Goldman Sachs: Bump in the road or crisis on the way?

Last Friday, the Securities and Exchange Commission (SEC), brought charges against Goldman Sachs for selling mortgage-backed securities that the firm allegedly knew were bound to fail, costing investors $1 billion dollars. The news forced the major indices to decline and U.S. stocks to slump, but was this only a hiccup, or are worse things to come?

Vote below and give us your opinion on what the future holds in our comments section:

62 thoughts on “Goldman Sachs: Bump in the road or crisis on the way?

  1. Best to accept that the odds of the game are stacked a bit against us, and then still hope for an honest dealer. GS is just another modern robber baron, stealing within the rules as they see them.

    But I got lucky with GS, in a small way. On the first down day I sold a May 155 put and then a 150 put too, for sweet premiums! I've closed the 155 put, perhaps too soon, but made a nice profit. I could close the 150 put also, for a profit, but may get greedy and watch the GS problem go away. Of if I get stuck with GS, then I'll sell a covered call; or maybe several, one after the other, if GS stays sick for longer than I think they will.

    And yes, I do know that initial successes with options can be addicting and dangerous.

  2. If memory serves me correctly the Glass-Steigal act was passed during
    the depression to prevent banks from gambling away customers savings
    accounts (within the framework of the fractal banking system) and our illustrious congress abolished and repealed it allowing GS and Wall Street to pull off these derivative capers. The voters who elected and re-elected these politicians need to start thinking about who they vote for come next election!

    Chicago, Illinois

  3. The fundamental problem is that very few in the public, and even in Congress clearly understand the cause of the financial crisis we are facing. Few have clarity on the problem that GS and its financial inventions pose to the American economy at large.

    To date, the government has not clearly stated what caused the financial meltdown, leading one to believe the dont really know. Yet the answer is pretty clear: the cause is the derivative gambling scheme that GS and Wall street created and operated to drive profits and commisions, and that was made possible because bankers to engage in speculative investments.

    In such an evironment, it is only a matter of time before smart, energetic, and unethical entities like GS exploit this. As Kathy B stated above it is clear GS has only one goal - make as much profit as possible any way they can, and use any means necessary - bribery, deception, manipulation etc. where ethics is not a consideration.

    The government must show that they understand the problem, explain it clearly to the public, then the regulatory solution will make sense to the public. This is how we can restore some confidence in the system. And if we fail to do these things, well ...

  4. I happen to agree with Kathy B. Until we (the people) require Congress to separate commercial banking activities from investment speculation and require absolute transparency in derivatives, we are just building up to the next bubble. America is a huge economy, but don't think we can't go the way of Rome. I would say we are moving right down that road, and possibly quicker than many would like to believe.

    Write your Congressman and Senators to increase capital requirement for banks, regulate all derivatives and require them to be transpartent, and separate commercial banking from investment banking activities while you still can.

  5. GS is an unethical, money making machine. Like all corporations, they are legally organized to act like psychopaths. They have no sense of right or wrong, they only seek to maximize profits. The govt is trying to get the derivatives market regulated, and out of the shadows, so we dont have another crash. GS is against this--they want to defeat any obstacle to their ability to make money. Derivatives are a great way for GS and all other bankers to make money. They dont care about the risk. They will gamble over and over and over again. Its like a gambling addiction that all the investment bankers have. They will keep on gambling until there is an intervention and they are put into rehab. There will be another financial crisis, if the derivatives market and hedge funds are left unregulated. Why dont people get it that these investment bankers have learned nothing???? The bomb just exploded, yet so many seem to be denying it. See how reality gets distorted.

  6. George Carlin described it well "This is what are system produces, Garbage In, Garbage Out".

  7. In the back of our minds we all hope that:

    The Gambino Family have an "issue" with Goldman Sachs.
    They are the only ones left with enough "honor" to make things right.

