punters like AIG and Royal Bank of Scotland, by selling them sh*t and saying it’s your risk if you buy it.

It actually appears like Goldmans were the bookie who not only took the bets but fixes the race.

You don’t believe that.

Well the Committee for the Fiduciary Standard released a video of Goldman Sachs executives squirming under questioning from Senators this spring, as hearings over the SEC lawsuit were held.

The video shows Senator Carl Levin asking Lloyd Blankfein, Goldman CEO: “Do you think (investors) care that something is a piece of crap when you sell it to them?”

Blankfein’s answer is no.

As far as he’s concerned, the investor is purely concerned about the level of risk.

In other words, the investor and his broker have no relationship related to suitability or appropriateness – core mandates under MiFID – but purely that the punter has to understand the risk, not their dealer, and they have to be happy to take on board that risk even if their broker is selling them a piece of crap.


So RBS et al lose billions and get offered a token amount in return.

Of the Goldmans fine, RBS is being offered $100 million.

They lost over $800 million.

Those numbers don’t work in my book, and now that Goldman has been found guilty and, more importantly, ADMIT to misleading clients through their marketing materials in this deal, expect several high profile court cases to follow.

Background articles to this blog post include:

And the Goldman Sachs part of the Blog of course!

About Chris M Skinner

Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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