Wednesday, May 5, 2010

The SEC's Vampire Squid Action, In Context

"Goldman Sachs Group Inc. [GSG] Chief Executive Lloyd C. Blankfein said the firestorm over civil-fraud charges leveled by the [SEC] is 'certainly uncomfortable,' but urged employees to remain focused. ... 'Following my message to you on Friday, I wanted to update all of you and let you know that we have been taking all appropriate steps to defend the firm and its reputation. ... Still, it is important to put the SEC's action in context. The core of the SEC's case is the allegation that one employee misled two professional investors by failing to disclose the role of another market participant in a transaction. ... I will repeat what you have heard me say many times in the past: [GSG] has never condoned and would never condone inappropriate activity by any of our people. On the contrary, we would be the first to condemn it and take immediate action. ... As you return to work on Monday morning, I ask that you maintain the level of focus on our clients that is at the heart of [GSG's] success over the past 140 years'," Joe Bel Bruno at the WSJ, 20 April 2010, link:

"The biggest bummer to arise from the allegations that the revered and feared Wall Street puppet master [GSG] had played us all for patsies is this: the dial on the Wall Street capital-formation machine, the engine that was supposed to be the driving force of the greatest economic system on earth, was purposely set to junk--worthless, synthetic junk. ... JPMOrgan Chase played procurer for Magnetar, a hedge fund so artful in profiting from the meltdown that Northwestern's Kellogg School of Management praised it last year in a case study. ... In the end, it was in fact all one big scam predicated on rising housing prices. Certainly, greedy consumers played a minor role in feeding the fenzy. But the Street made sure that those of us who are not members of its elite club remained the suckers. ... One the surface, these deals look complicated. They are. ... Only now, in the wake of the SEC suit against Goldman, are investors beginning to suspect they were hoodwinked. ... A synthetic CDO is at its core a trade, meaning it has a long and short position, and grownup investors are free to take sides. ... The reality is that Wall Street's CDO synthesizer set on of the economy's largest sectors off in the direction of creating nothing but waste--pure economic waste. ... These CDOs were the last stop in a vast transfer of wealth from a large group of American mortgage holders to a much small group of already rich traders who profted as the CDOs failed. ... By picking a fight with [GSG]--the 'great white whale' of Wall Street, as Eliot Spitzer put it on Monday--the SEC is signaling that it has now adopted a feistier approach. ... In a sense, [GSG] is relying on the so-called big-boy defense: There are no victims on Wall Street, just fools. ... Beyond any legal issues, the [GSG] case has become the battering ram for financial-reform legislation that congressional Democrats have been looking for", my emphasis, Stephen Gandel at Time, 3 May 2010, link:,8599,1983747,00.html.

The only "inappropriate" act at Vampire Squid (VS) is losing money. What's going on here? Did Lloyd Antoinette Blankfein (LAB) write this memo for VS's employees, or the American public? The SEC's case fails to impress me. Fab Touree, looks like VS's "sacrificial lamb", shades of Joe Jett of 1994's Kidder Peabody. While LAB weeps crockodile tears for VS, I think the case was a setup to push the Dodd bill through. I can see LAB telling Touree, "Look boy, take this one for the team. We'll take care of you. There's $100 million for you in Switzerland. Chill out".

Not the "last stop". That's Zimbabwe Ben's interest-rate suppression policy. The SEC did not pick a fight with VS. It got permission to appear to annoy the VS. Why did tthe SEC bother with this insignificant case instead of the AIG fiasco? VS wants the Dodd bill passed and is using this case to derail legislation that might hurt it.

Houston's Loren Steffy called the SEC's action "A slap on the tentables for the vampire squid", Houston Chronicle, 17 April 2010, link: Well said .


Ubu said...

A Hollywood writer couldn't devise a script this clever. I give VS high marks for sheer Machiavellian deviousness--and the American people a new TV line-up of drivel to further distract them from anything real. In the end, I'm probably going to throw in the towel and join VS, better to be a wolf than a sheep.

Independent Accountant said...

I would never underestimate the VS. Its tentacles go everywhere.


Anonymous said...

In light of more recent developments, considering some recent past news...

January 12, 2010 e-mail

“We may trade, and may have existing positions, based on trading ideas before we have discussed those trading ideas with you,” Thomas Mazarakis, head of Goldman’s Fundamental Strategies Group, wrote.

The message was meant to clarify the firm’s conflict-of-interest policy. Goldman and other firms have come under criticism for trading ahead of, or at odds, with its own clients.

Is it just me or does this seem to be someone putting the loaded gun to their temple?

Anonymous said...

"I would never underestimate the VS. Its tentacles go everywhere"

Much like the United States? If mom, apple pie, baseball and Chevrolet can go down, I maintain that Goldman Sachs can go down also. They are not gods. Their shit stinks just as much as the next man's.

Anonymous said...

the first rule of trading is not to panic and the second rule of trading is if there is a panic then be the first to panic the fun is just Squid

Anonymous said...

the harpoon is being baptized in the blood of the Pequod’s three harpooners hahaha! die Squid!