Hello all,

Sorry it's been a long time between posts, but time has been at a premium lately.  Hence I post this late in the evening as this is the only quiet time I can get.  I know I will pay for this tomorrow by giving up some beauty sleep, but I really do want to keep this blog going, and in the future, improve the format and so on.......

In the news recently was the Securities and Exchange Commission (SEC) civil action brought against Wall Street powerhouse firm Goldman Sacs.  In essence, the SEC claims that Goldman was more or less double dealing when it sold one of those infamous real estate Collateralized Debt Obligations (CDO) to "sophisticated" investors that was designed by a well known hedge fund guru who also happened to short the very CDO they created on Goldman's behalf.  That's the cliff notes version of the issue.

While the facts as published so far are interesting in as much as it is revealing - to a point - on how the Wall Street machine functions, there are curious things going on here of the Palace intrigue variety.

First - the timing of this action is very curious.   Very curious indeed.   President Obama, fresh on the heels of passage of that God-awful health care "reform" fiasco needs something to distract the weary disgruntled masses from the messy health care business.  What better than to go after those big bad evil greedy filthy rich Wall Street types?  Honestly, I can't think of a better way short of bombing Iran to district pissed off Americans from what Obama did to us with the transformation of America towards socialized medicine.  So, just as Obama announces his big push against Wall Street (which predictably means more, and more direct, government control of our financial system), the SEC comes out with the civil action against Goldman accusing the firm of playing both sides for greater profit regardless of who got hurt.  Coincidence?  When you turn the key on the ignition in your car, is it a coincidence that the engine starts?  No. 

Ok, so the Obama Administration orchestrated the timing of this action to try and paint Obama as The Great Reformer.  Of course, nothing could be further from the truth, but that's how this is being marketed.  The net effect, as has already been discussed ad-nausium, is that Obama's Wall Street "reform" crusade has put the Republicans in a bit of a pickle because they are opposing Obama's Wall Street "reform" in it's current state.   Here is one of the few times you will see us giving credit to the Obama Administration - it's a clever maneuver.  However, it's only clever inasmuch as it plays to the Stupid Nation - the sad near majority of American voters who do not invest the time to understand what's really going on, and how the political elite are trying to manipulate public opinion.

Gary Weiss, a long-time investigative journalist recently blogged about the Goldman SEC action.  In his blog piece , he makes the following remarks:

"Still, you might argue that Goldman is already getting off easy in this sense: it has been accused of a criminal offense--fraud--in a civil action.

IfI gave a bank a rubber check for twenty dollars I would wind up in thecan. Can someone please explain to me why it is that a bank gets accused of defrauding people for a billion bucks and it gets a civil lawsuit?"

I think I can explain:  The SEC can't win in criminal court.  And that's why they went after Goldman in civil court.  Civil Court has a lower standard of proof than criminal court, where if there is reasonable doubt, a jury must acquit.   In civil court, Goldman can be 'convicted' even if there are doubts here and there in the government's case.  And while the Goldman executives can't be made to do the perp walk, they can be made to pay out perhaps billions in penalties and damages - with the appropriate level of press fanfare, of course.

It would be great if I could claim this was my original thinking, but I can make that claim.  Dennis Gartman, a highly respected market and economics guru offered the above speculation in his proprietary newsletter - The Gartman Letter, and it struck me as spot on.  If the government felt it could prevail in a criminal proceeding, the extra oomph of a criminal charge would have been (dare I say) gold to the Obama Administration.   The SEC either didn't have enough evidence for a criminal action, or there was not enough time within the frame-work of Obama's needs for a distraction from the toxic afterglow of the health care debacle.

Make no mistake, criminal charges or no, having your legal opponent being the Federal Government, with unlimited resources and unlimited time, is not going to be fun for Goldman.  Mr. Gartman predicts that Goldman will suffer greatly under the legal microscope.  We surmise he is right again.  Sam Antar, a key player in the famed Crazy Eddie stock fraud of the '80's and now a corporate fraud crime-fighter notes on his blog , that the lead attorney for the SEC is an old opponent of his from the bad old days:  Richard E. Simpson.  Mr Simpson has the reputation for being both a brilliant litigator, and utterly relentless.  No doubt Goldman had their 'oh shit' moment when they learned of this.  The government is speaking to Goldman when they put their top guy on the case.

The politics of this whole thing are curiouser and curiouser.   Obama is actually biting the hand that feeds him - literally.  Despite the vilification by the leftist press of Wall Street as a central bastion of capitalism, and specifically Wall Street's role in the Great Real Estate Bubble Collapse,  Wall Street fat cats are almost all Democrats, not conservative Republicans, and they have pumped untold gobs of money into Democratic Party machine.  Now Wall Street is pissed, and supposedly they are complaining to the long neglected Republicans about their ill-treatment by Congress.  Obama is attacking one of their own.  Biting the hand that feeds them is going to have repercussions down the line, but politicians, like publicly traded corporations, usually don't think too far ahead.  My take on this is that Obama is (ahem) banking on the fact that he won't need Wall Street's money again for the next election cycle - anger at Wall Street among the Stupid Nation will carry the day, so they hope.

Of course you have to pause here and remember that the Democrats are totally duplicitous in the real estate collapse.  They enabled it to happen.  The analogy is that if you hand the bad guy a gun, and a mask, and drive him to the bank, and he robs it, you are an accessory to the crime.  That is what Congress is - an accessory to the crime.  Alas, the Government can't sue itself - besides, that would just make more bad press - better to go after their partner in crime and point the finger - 'He did it!'. 

Reading Rush Limbaugh's website tonight for his thoughts on the Goldman 'scandal',  and Rush speculates that this is all a totally inside deal - that Goldman knew this was coming and was "in on it".  I think Rush is saying this was a civil proceeding specifically to let Goldman off the hook with just a somewhat embarrassing fine, Obama get's his dog and pony show, and everybody goes home happy.  I doubt this.  I think Gartman is right - that Goldman didn't see this coming.  In Sam Antar's blog piece on this, Sam goes into some depth on the SEC's modus operandi for serving up these actions late on a Friday to rattle the cage of their targets.  Sam goes on to suggest that Goldman appears to have rushed into a public response to the charges, and in doing so may have opened up even larger issues for themselves.  I think this is all indicative that Goldman was taken largely unawares, and was in full scramble mode when the SEC pounced.  

It will be interesting to see how the Democrats and Republicans face off over finance "reform" with the back drop of this orchestrated Goldman action.    A Congress which has already demonstrated spectacular irresponsibility in passing health care "reform" now wants to further drill the country into the ground by "reforming" Wall Street.  One could almost think of this Obama reform initiative as a hostile take over.  Almost.

The reality is that even if Goldman did something bad here - which it may very well have - the burning need for reform does not lie in the man-made canyons of New York City, the reform we so desperately need is in Washington, DC.  And that reform is up to us.

"An ignorant populace cannot sustain a democracy"