Stock Market Says Keep the Greed, Forget Investor Protection

By Michael Lombardi, MBA — Today’s Profit Confidential column

The message was strong on Friday.The markets like greed. In fact, the more greed, the better.Of course, I’m talking about the SEC’s charges against mighty Goldman Sachs. The market was relatively flat Friday AM before the announcement. Then all hell broke loose after news of the SEC suit hit the wire: the Dow Jones fell 126 points; oil was down, and so was gold. The Dow Jones U.S. Banks Index fell a whopping 4.1% on Friday.
It was interesting to note that the Dow Jones closed just above the 11,000 level Friday. The stock market gave the message — it likes the greed of the banks and Wall Street, but not enough to bring the market so low as to frighten off investors coming back into the market.In my opinion, Goldman will eventually settle with the SEC. The monetary penalty is not the issue. It is the reputation of Goldman Sachs — the most profitable investment bank on Wall Street — that has been forever tarnished. Big investors are not fond of hiring dealers or banks with SEC-related problems.The stock market is the world’s best financial judge and investor. By trimming off over 12% of Goldman’s value on Friday, the stock market is saying the SEC claim will cost Goldman Sachs in the pocket book.Sure, we may see a bounce today on Goldman shares, as the market may have overreacted Friday, but the damage to Goldman’s reputation has been done. It was once the bank everyone on The Street wanted to do business with. It may take sometime to get that
investor confidence in Goldman back.Frankly, I was surprised the SEC’s charges were not more toward Goldman’s relationship with failed AIG and how the government money that went to AIG was essentially to cover credit-protection payments to Goldman, but that might not be an SEC issue. (If you
are interested in the Goldman story during, up to and including the peak of the credit crisis, the best report I have read of it so far was in the April 12, 2010 cover story of BusinessWeek Magazine, titled “It Wasn’t Our Fault. Really” Get your hands on a copy of that issue if
you can.)

The SEC’s charges against Goldman Sachs give the government more reason to move on greater government bank oversight. Greater bank oversight will give investors added protection, but will reduce the profits of the big banks. Which do you believe the stock market
and Wall Street are more interested in, investor protection or bank profits? The answer Friday was overwhelming. Keep the greed, forget investor protection, says the market.

Michael’s Personal Notes:

My gripe today may be a silly one, but I want to share it with my readers anyway.

Back in the 1950s, 1960s and even for the majority of the 1970s, men would wear suits to work, women would wear dresses. (Remember The Dick Van Dyke Show or The Lucy Show. The men would come home from work in suits and wear them around the house until they went to bed, while women would wear dresses.)

Putting work and the office aside, people originally dressed up to go onto an airplane. As a frequent traveler, I’ve become quite disgusted (sorry for the hard words) about how people dress on an airplane these days.

I don’t want to sit next to someone (male or female) who is wearing flip flops on a plane. Nor do I want to sit next to a man wearing short pants and an undershirt or a woman wearing a tank top, shorts and sun glasses.

Sure, society has changed and dress today is much more casual. And while I don’t expect people to get “dressed up” to go onto a flight, I do expect people to have respect for the way they present themselves and for their fellow passengers. I’m all for being “comfy” on an
airplane, but I have a big problem with people dressing as if the plane is a stepping stone to the beach or the gym.

Where the Market’s Headed:

Goldman Sachs aside, the Dow Jones Industrial Average opens this morning up 5.7% for 2010. The bear-market rally that started in March of 2009 remains alive and well.

What He Said:

“Interest rates at a 40-year low: The Fed has made borrowing as easy as possible, resulting in a huge appetite for loans and mortgages. We are nearing a debt crisis.” Michael Lombardi in PROFIT CONFIDENTIAL, April 8, 2004. “We will wish Greenspan never
brought rates down so low as to entice so many consumers to have such big mortgages.” Michael Lombardi in PROFIT CONFIDENTIAL, April 27, 2004. Michael first started warning
about the negative repercussions of Alan Greenspan’s low interest rate policy when the Fed first dropped interest rates to one percent in 2004 .