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The Only Real Question Regarding Goldman’s Settlement with the SEC

Posted by Larry Doyle on July 16, 2010 7:34 AM |

Who’s next?

We can debate all day long whether the settlement of SEC charges against Goldman Sachs for $550 million is fair or not. While that debate will occur all over Wall Street and throughout the world of global finance today, the question regarding the size of this settlement is not important in and of itself. I am not saying that $550 million is not a lot of money. Nor am I saying that Goldman may be getting off easy. The only question I have is, “Who’s next? ”

Are we to think that the Goldman Abacus-CDO transaction is the only ABS-backed CDO that employed improper marketing? Do not be so naive. In fact, if Goldman employed improper marketing in one deal, are we to believe they did not do the same in many others? Do you ever find just one mouse?

The Goldman Abacus deal was a $2 billion transaction. A sizable transaction, correct? Yes and no. We truly need to look at the Abacus deal in terms of the overall ABS-CDO market. How big was that market? Slightly more than $1 trillion in ABS-CDOs were underwritten by Wall Street from the beginning of 2006 until the market froze in early 2008. (Source: Asset-Backed Alert; credit to Anna Katherine Barnett-Hart for providing this source in her honors thesis at Harvard)

Simple math indicates that the Abacus deal represented .2% of the total market. The question begs as to what percentage of the market employed improper marketing. If 5% of the market, then is Wall Street looking at approximately a $15 billion tab? Does 10% generate a $30 billion tab? If 25% of the deals were improperly marketed, are we looking at $75 billion coming back to the American taxpayer?

If we could steal a phrase used on every playground hoop court worldwide but very applicable to this situation with Goldman, Wall Street at large, and the SEC, “Who’s got next?”


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