Why is this an SEC action, rather than private actions against Goldman (raised by ACA, IKB, and maybe ABN)?
Obviously I'm uninformed, but my brief thoughts are:
- Goldman wins this case. It's not at all clear to me that they violated securities regulations.
- It seems that ACA was the misled party here, and that they would have never allowed their valuable name to be used in Goldman's marketing materials had they known they were effectively endorsing the short side of the portfolio. They also come out looking badly in this, in terms of their role as a collateral manager. It seems they're saying something like, "We would have worked much harder at choosing the reference securities if we knew that the sponsor wasn't going long."
- Lack of illegal behavior doesn't imply lack of bad behavior. I've got to imagine that Goldman is going to client relationships in the wake of this mess. As Bond Girl says, "why the hell would anyone want to be a client of Goldman Sachs after reading this?"
- I wonder what Buffett is thinking. He's got one bad experience with Salomon Brothers under his belt. Remember his famous testimony to congress, as quoted by Bloomberg:
``I want to find out exactly what happened in the past so that this stain is borne by the guilty few and removed from the innocent,'' he told Congress. He testified that he told his employees: ``Lose money for the firm, and I will be understanding. Lose a shred of reputation for the firm, and I will be ruthless.''
I hope that Buffett discusses this in this year's shareholders' meeting.