The U.S. Attorney's office is contemplating criminal charges against Goldman Sachs | Business

Things keep getting worse for Goldman Sachs. Late yesterday news broke that federal prosecutors are looking into whether to bring criminal fraud charges against the Wall Street firm. (The outstanding SEC lawsuit involves only civil charges.) No word yet on any details about what those new charges may entail.

Nonetheless, stock analysts are already downgrading their recommendations on Goldman.

What to think? I am going to take my cue from Charlie Munger, Warren Buffett’s long-time business partner, and a big owner of Goldman shares (via Berkshire Hathaway). From the WSJ:

While Mr. Munger thinks Goldman did nothing illegal, the firm was engaged in “socially undesirable” activities, he said in an interview after the SEC lawsuit was filed.

“They were very competitive in maximizing profits in a competitive industry that was permitted to operate like a gambling casino,” Mr. Munger said. “The whole damn industry lost its moral moorings.”

He added that he believes Goldman is “more prudent and ethical” than other big Wall Street banks.

I guess we’ll find out how far that gets them.

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curmudgeon57

Hi Barbara – My problem with Misters Munger and Buffett’s take is that they have far too much skin in this particular game to be believable. What is it, $10 billion they invested in GS, and with a return that no ordinary investor will ever see again. This weekend will be most telling, but I believe we will see Warren’s reputation take a hit on this one. Are you going to be in Omaha this weekend?
Barbara Kiviat

Unfortunately, no, not this year. Warren and Charlie are interested parties for sure. I guess that’s part of my point. If a guy who owns a chunk of the company calls the whole endeavor morally bankrupt, then the truth certainly won’t be any *more* rosy.
waltwriston

I wouldn’t go so far as to say Buffet is some guru. He ins’t anyone who didn’t buy at the height of the Black Swan were IMO either scared or stupid. I’m making returns like his albiet with not nearly as much money invested.

Doesn’t Buffet use BV to current market price a lot? If so that tells you some thing!
waltwriston

Just wanted to add that our fractional banking system is a ponzi scheme. I remember when I learned about in college and thought exactly the same thing. Now we have cdo –> cdo^sqrd—> cdo^n. When can it end? The answer is leverage and undercapitalization apparently. It was like N’s limit would only end asymptotically at infinity? Or I should say “notional” infinity!
http://funks2.wordpress.com Michael Funk

I’m not sure if Munger is right about Goldman’s ethics relative to other Wall St. firms, but they are in smartest in virtually any venue:

http://funks2.wordpress.com
green4living

Engineered by the same Goldman Sachs, involved in provoking the US supprime mortgage crisis, chances stand that also the recent Greek debt crisis has a big potential to destabilize the EU but also to kick back to the US economy as well … The world economies and finances are so interconnected within the global economy, that it became literally impossible for a financial shock like the one in Greece to remain without consequences for the other (remote) countries as well … Stay tuned for what will happen next, and how EU will decide to go about it – the issue might reveal some interesting aspects and connections …

http://goo.gl/W1eJ
curmudgeon57

I was right; it appears, oddly enough, that Mr. Buffett would like to go down with the good ship Goldman Sachs, and in particular, Lloyd “we’re doing God’s work” Blankfein. I don’t get it. What’s your take, Barbara?
efirmage

The fraud comes in because Goldman was dictating what would go into the CDOs, then shorting them and selling them as OK investments without disclosing they had both been involved in the creation of them as well as shorting. Sounds like fraud to me. If the rest of the financial intitutions were doing this too, they’re up to bat next.
waltwriston

I wouldn’t hold my breath on the pospect that the rest will be drug into it. It’s the off-season in elections we’ll see more pandering, and that’s about it.
wisegrowth

I don´t think it was a crime that they bet against their clients… but it shows moral hazard …

They are concerned about their profits and shareholders more than the clients.

We live in a society that has many parts, business, government and people. Each one plays an important role to serve society and its well being. They must work together but be separate. They must respect the other´s role also.

The banks are not respecting their part in society in relation to government and people.