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New Standards at Goldman Sachs Have Me ROFLMAO

Posted by Larry Doyle on May 3, 2010 3:09 PM |

Is Goldman Sachs finding religion? Is the highest profile firm on Wall Street about to publicly pronounce a measure of self-imposed penance given the recent civil charges and criminal investigation brought against it by the SEC and DOJ respectively?

A report in today’s Financial Times indicates that Goldman has entered the confessional and is ready to let the public know just how meaningful its recompense will be. Prior to reading this article, I fully expected that Goldman was ready to announce that an internal committee had been formed to determine the appropriateness of transactions prior to their being marketed or underwritten. JP Morgan implemented just such an initiative after the debacle surrounding a variety of transactions with that fine, upstanding crowd (Fastow and Skilling) at Enron.

After reading and re-reading the FT’s overview of Goldman’s new plans, all I could do was laugh. Why? The FT reports, Goldman Plans to Overhaul Practices:

Goldman Sachs is planning to change some of its practices in dealing with institutional clients, a step that could help it settle charges filed last month by US securities regulators.

The internal policy revisions come as the US Securities and Exchange Commission steps up demands for corporate governance changes as part of any negotiated settlement.

While talks are not under way to resolve the SEC’s allegations that Goldman misled investors during the financial crisis over the sale of mortgage-backed securities, people familiar with each side of the dispute concede a settlement would be in the best interests of both parties.

According to one person familiar with Goldman’s plans, it would now tell employees to seek confirmation from clients that they understand the risks associated with any given security, and how their dealings with Goldman might change their total exposure.

You know Goldman’s salespeople are ROFL right now thinking as to how they are going to ask their clients if they understand the risks connected to a security. Picture Goldman salespeople saying the following:

“So, do you know where and how we are taking you to the hoop here?”

“Do you know where and how you’re getting drilled so that my trader can overpay me and we can both get out to the Hamptons this summer?”

“This security is really cheap, don’t you agree? You understand all the risks, right? Yeah, I thought so.” Then, he hangs up the phone and it’s back to rolling on the floor laughing.

The FT continues:

Goldman is also studying ways to ensure that complicated securities are marketed only to appropriate clients, the person said. Goldman’s push to “tighten up” standards suggests its willingness to adapt in the face of mounting scrutiny.

The standard that Goldman is aspiring to uphold is a basic rule known as suitability. It is supposed to be practiced all the time. For Goldman to promote it as a new initiative for the firm at this juncture is a kick in the balls to everybody who has ever truly practiced it.

Instead of these aforementioned ROFLMAO practices, Goldman may want to implement proper disclosure, transaction previews, a reputation committee, and increased transparency. At that point, we can all get up from the floor and make some real progress.


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