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I’ll have more on the GS settlement tomorrow — but I keep getting emails from people insisting that since Goldman’s stock rallied, it is, therefore, a victory. I’ve always hated that analysis, but since so many of you keep bringing it up:

Pre-indictment, GS was north of $180. It closed Friday at $146. Its still some 20% below where it was before the SEC enforcement action began.

Goldman Sachs has lost $15 Billion of market capitalization. Isn’t that a significant part of the penalty? Or do we just ignore that?

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via yCharts

I have a quote in Alan Abelson’s column in Barron’s on the Goldman Sachs case:

“WHILE IT MAY SEEM LIKE an octopus squid to lots of civilians, Goldman Sachs doesn’t lack for fans on Wall Street. Any number of investment pros and their followers staged a brief (very brief) celebration of the news that Goldman had settled the SEC’s civil-fraud complaint against it for $550 million. The celebrants couldn’t all have relatives who worked for the firm.

Even its most buoyant admirers oohed and aahed over what a coup it was for the firm to get away so cheaply, having only to say it didn’t do anything wrong and pledging never to do it again.

They kept repeating that $550 million might seem like a big wad of dough to the little people, but it’s only a couple of weeks’ worth of profit for Goldman.

As Barry Ritholtz, proprietor of Fusion IQ and stalwart market-watcher, points out, the very people who are congratulating Goldman on its “triumph” were blithely dismissing the charges when first made public with the claim “the SEC doesn’t have a case.” Well, Barry insisted it did, and we quoted him to that effect back in April.

And he now thinks Goldman suffered a “massive” defeat that is being spun as “some sort of victory.” He notes that Goldman paid the highest fine/settlement in the history of the SEC. It admitted material omissions and misstatements in its marketing materials, disgorged profits, made up investor losses and faces significant risk of future litigation.

Goldman is an incredible money machine but that, Barry insists, won’t fix the severe damage to its reputation, the “black eye” inflicted by the indictment and the settlement.”

I am sure there will be more commentary on this same subject soon . . .

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Source:
An Outbreak of Investor Discontent
ALAN ABELSON
Barron’s, JULY 17, 2010
http://online.barrons.com/article/SB50001424052970203296004575363290546036832.html

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Here we are: Right back to the very lows of the Flash Crash of May 6th

Discuss:

It dawned on me earlier today that the Goldman Sachs settlement may actually be the more important development than the milquetoast Financial reforms.

Why? As Bloomberg suggested, the settlement will change the firms “train employees who structure or market mortgage securities.” It will also “bolster the vetting and approval process” . . . and probably “lead to a new industry standard for disclosures in private sales of securities, even to the most sophisticated investors.”

But the biggest difference is this: There’s a new sheriff in town, and his name is Robert Khuzami.

For those of you paying attention, Khuzami is the SEC’s director of enforcement. At the SEC news conference announcing the GS settlement, he said he was sending a signal to the entire industry:

“In agreeing to the settlement, we also took into account that Goldman is engaging in a broad-based self-assessment of their overall business practices that will increase transparency, evaluate and remediate conflicts, and take other steps that collectively will reduce the chances that investors in the future will be misled.

This resolution achieves the goals of accountability, punishment for past misconduct and prospective reforms that are the hallmark of a successful outcome.

Today’s settlement is a stark reminder that there will be a heavy price to be paid if firms violate the principles fundamental to our securities laws – full disclosure, honest treatment and fair dealing – and those principles do not change, even if the product is complex or the investor sophisticated.

For that reason, today’s settlement sends a powerful message of deterrence and accountability.”

Many on Wall Street seem to be underestimating this guy. So far, it cost Goldie half a billion dollars.

I said it in April, and I will repeat it here for those of you who are too dim to grasp this: Robert Khuzami is a bad ass, no-nonsense, thorough, award winning Prosecutor. . . He is the shit. My advice to anyone on Wall Street in his crosshairs: If you are indicted in a case by Khuzami, do yourself a big favor: Settle.

That continues to be the best free legal advice you will receive all year. Feel free to ignore it at your own peril.

July preliminary UoM confidence was awful at 66.5 vs expectations of 74 and down from 76 in June. It’s the lowest since Aug ’09 and down from the highest since Jan ’08 in June, thus a sharp change. Current Conditions fell to 75.5 from 85.6 and the Outlook fell to 60.6 from 69.8. The Outlook is now at the lowest since Mar ’09 when it stood at 53.5. Inflation expectations ticked up by .1% to 2.9%. The UoM survey is via phone and done within the last few days so it is a timely snapshot of consumer sentiment. With a still sluggish labor market at the same time unemployment insurance is ending for many, we can fully understand the consumer nervousness.

(Invictus here, ladies and gents):

Shortly after the minimum wage was raised last year, the right-wing chorus rose up and began to assert that the rise in teen unemployment was directly attributable to the more generous pay scale.  To my eye, and based on numbers I’d crunched, I thought demographics were much more at play (note: that’s “much more,” not “exclusively”), and said so here last September:

There is evidence – real, actual evidence! – that it’s the 55+ age cohort staying in – or re-entering – the job market that is much more at play than the minimum wage…Where there had been less than 2.5 workers 55+ per teen worker in the year 2000, that number has now jumped to a record 5.5…As a percent of the workforce, the 55+ age cohort has now reached a new record of 19.4%, clear evidence that older workers are squeezing younger workers from the workforce.

and here last November:

…simple demographics coupled with the damage wrought by this recession on the Baby Boom generation — in terms of both real estate and investment portfolios (particularly retirement portfolios) — is so great that many Boomers have realized they’re going to have to postpone retirement (see one story on that here, there are thousands on “postponing retirement” out there on The Google).

I reiterated that position here at TBP last month when illegal immigrants became the target of choice for stealing teen employment:

What about demographics — an aging boomer population — and a crappy economy that has  the 55+ cohort postponing retirement and consequently crowding out the younger generation (parents keeping their own kids/grandkids out of the job market, as I put it a while back).  The data is there for all who choose to explore it.

Well, now comes Bloomberg news with this:

Workers Over 65 Vie With Teens in Labor Market for First Time Since Truman

U.S. employees old enough to retire are outnumbering their teenage counterparts for the first time since at least 1948 when Harry Truman was president, a sign of how generations are now having to compete for jobs.

Bloomberg provides some very cool interactive features (that are way beyond my capabilities and definitely worth checking out).

I guess the facts continue to have a well-known liberal bias.

(Notes:  A BLS study – “As the baby-boom generation ages, the share of workers in the 55-years-and-older age group will increase dramatically…” — analyzed this trend in detail here (.pdf) last November, thankfully after I’d already written about it.  Also, this demographics angle was recently picked up by the NY Times Economix blog via the San Francisco Chronicle (which cited Bloomberg, closing the loop), but you did read it here — or other places I’ve written about it — first.)

According to the May TIC data, Chinese holdings of US Treasuries fell to the lowest level since May ’09 at $867.7b, down $32.5b from April. All of the decline was in maturing bills as they bought a net $2.9b of bonds and notes. So, it’s apparent that while China is not outright selling US Treasuries and in fact still buying, they are not recycling all of the maturing short term securities into new ones, for now.