  8. When will the American people and our leadership come to the realization that our banking system, as a whole, is the greatest Ponzi scheme in existence? What most fail to recognize is the fact that a bank considers any loan provided as an asset. The more loans it provides the greater its asset position. Banks are permitted to loan up to ten times their asset position. What is disturbing is the fact that these "loans" do not have to be tied to tangible assets, or have any association with them. What we have in reality is that all money in existence is debt. If a run on any particular bank occurs the central bank is supposed to "bail it out". This situation works fine (just as a Ponzi scheme does) providing there is not a run on many of the banks at the same time. The problem we now have is that we had and are on the verge of a run on numerous banks and the banks (including the Central Bank) do not have sufficient assets (funds) to cover their obligations. In fact our government has recently increased the funding backup of the central banks by 300%. It should be noted that money has no real value unless it is tied to a tangible asset and the dollar is not tied to any tangible asset. When we left the gold standard we terminated that relationship. The lack of government control and regulation over recent years has only accelerated the potential collapse of our banking system. I do not believe the government bailout as implimented was sufficient to bring our banks back to a stable position. I am disheartened to think that we have not yet seen the worst of our problems.

  9. The announcement was timed to do maximum damage to those long on calls.

    The only reason this not announced after the close is because a lot of well-connected thieves made instant fortunes having inside information, including Goldman Sucks.

    1. Your statement is so very true and and i am sure the outcome will be as well received by GS as the timing of the announcement was.

  10. The greed and corruption of these banks and the people that run them are so deep that this type of fraud will always be out there. The sad thing is that many of the Goldman Sachs team that created this fraud, are now working in or around the White House! The American people are so scared to stand up to athority, and hold them accountable, that these people will never be held accountable. Thus the next fraud will be even bigger.
    Don't you think there should have been an investigation into the Goldman Sachs affairs, before Goldman Sachs was handed BILLIONS of dollars in bailout money? ( over 80 Billion I believe it was) From the american tax payer and our forgien creditors, running up the deficit of this once great country. Wake up people this government is not looking out for the people of the United States of America, Thie government is a fraud and sent here to ruin this country. Then take away all of are freedoms as we once knew them, it will all be gone in short order if the people of this country don't make a stand and remove all the crooks from office. One more problem is the newly elected representivive need to be watched like a hawk so they are not corruptrd like the last bunch.

  11. Well the scam works something like this. The bank is set up to make profits of some 3 trillion and then pays their commission (I mean kickback) of some hundreds of millions. Pretty good investment wouldn't you think.

  12. Oblama lawus liesa about avetyhtihng! You cannot trueust that man ever! Who wil 2wakw uo tin thiem to get ehir omeny from Oabam? No oewn kenow swhen the time wil come to make the big mweony thsi time!!

    Please listen to Adma. He knwows what is goinfg on big tiem!!

  13. why should it be a problem when the money never really existed at all
    the magic of fractional lending
    so getting fined is paid for by what??

  14. The Goldman Sachs Good Housekeeping Seal of Approval is shattered!!!

    The charge is brilliantly timed politically as even republicans previously opposed to regulatory reform are now saying that current reform proposals do not have enough teeth and additional teeth are needed. The new reform will bring back Glass-Seaggl and will definitely have the Volker Stamp!

    On a Monady past, markets were selling off under Volker dialogue brewing in D.C. It was not until Monday afternoon when Senator Jack Reed was on bloomberg TV being interviewed on the prospects of Volker law not making its way out of committee that the markets stopped at 9800 and have since not stopped running up!

    Governments locally, nationally and internationally that used to do business with Golman Sachs will now turn to other Wall St firms. BUT there are no other Wall St firms left.

    That entire MODEL has been shattered!!! A new model will have to be developed. Many firms will be broken up and many other firms will be charged too! All of these rapidly changing events and additional charges will lead to a significant lack of confidence and globally and a new crisis will unfold sending the markets to a long term bear market that will last and finally bottom out sometime in 2016.

    By 2016 sovereign debt will be massive with gold moving to $5,000.00, socialism rising, taxation exploding and oil at $200.00 or barrel, authoratarian gov't and the massive resurgence of black markets globally.

