Goldman Sachs - The Big Question re: SEC
So Goldman is pushing the market-maker angle and it is coming off pretty convincingly. The question is: do you guys think this was truly the case or simply spin?
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You have to look at the big picture.
If you're going to bring a fraud case against someone, there are different burdens of proof. If you have utterly unassailable evidence of fraud, you can bring a criminal case where the penalty potentially involves prison plus disgorgement of ill-gotten gains.
If you think you still have a case, but your evidence isn't solid enough to satisfy the burden of proof for a criminal conviction, you can bring a civil case (which is what the SEC did against Goldman). Clearly, even the SEC wasn't convinced that their evidence was solid enough to go for all the marbles.
Finally, the SEC never brings any civil action against a market participant without approaching the participant about a settlement beforehand. This saves both parties the expense of litigation, and brings a timely and mutually agreeable resolution to the matter.
One of two things happened when the SEC approached Goldman about a settlement prior to filing the case. Either the SEC was demanding a settlement amount in excess of what Goldman was willing to pay to make the whole thing go away (while neither admitting nor denying culpability, of course), which I find highly unlikely, or the evidence against Goldman was so weak that Goldman felt it was worth rolling the dice in court and walking away scott free (a far more likely scenario in my opinion).
Goldman is guilty of many things and, if there is justice in the universe, the guys responsible will pay a heavy price some day. But it won't be at the hands of the SEC this time. The evidence just isn't there.
On a side note, the SEC's failure to procure a win in this case might mean the end of the agency.
I read Braverman's discussion above but I'm not sure he addresses the question of market-making directly.
For a long time, I have agreed with GS' position that they were simply conducting market-making activities and were sometimes net long or short a position due to this.
However, if you guys watched the C-SPAN interview last night, there were multiple instances the Senator brought up where GS confirms they would take a directional view on the market. Blankfein did not deny this (though the Senator was rather strong-handed with the hearing overall).
Even if the intentions of GS in this specific case was not directional, the question the OP asks seems to have been answered yesterday. Sometimes GS does indeed take a directional position on the market.
who gives a shit if they took directional bets? If a large investor comes and asks to place a trade, why should it be wrong for Goldman to take an oppostie view if they think its going to hell. They are taking a short view just by not hedging the deal.
Just like sports betting, you place a bet with a bookie, if he doesnt hedge that bet then he is short on it. Why should he face repurcussions if the bet doesnt turn out how you wanted it to, and then blame the bookie for betting against it.
GS also has an obligation to serve its shareholders, not just its clients.
The only time this gets a little murky is if GS specifically designed a security to fail and then sell it proactively to investors (which it seems to be the case it did this time). But simply shorting something they sold is not a big deal.
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