SEC vs. Goldman Sachs revisited

A blog on senior SEC officials spending an inordinate amount of their work hours looking at porn during work hours was entered last week:

http://gregnguyen.blogspot.com/2010/04/sec-officials-watching-porn-on.html

My cynical take was that Goldman Sachs, the accused in the SEC's fraud case, leaked these findings to the press, in order to discredit the SEC (which doesn't need it, given their horrific track record of being asleep at the switch).

I also blogged this entry, hinting at a clever strategy of how a company can profit from its own share price collapsing.

http://gregnguyen.blogspot.com/2010/04/goldman-puts-soared-friday.html

This is my speculation on the recent events. It's a false choice of two black hats.

The SEC, for all its ineptitude, filed fraud charges against Goldman Sachs last Friday. Their private investigators and captured journalists probably went into overtime to find the dirt on the normally shiftless, asleep-at-the-wheel SEC.

Goldman Sachs may have profited from the announcement of the lawsuit. $1,000 turned into $140,000 in less than a minute Friday when the out-of-the-money put options went deep into the money--on the day which those March put options expired. Coincidence?

Let's continue the speculation. Someone within the SEC could have tipped off someone at Goldman Sachs, so Goldman's cronies could place bets on the shares of Goldman Sachs tanking. The volume on Goldman puts options leading up to last Friday's options expiry was suspicious. In other words, Goldman could have bet on their own shares tanking--and made a huge profit in the process when it did tank upon news of the fraud case being filed by the SEC.

But the SEC is too stupid or too corrupt to chase its own tail. And they also picked the weakest case to prosecute. This case is about one smart investor (hedge fund manager John Paulson) betting on the obvious (shorting subprime mortgage bonds) and monkeys taking the other side of the bet. But it makes Obama look like he's fighting the banker fat cats on Wall St. to appease the populist anger among the masses. Again, the public doesn't understand the parasitic relationship between Wall Street and K Street.

Goldman Sachs CEO Lloyd Blankfein has been at the White House four times times since Obama has taken office, and Goldman was the second largest donor to his campaign. Goldman is a staunch supporter of the Democratic party, given their long history of placing executives in Democratic Administrations (Robert Rubin being the most prominent). It's one thing to publicly admonish big bankers gone wild publicly; it's another thing to make back room deals behind closed doors. If there are dismissals at Goldman, expect golden parachutes for their executives.

I'm surprised Jamie Dimon hasn't been targeted. JPMorgan Chase has allegedly manipulated markets with impunity and there is nary a whisper from the regulators. There is a long list of potential targets among the big banks. Let's see where that leads us to. I'm betting on misguided regulation after the fact, which will only hurt the small businesses so crucial in economic growth. They are the growth engine of America--not bankers profiting from rigged markets.

The financial system was robbed of tens of trillions of dollars on derivatives of hundreds of trillions of dollars, and all the SEC can come up is to scapegoat one 31-year old trader? Reform is an illusory ideal, as the rot in our financial system still exists.