    CDS and CDO and other synthetics will be processed through clearing houses.

    Society will not recognize their own gov't or society after the catastrophic economic debt changes and hyperinflation through 2020.

  15. Sorry,

    This little belch doesn't mean a thing to these follow the crowd automatons who are in no mood to notice warning signals however ominous. They shall surely follow each other over the cliff all
    the way down to the bottom of the bottomless pit that is sure to materialize sooner or later!

    How in the world can a sick economy support a propped up market
    for any long-term bull cyclical in an otherwise bear secular
    market? It's never happened before, neither has falling up instead
    of down after jumping from a cliff several miles high!

    Chicago, Illinois

  16. He gave the Noble Pease prize to charity. Would you have done the same? As far as returning campaign contributions is concerned... There is no problem with accepting them providing no decisions or positions are taken to support those individuals who contributed on behalf of corporate management (special interest groups or lobbyists).

  17. Well every one knows that Goldman stock sells for 150 times it's value. I look at the suckers that are pouring money into it every day and cannot believe it. Look how fast it dropped and how much it dropped, I'm sticking with Warren Buffet it maybe slow but it steady and I can sleep at night.

  18. Thanks for the alert. I change my vote. Could be trouble. Have you checked out the stock? Next question: will this affect the market "in the fullness of time"?

    Time to go back and review ENE, aka Enron, which gave signal after signal after signal. Looks to me as though GS is in trouble. If I owned that stock, I would sell it tomorrow.

  19. We think the west debt machine has broken down.OTC derivatives have killed us all. Imagine 95% of world wealth is financial assets. They know what they have to do. We know too. GS? Who is GS? I think just like gearing we now into reverse gearing. Those patsies' assumptions are wrong and now they know there is no escape.

  20. UnAmerican financial terror is not good for the country. The product was sold to nurses, firemen, police, and retirement, pension plans. There is risk in all investing but there has to be a fair chance of opportunity. The product they created was 99% lemon that was pushed as 99% gold.

  21. Well,these markets are based on fear and greed so we will always have people trying to make a quick dollar. The funny thing is that the folks who are quick to bash these big banks would more than likely do the same or something similar if given the chance.

  22. The market says we all got 100,000 dollar bailout checks in our mail boxes, I didn't get mine...did you? Wow, we are having boom times...


  24. I agree with Thomas York. The timing of this SEC action, after two years with no mention (to my knowledge) of punishment of the perpetrators, leads me to believe it's being done with an eye toward the elections in November. It's an acknowledgment of how outraged taxpayers are over what the big banks have done, and is intended to appease us, but I don't believe GS will receive any meaningful punishment because of the bankers being in "cahoots" with the government. I think at the very minimum the fat cat Wall St. executives who took home obscene bonuses while the economy crumbled as a direct result of their greed, should be forced to rebate the bonuses to be applied to our debts and deficits, even if they have to sell one of their vacation homes to do it, or else spend the next few years in prison. That would go a long way toward mollifying me.

    To get back to the question at hand, I'm convinced another financial crisis is coming, but I don't believe this will be the triggering event. Thanks for the opportunity to vent.

    Also ditto Ralph Deans' comment. Adam, you are an amazingly civil and patient man.

  25. Do you think these events are coincidences? Could they be orchestrated with a sspecific purposes in mind? When is the administration going to spend the remaining ~60% of the unspent $780B stimilus money to spur the creation of PRIVATE sector jobs? Or is the remaining money being held to make things look good going into the November election?

  26. Agreement with Gene. Bankers are the real Oligarchs and, particularly now, drive the bus.

  27. I have a recurring face-off with a buddy who contends that Goldman should have been left to fail in 2008. He believes that would have washed away a lot of the grime on Wall Street. I contend that it's a cultural sickness and that the same individuals who behaved so irresponsibly would just end up in another Wall Street shop with a different sign out front. JHC, look at the lurid history of Wall Street. All in all, most people have become desensitized to the hubris of the financial industry. Those that haven't hold their noses but look the other way as their IRA and 401(k) balances rebound to levels they thought would not be attainable for another decade. Without the fed stimulus artificially propping up the US equity markets, there would be a lot more clamor about the Goldman shenanigans. As it stands, this incident will be a distant memory as Goldman shares head to $250 next year.

