Monday, May 3, 2010

Pressure Mounts on Goldman

The folks at Goldman might still believe they are doing God's work, yet the regulators believe otherwise, as the news of a possible criminal probe by federal prosecutors hit the tape last week and sent the investment bank's stock reeling. Add that to the SEC charges filed last month, and it's not looking so good for the world's most lovable vampire squid. Sure there's enough money to settle charges with everyone, but criminal charges? Not good, and generally not survivable. Time to crank up the PR machine and work on convincing everyone that they're really sorry, they're nothing to change and stuff like this is never going to happen again, at least not for another seven years or so.

The FT reports this morning that GS is planning to "change some of its practices in dealing with institutional clients, a step that could help it settle charges filed last month by US securities regulators." The thing is, even though the designation of "institutional client" implies that said client actually understands what it's investing in, that has proved not to be the case. In fact, many clients gladly purchased billions upon billions of complicated structured products from GS without knowing that they would likely be worthless in a matter of months. So, what to do to address the issue of GS's clients being boobs for assuming that the bank actually cared that it was selling worthless garbage to book monster profits? Hmmm, let's see... Oh, here's a great idea! Make them state that they understand the risks associated with any given security before doing a transaction with the bank. Creates a bunch of needless paperwork. Protects the bank from lawsuits in the future. Keeps the lawyers busy. Problem solved.

Might I suggest the following format for the new documents:

"Dear Valued Customer,

Please be advised that when our salesmen call you, they are attempting to sell securities that Goldman no longer wishes to own in its inventory. If we actually believed the securities were going to rise in value, we would keep them. In fact, it is highly likely that we believe the securities will lose value immediately. Furthermore, please be aware that we have likely front-run you before calling you in order to bid up the price of the securities we want you to purchase. In fact, if the securities are actively traded and you see bids on the screens reflecting certain prices, please be aware that it might just be our trader trying to paint the screens to coerce you into paying an inflated price. The minute you place your order, the trader might pull his bids in order to make you look and feel like a jackass. If the securities are less liquid products without tradeable prices, products in fact that we have created, please be aware that you are paying WAY more for the securities than we actually believe they are worth. It's what we at Goldman refer to as "customer service." As a profit making enterprise, it is our job to rip you off until you feel it in your keister. If you haven't thought of your keister today, might I recommend that you give your GS salesman a call. Have a nice day!"

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