Tag Archives: gs

Goldman vs. Capitol Hill: Like fighting with your mailman about the cost of gas

A few things are clear after the Goldman/Capitol Hill showdown today:

Goldman is greedy and sees no issue with bringing together parties betting on contrary positions on a given security; the firm may or may not bet one way or the other on those securities.  Um, obviously…that’s their job.

On the other hand, Goldman doesn’t really grasp why people are so pissed at them based on the perception that they participated in exacerbating the credit meltdown and foreclosure mess.  Well, fair enough- it’s not really their job to do so.

Ok, looking at the other camp: senators expressed outrage, on behalf of Main Street, that Goldman profited handsomely while betting against bundled mortgage securities that ultimately represented many doomed homeowners.  Ok: that’s their job to do so.

On the other hand, the senators showed a near embarrassing lack of understanding of the basics of what it means to bring two parties together who have different outlooks for a given financial security; they didn’t have a clue what it meant to be a market maker.  Understandable: that’s not their job.

See the issue here?  These two adversaries are each doing their respective jobs, but with little understanding of the other.  The senators might have just as well been grilling Goldman about having blocked fire exits, while Goldman was defending a policy of providing free dinners when employees work late.  The back and forth seemed completely incongruous.

Interesting that Goldman was one of only 3 financial stocks to rise today, even as the market as a whole fell about 2%.

Separately, one thing Goldman might want to be more aggressive about is policing its paid search results on Google.  Companies are bidding on their brand name and showing ads that are fairly humiliating.  Goldman can’t necessarily prevent this, but they should at least have the #1 search position themselves (currently they don’t show up at all) to make it either more expensive or impossible for the t-shirt companies to show up.

Check out the paid search ads on the right column. Not exactly what GS marketing/PR folks would hope for.

5 reasons not to bet against Goldman

1) They’ve been in tricky situations before and managed to get out. They navigated the financial crisis better than other big banks and paid TARP funds back faster.

2) They are smart. Very smart. This is not to say that smart people don’t do stupid things, criminal things, or stupid and criminal things that get them caught. But if anyone is likely to have a CYA excuse, it’s this bunch.

3) It emerged today that the SEC actually had a split vote of 3/2 to take enforcement action, indicating that the case is anything but a slam dunk.

4) It’s hard to imagine a fine that’s both big enough to get through the courts and also big enough to make a material difference in Goldman’s medium-term outlook.

5) Tomorrow’s earnings results are likely to be great.

None of the above mitigates the fact that the charges are serious, that the SEC might win, or that there could be long-term damage to Goldman’s reputation. It’s also obviously quite possible that this will fuel the passage of financial regulatory reform (which could hurt long-term profits) or get lots of people to hate Wall Street more than they do already.

I’d put some money on a scenario that includes Fabrice Tourre resigning, some other upper rank changes, and a settlement in the hundreds of millions of dollars range. But is all that enough to stop this machine from generating fist fulls of cash and a rising market cap? I doubt it.

When the stock went into free fall last Friday I jumped in and went long at $159, which mostly proves that no matter how many times I tell myself to stop trying to pick individual stocks, I don’t listen. “Myself,” I should be saying to me, “you just never seem to learn.”

So 6 months from now if I’ve lost money on this buy, I’m going to sit myself down and have a serious talk with me.

But for now, I’m rooting for ol’ GS to shake it off and keep those profits chugging.