The SEC and the Goldman Boys

Trying to keep up with corporate malfeasance, the SEC (Securities and Exchange Commission) is running around suing bankers and brokers like a homeowner during a typhoon putting out pails underneath a leaky roof. But the scandal at Goldman Sachs this week is one that the SEC itself created.

Back when Robert Kiyosaki first began writing his Rich Dad Poor Dad series in the 1990’s he let readers in on a secret many of us never knew. That secret was that rich people had opportunities available to them to invest in things that the rest of us do not. According to Kiyosaki, the reason for special privileges was that the SEC deemed wealthy investors to be more “sophisticated” than we are.

As I recall, Robert’s examples were things like oil and gas leases and trading stock on the margin (i.e. with borrowed money) , but he hinted at more. Well, now we are all aware of the “more”. More includes things like derivatives and securitized products: CLOs, CDOs, CDSs; MBSs, etc.

OK, so not everyone knows what those investments are, but we all know they exist. We all know they were the investments that became worthless during the crash. We know too that investment banks, and Goldman in particular, were responsible for that because they created and sold those kinds of junk investments.

And so we come to the crux of the matter this week. A Goldman Sachs senior executive mouthed the words that we all suspected were the truth about investment banks, but weren’t really sure of. Goldman’s deliberately took advantage of its wealthy investors, even calling them “muppets” in the process.

Scandals at Goldman Sachs

Goldman’s infamous Abacus mortgage derivative scandal was the tip of the iceberg. Goldman’s sold its clients Abacus while traders at Goldman’s and elsewhere bet against that investment. Goldman’s clients lost their shirts. (For details, see Brucenomics post, “What did Goldman Do Wrong“)

But Goldman’s executives still don’t seem to get it. Their responses to Greg Smith’s resignation letter are typical of what psychologist, Dr. Martha Stout call sociopaths. (See her case study of” Skip” in The Sociopath Next Door.) Goldman’s senior staff tried to paint their star 12-year colleague as a “disgruntled employee” whose remarks shouldn’t be allowed to sully the work of the 30,000 other employees at the company. They’ve whined that they were the only ones to not take bailout funds. They didn’t borrow money so they shouldn’t be attacked. It’s just “politics,” Goldman asserts, and asks why blame poor old us?

Goldman apologists, including New York City Mayor Bloomberg himself, are crawling out of the woodwork to defend the bank, claiming even God couldn’t lead the bank better than its CEO, Lloyd Blankfein. Others are doing damage control by minimizing the event by flooding the Internet with satires on Smith’s resignation from the company or claiming that the Goldman attitude applies only to its derivatives division where Greg Smith worked.

But many others, including Goldman’s own clients, are saying Smith’s point of view is quite accurate. The bank isn’t looking out for the interests of its clients. In addition to its mortgage derivatives scandals, Goldman’s has alienated bank clients with its underwriting practices as well as ticked off a court judge in Texas with “conflicts of interest” involving a merger between two energy groups. (See the details “In need of a brush-up” in Sunday’s Financial Times – March 17/March 18, 2012). Articles have come out about Goldman nasty sovereign debt deals with countries such as Greece and Libya too.

The SEC’s “sophisticated” investors

So why is there no comment from the US government agency that permitted all this happen in the first place? Where is the SEC? The SEC isn’t saying anything about the Goldman flap; it’s just continuing to dump buckets of taxpayer monies into attorney’s pockets to convict other investment advisors who took advantage of gullible rich people that the SEC said were “sophisticated” enough to know what they were doing. What a cruel joke that is!

This year it was reported that even in the shadow banking sector “sophisticated investors” are getting shafted. On average they’ve received from global hedge funds exactly zero returns on their investments. All the SEC can seem to muster in response is a weak attempt to improve “transparency” of these only-the-rich-can-play investments. This kind of patronizing and patriarchal attitude of the SEC towards ordinary American citizens is pure condescending c&$p!

Ask yourself this question. What good is more transparency if rich investors are simpletons in the first place when it comes to investing? The financial crisis wasn’t a result of lack of transparency; it was a result of the hubris of investors who bought into the SEC label “sophisticated”. They actually thought they knew what they were doing and who they could trust to help them.

Why isn’t the SEC trying to protect rich investors from their own ignorance? In fact, why isn’t our government spending one dime on educating every American about what they need to know about investing? Surely that’s of equal if not greater value than learning about chemistry or trigonometry!

I would think that investing would be something we all could agree that our children need to know about — even if only to protect themselves from the foibles of ignorant rich people all over the world, some of whom can’t even bear to admit that, yes, they’ve been “had” by their own bank.

Follow Nancy Humphreys on Twitter @brucenomics