Today's Cartoon

Analysis: SEC vs. Goldman

The civil fraud charges filed by the Securities and Exchange Commission Friday accused Goldman Sachs of "defrauding investors by misstating and omitting key facts". These financial charges also mark a new era of government regulatory enforcement of Wall Street. No longer will the SEC simply come to consent decrees with financial firms where they do not admit guilt and in most cases pay a small fine viewed as a cost of doing illegal business.

One immediate question is how do the SEC charges filed against Goldman Sachs change the playing field? Do these charges even mean anything in a broader regulatory context? In my opinion, the actions from the SEC on Friday defines a new playing field by Washington marked with the following game-changing alterations:

a) A broader effort to get the derivatives market properly regulated to minimize the possibility of future meltdowns.
b) The Goldman Sachs charges are expected to be the first of a lengthy string of government actions against multiple firms that contributed to the financial meltdown. The lack of accountability by firms which accepted bailouts is no longer acceptable to main street and their representatives in Washington.
c) A dismantling by regulation of firms that are "too big to fail"; including the scaling back of previous government legislation that allowed the merger of commercial and investment banks.
d) The teeth of the SEC are back in place. For the last twenty years the SEC has been a toothless enforcement entity; forcing state AGs to take a leading prosecution role in financial malfeasance. This is likely to be the start of a change where the federal government will have deep roots in the policing of problems involving large financial firms.

The roll out of these regulatory reforms are expected to take years; however as noted by an AFP news article "We suspect that after Friday, others on Wall Street may have a harder time sleeping."

Another good clip is Ratigan on MSNBC where he compares Goldman Sachs to an automobile manufacturing company that deliberately took critical component from the inside of cars (CDOs) and then sold the cars as being great investments while betting on the side that the cars they created would all blow up spectacularly. An apt analogy - watch it here.

WaMu Execs dragged before Congress today

There will be excitement in Washington today as former WaMu Execs are dragged before Congress kicking and screaming. Now that a Senate panel has had over 18 months to gather information, hopefully some sharp questions will be asked about Washington Mutual's abusive and illegal practices.

Allow me to urge the Congressional panel headed by Senator Carl Levin to refer the entire situation to the Justice Department for criminal prosecution.

'Washington Mutual "was one of the worst," Levin told reporters Monday. "This was a Main Street bank that got taken in by these Wall Street profits that were offered to it."'

Top ex-WaMu executives come before Congress
http://news.yahoo.com/s/ap/20100413/ap_on_bi_ge/us_washington_mutual_investigation

Worst Management Practices

One interesting point about the recession is that it has generated plenty of articles about bad management practices... right at a time where many managers are telling employees that they are lucky to have a job.

An article from Business Week placed "Forced Ranking" as number 1 on the list of "brainless and injurious" management practices. I have written about failures of forced ranking in the past, it is interesting to see that it is coming in regularly as one of the worst practices. Hopefully it is a practice whose time has come and is now disappearing from the corporate landscape.

10 Management Practices to Axe
http://finance.yahoo.com/career-work/article/108815/ten-management-practices-to-axe

Progress vs. the government

For centuries civilization made progress in the evolution of indoor plumbing, it only took a government act to cause an immediate setback in advancement. In 1992, the clowns in Washington mandated that every toilet in the U.S. use no more than 1.6 gallons per flush rather than the traditional 3.5 to 6 gallons. Of course the average citizen compensated for this by flushing 3 or 4 times when needed. Along with the tragedy of low flow shower heads (which simply forced everyone to take longer showers under a slim trickle of water) and low water washing machines (which increased damage to clothes and failed to clean the outfits of children who were out in the yard); the nonsensical federal acts have simply raised the average number of gallons of water used per person in each household since 1994.

A recent article from Mises spells out the failure of these government acts poignantly...

The Relentless Misery of 1.6 Gallons
http://mises.org/daily/3997

Now on Twitter

I am now on Twitter. I primarily will be posting links to good business and economic articles.

http://twitter.com/GregBoop