  28. Does anyone else ever get the feeling that GS as well as these other huge financial firms are just the chess pieces that the Feds use as they see fit?

  29. The timing is too convenient, not counting the many who made money on the insider trading before the announcement. I think Washington needed an event to show the public how they were on their side against the nasty bankers. Yet they weren't about to antagonize their buddies in the banking system. Eventually GS will be fined (a drop in the bucket compared to what they have made from their collusion with the Treasury Department). Someones head will probably roll, but then everything will be back to normal and Washington will be trumpeting their defense of the democracy.

  30. Sorry to say, Goldman and the rest of Wall Street has the government in their back pocket. Their team of attorneys calculated all of this action years ago. Unfortunately, over time all of this will be swept under the carpet. The only change will come from another revolution in this country. I know it sounds drastic, but look how poor the middle class has become since the 1970s....Look how rich Wall Street became during the 'meltdown'....It can only go so far. Eventually the citizens will not be interested in working so hard for this type of government.....

  31. Thu, Nov 5, 2009 at 6:25 AM, William Murray wrote:

    Take about someone rationalizing greed...

    "Two weeks earlier, Mr. Griffiths of Goldman Sachs rushed to the defense of large payouts, saying that “we have to tolerate the inequality as a way to achieve greater prosperity and opportunity for all.” He said the money would help lift the economy and encourage charity. A recent pledge by Goldman Sachs to donate $200 million to its charitable foundation did little to defuse public anger about its plan to pay $16.7 billion in compensation for this year."

    1. You cannot rationalize greed. It either exists or it doesn't. Most greedy are willing to trade off respect or admiration for acquisition of wealth. Their philosophy is to hell with those it effects.

  32. Why are there crooks on Wall Street? It's like the bank robber says,"Because that's where the money is." Our financial system is based on ethical conduct with a modicum of skepticism. But punishment of those who adopt unethical practices occurs only when a law or regulation is violated. Thus each "new" scheme begets new laws and regulations. However, it's always one step behind the crooks. After all, this is a society of innovation. Thus more regulation doesn't solve the fundamental problem. Goldman's failed because their desire to sell "innovative" products overcame their ethics and neglected exercising skepticism. You and I, as buyer or seller, have expected firms like Goldman's to shield us from the unscrupulous. In today's atmosphere of conglomeration, self direction and automation, it doesn't happen. And, we crave those new products promising larger, quicker returns. Caveat emptor.

  33. Dear all,

    If you have ever worked in a corrupt third world country where the people lack guile the corruption is obvious and laughable. But real. Good people enter the fray but eventually they too must participate to have the funds to continue (the greater good arguement). Other times its just that the senses become dulled constantly swimming in it, and finally resignation and exhaustion. It is my opinion that beyond a certain level of corruption it simply becomes endemic and uncontestable. Like taxes where the task is about plucking the goose's feathers with the least amount of hissing, corruption follows the same game plan.

    So sadly, there will be no end until either corruption eats itself and drags down the whole temple, or something else even bigger occurs to sweep it away - perhaps some external event such as disease, earthquake of mega scale, war, that blows the hole house of cards down.

    Don't hold your breath for the SEC, CFTC or a President to ever tackle a deeply rooted societal corruption. It will happen though. In the meantime s**t happens, prepare and make sure it doesn't happen to you.

  34. I am concerned that all the "dirt" has yet to be uncovered. There will be more discoveries in the future. However, the government charges and private suits being brought against some in the financial industry will serve to make them not only more responsible but will reduce future fraud as well. Putting a few of those responsible for the fraud in prison and placing personal financial liability on those responsible would go a long way in cleaning up our banking system.

