Monday, April 26, 2010

Goldman's perfectly hubristic public relations

Goldman Sachs is putting on a full court press of public relations to its major constituencies, primarily its customers, its employees, and its alumni. They offer thorough "evidence" of their appropriate behavior in participating in the mortgage backed securities market in 2006, 2007, and 2008. They point out that:
---they were not a dominant participant in the residential securities underwriting market
---their revenues in this business relative to overall firm revenues were small
---there were no deficiencies in the underlying instruments when MBS's or CDO's were underwritten
---they had no special information on the market, just what anyone else could access
---they did not generate enormous net revenues or profits betting against residential mortgage securities products
---they had significant losses in their mortgage business in 2008, a net loss of $1.7 billion in fact
---the mortgage market losses in general were caused by a broad collapse of the mortgage market

All of this may be correct and all of it is irrelevant. It has nothing to do with the specific charge of fraud in the SEC case, a case that seems, legally speaking, to be tenuously based on the assumption that Goldman is so smart that it could take advantage of other major institutional investors with access to the same information. It should be noted that these other institutions had the choice to be short the mortgage market if they chose to do so, and they made the decision to be long. Regardless who was on the other side of the trade, obviously someone was there who had the opposite point of view. The SEC case is weak.

The information provided could be said to be arming Goldman's stakeholders for the vendetta underway from Senator Carl Levin. It may help some but nothing will stand in the way of Levin's onslaught of e-mail "gems" from the millions provided that "prove" Goldman's position at the epicenter of the entire mortgage crisis. What would Levin have preferred Goldman do, not hedge its portfolio and manage its risk and end up on the chopping block like Lehman, Bear, and Merrill, or even worse AIG, another drain of taxpayer money.

Goldman's messaging ducks the major issues and stays on the "high road" of everything they didn't do. It ends by speaking not only for itself but for the financial community as a whole and saying that "there are valuable lessons to be learned from the financial crisis... we should learn the right lessons to avoid crises in the future", or words almost like that. BAD idea, BAD timing. The time for Goldman to be a financial services leader and an exceptional corporate citizen was when they had the insight to see the dangers, and the financial capacity to forego creating CDO's and just say that's enough, this is crazy, we will not participate. They missed that opportunity and stayed in the game with their sharp elbows.

Now they don't know how to get out of their own way, their culture so imbued with superiority that their message is annoying even to their supporters.


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