Thursday, July 15, 2010

Goldman Sachs Gets Over In Civil Suit And Regulatory Reform

Why is this man smiling?

He's Lloyd Blankfein, CEO and Chairman of Goldman Sachs.  He ought to smile because the SEC just settled its civil suit with Goldman for $550mm:

Goldman Sachs Group Inc. agreed to pay $550 million and change its business practices to settle U.S. regulatory claims it misled investors in collateralized debt obligations linked to subprime mortgages.

The penalty is the largest ever levied by the Securities and Exchange Commission against a Wall Street firm, the agency said in a statement announcing the accord today.

Claims of the largest settlement ever notwithstanding, this is just 4.1% of the $13.39B in net income GS earned in 2009.  It's really a teeny, tiny kind of tax for being so good at prop trading.  If it were larger the SEC enforcers wouldn't stand a chance of getting their resumes past GS's HR inbox. 

Blankfein and his pals in C-suites across the nation have another reason to smile.  The Dodd-Frank Financial Reform Bill passed Congress today.  The bill does little to prevent a relapse of the national credit seize-up that sent the U.S. economy into a nosedive in 2008.  It does give the FDIC power to unwind large financial firms but given the industry's capture of lawmakers we can expect that power to be used sparingly. 

The bill's loopholes for unwinding proprietary trading operations inside banks are so large as to be meaningless.  GS can look forward to many more years of betting against its own clients.