  35. It could create another financial crisis as GS wasn't alone in creating/selling these types of financial instruments. “This is probably just the tip of the iceberg,” Chizu Nakajima, director of the Centre for Financial Regulation and Crime at Cass Business School in London, told Bloomberg.

    If the SEC’s action is actually successful, it could well open up the gates to other litigation worldwide.

    Possible impacts to GS; Goldman's shares, will face pressure because of headlines surrounding the charges and because the SEC case could alter financial regulatory reform legislation currently being discussed by Congress, nevermind replacement of their CFO.

    Analysts say the timing of the Goldman charges could give Congress a chance to add more oversight to the banking sector.

    Oh boy more government jobs, just in time....

  36. As far as the SEC bringing charges against GS I do not think a crisis will develop. I feel if a crisis develops it will be the result of what charges the other countries of the world will bring against GS and the pressure they will put on the SEC.

  37. I think the market is overbought at this point but the power trend up just will not die. I thought this GS hit from the administration would trigger a sell off - which it did - for about a half a day. The market is at this point unbelievably resilient. I think perhaps another shoe or two dropping will set off a hard slide of 10 to 15 percent in the whole market but so far - I have a high percentage of failed forecasts in that regard.

  38. Thank you Susan.

    May I take this opportunity to thank you for your unfailing courtesy and professionalism. That goes for everybody at MarketClub. Some foolish questions and disrespectful comments must tempt you to answer quickly in anger but you never do. Tip of the hat to Adam and everyone.

  39. It could be said that the old saying "Don't bank on it" no longer has any validity.

  40. I think that nothing happen. They would pay some fine and that would be all.
    There didnt have criminal charges but only civil. So this is some kind of theater for people and nothing major.
    Its not GS but all major financial firms (Citi also).
    No one is so stupid that only GS done that.

  41. Hum. My vote has been "loading" for 15 mins. Is that normal?

    Goldman is charged with fraud and the Dow surges 70+ points. What crisis?

    1. Hi Ralph,

      No, I don't think that's normal. Maybe try hitting refresh on your browser or F5 on your keyboard.


      Susan Jackson
      Director of MarketClub Education & MarketClub

  42. I do not think this will lead to another crisis. I believe the general public, government, traders, and investors believe the large investment banks, rating agencies, and regulatory agencies were all guilty of fraud or collusion from the beginning. With this initial belief we still bailed them out. Now it is time to throw a few of them on the altar of justice in order to make us believe that the government will do a better job in the future protecting us. And it will for a short time. Then the loopholes will become apparent to those on the inside and greed will take over once again. It is part of the cycle of life. As all successful traders know, they must factor public greed (some call it exuberance) into their trading methods and control their own personal greed.

  43. I believe that Goldman uses jawboning and other tactics regularly (such as on oil) to influence markets and enhance its bottom line, hurting other investors along the way. They have been so well connected in the government that Congress looks the other way lest the political money would get cut off. This was too blatant to overlook but the investigation will be kept smaller than it should be, again to protect that campaign money.

  44. It appears that our "wonderful" government is effectively squashing the real news and destructive information so I don't believe the truth will really come out. It's just like news about the economy picking up while this is merely strategic defaults spending.

  45. Just a ploy to make it easier to pass another reform on the financial markets by Obama.

  46. Investors in the US are more innovative and creative than other corner of the world. Getting bored over existing financial products easily. This is the kind of innovation that leads to shooting themselves on the foot.

    It is good to finally see the SEC exercise the power to take drastic action. Though it is way too late but, better than never. Hopefully it is not just a window dressing.

    USA should commence major house cleaning before it barks on the wrong tree.One may have taken certain position in FOREX for huge potential gain and commence finger pointing on the other nation for being unfair advantage over weak currency. The world is not stupid.

  47. Loss of confidence and trust got us into the current crisis. Exposure of the unethical, illegal, and arrogant behavior of GS (the most admired and revered bank in the world) deepen the hole we are in.

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