No clue whether the allegations against Goldman Sachs will stick but if you have spent even a little time in deal structuring and marketing derivatives…you can understand that THIS COULD HAVE HAPPENED. It is also easy to realise that when a brokerage firm is small and the owner is worried about his reputation, he could NOT have even thought of this. However once a company is far, far, far removed from the customer then such deals are possible.
Imagine an old Gujarati or Parsi broker in Mumbai GOING SHORT on shares which he is RECOMMENDING to his clients. ALMOST unthinkable.
However, once a huge set up is created the ability to see the implication on the end client is lost.
So if Paulson was allowed to pick what should be the components of a CDO, and he was allowed to short the COMPONENTS separately, non disclosure is A FRAUD. No reason why this case should be tried at a higher court.
Goldman Sachs …reputation risk? Ha ha ha…happy not to be a part of Goldman Sachs.
PS: What does reputation have to do if all companies are concerned with EPS?
Is this the end of the road for Goldman Sachs…Of course not. It will continue to be in business, pay a little fine, heads will roll. Its market capitalisation will fall by a number greater than the fine…so if you are a contrarian you should be buying a little of GS rather than be selling it. Frankly there seems to be no direct implication for India except that the SGX Nifty closed lower on Friday after the announcement. Companies like LIC Housing finance, Lanco Infra, United Phosphorous where GS has a stake could see some shorts by bears. Other than that the general ‘these guys make money by cheating’ image of the financial services industry could get strengthened, other than such very small implication…frankly do not think there is anything much.
“Implications of Goldman Sachs fraud on India”….
In case you are wondering what the whole controversy is all about…read it in the following link. It has all the ‘masala’ of a TV serial. Drama, allegation, etc. Goldman has supposedly got only $ 15 Million as fees in this transaction, BUT its already fragile reputation will take some more hammering…The Economist has explained it in simple terms…
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