Goldman and BP in PR Battle With Administration

What do oil spills and CDOs have in common? In addition to the fact that they were both disasters, one environmental the other financial, much. First of all, they were both very expensive, one causing incalculable damage to wildlife and industry, the other to homeowners, taxpayers and banks balance sheets. The cleanups of both are ongoing, with the final impact still years away from being tallied. Naturally, the administration has had to get involved, as the damage to the general public grows by the minute. Curiously, both Goldman Sachs and BP are in a PR battle for their lives with a wounded administration that needs to appear as if it is capable of assigning blame and proposing satisfying punishments to calm the furor of the angry voting public.

Witness today's front page FT article on the SEC's probe into yet another Goldman-backed CDO deal called Hudson. The $2 billion Hudson Mezz CDO was not included in the charges filed by the SEC back in April. This is a new investigation replete with similar accusations that GS structured and sold deals to its customers while simultaneously shorting the same securities because it thought they were junk. There is even an email where a GS employee said of a potential investor that it was "too smart to buy this kind of junk." It makes one wonder how many more of these deals is the SEC going to try to nail Goldman on? How much will this ultimately cost the storied and now embattled investment bank? The FT helpfully points out that $1.1 trillion in CDOs were issued between 2005-2007. Certainly not all of that issuance was by GS alone, but still, this could get very expensive. Particularly if all of Goldman's customers start to sue. Goldman's pockets are deep but even it cannot survive criminal charges. Anybody old enough to remember Drexel? For you younger folk, how about Arthur Anderson? Is the administration willing to go that far, or is it just trying to win a PR battle? As much as everyone hates Goldman right now, I suspect the latter. If we chose not to let the bank die in 2008, why do so now?

BP is another story. It is not an American company so who cares? Drive these fish killing bastards into the dirt, or at least until the stock gets cheap enough so that a US company can scoop it up, point the finger at the last bunch of jokers who ran the firm and reach an affordable settlement with the government, fishing industry, idled oil industry employees, and residents of the gulf who are wading through the sludge washing up in their backyard. Or a Chinese company. Whatever. In any event, pushing BP to the brink seems likely, as there seems to be little political upside to protecting a foreign company in an already vilified industry.

If I had to wager, I'd bet on GS surviving and BP not making it, with loads of volatility in between. The two even have a history together. Forget about BP's current CEO, who in a brilliant video posted on LOLFed, is compared to a cat. Let's talk about BP's former CEO, the disgraced John Browne, who resigned in 2007 due to scandal related to his lying on the stand about how he met his former lover, Jeff Chevalier. Mr. Browne was also forced to resign from Goldman's board, where he was serving as chairman of the audit committee. Not sure what Mr. Browne was doing while chairman of the audit committee during the boom, but he certainly wasn't auditing the bank's CDOs.

Financial Headlines 5/4/2010

• The Dow is down 147 in early morning trading on - you're never going to believe this but - "European debt fears" AGAIN. I mean, how many more times are we going to do the Greece-is-imploding/Europe-is-bailing it out dance, before everyone wakes up and realizes that we're all overextended and need to restructure? Apparently, many.
• At least people are buying cars again. Car sales were up 20% in April year-over-year, which is good if you forget about the fact that sales hit multi-decade lows in April of last year. April's annualized sales pace was about 11.21 million vehicles, slower than the rate of 11.78 million in March, supporting the theory that we're experiencing a nice bounce but nowhere near the 16 million pace of the bubble years.
• The Lehman bankruptcy estate started presenting evidence last week in an attempt to prove that Barclays gouged its eyes out after the investment bank's bankruptcy filing. The evidence? $11 billion or so that Barclays made immediately after it cherry picked some assets. The estate plans to go after other banks - you've heard of a few of them - that it claims picked its carcass clean in the confusion following Lehman's implosion.
• Lending standards remained tight and even got tighter at US banks, but you already knew that. I mean how many ways can your bank say "No. No. I said No! Go away!" before you get the message. A few categories showed improvement, industrial and commercial loans for large businesses, but otherwise, hope you're doing fine living off your unemployment check.
• Curiously, one of the only stocks showing green today on my screens is BP. Apparently, if you cause a major environmental disaster that will cost billions to clean up, it's no biggie. It just means your stock is now viewed as "defensive." According to the FT, the US is raising pressure on BP over spill costs. Apparently, after the 1989 Exxon Valdez spill, landmark legislation was passed to ensure that these types of oil spills are paid for by the "responsible" party. Included in the legislation, however, was a $75 million liability cap, because that was apparently the best that the jokers in office at the time could do to pass something. But fear not, our savvy lawmakers are just now getting around to trying to raise that cap to $10 billion, which will likely get whittled down to $100 million by the time the oil lobby has done its work.