If it is true…..
The allegations made on Friday against Goldman Sachs in the US are amongst the most serious that can be imagined. The SEC is charging the well known bank with engaging in a conflict of interest which cost investors a billion dollars. What did they do? The deal concerns poor quality home loans in the United States and is full of complicated ideas like CDOs, CDSs Abacus Super Senior Tranches and so on. Forget all that jargon. Strip it to basics and it is very simple:
Goldman put together a barrel of apples and allegedly allowed a hedge fund, called Paulson, to stuff the barrel full of rotten apples. Goldman – so the SEC says – then sold the barrel to investors as perfectly good fruit.
Worse. The charge is that they did so knowing that Paulson was taking out insurance against the rot spreading and the lot going bad. Sure enough, when the barrel of apples went rotten, the investors were left with worthless fruit, and Paulson got paid out the insurance.
Paulson isn’t charged with anything (why would they be? They were just being hard-nosed gamblers who did what gamblers do – try to play the game and win.) Goldman has denied anything wrong took place either in fact or in law.
For Goldman this is a reputational disaster. Goldman has been battling ethical questions ever since it was paid out by the bankrupt insurance company AIG, for its losses in the credit crunch – paid out with US taxpayers’ money. There are allegations over its role in the demise of Lehman Brothers, and in just the past month, questions have been asked about whether Goldman helped former Greek governments hide the true level of government debt. Greece is still on the brink of sovereign default because of the high levels of debt run up. All at a time when Goldman is making billions of dollars in profits and once again paying out high bonuses to its bankers.
If this SEC allegation is true, then it flushes Goldman’s reputation down the toilet for one very simple reason: The alleged deceit is not against the “little people” aka The Taxpayers. This would be a deceit against Goldman’s business partners, counterparties and cronies. Wall Street will have defrauded its own, and that takes this into a whole new league.
By now, Goldman will have caused an enormous range of people to be angry. Wall Streeters who were deceived, US taxpayers who bailed them out, Greek taxpayers who are stuck in recession –
Even British taxpayers should be angry….Paulson’s insurance payout came from ABN Amro, which was taken over by Royal Bank of Scotland, which, of course, was nationalised by the British Government. Taxpayers on many continents have possibly suffered at the hands of Goldman’s banking practices. ….if this is true.
I have read all 23 pages of the SEC complaint. If it is proved to be true then Goldman has acted in an unethical, unsavoury and underhand way. And that is being charitable.
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Richard Quest is a CNN correspondent based in London, host of the weekday one-hour program “Quest Means Business”. For program highlights and more, go to www.cnn.com/qmb
