Tuesday, April 20, 2010
It is an interesting dilemma when a company's reputation is hanging on the meaning of a word. That may be what is happening to Goldman Sachs. It comes down to the obligation the company had -- or didn't have -- to tell clients that a third party was involved in helping to structure a portfolio of toxic mortgages. The hard part for Goldman is that its publics are looking in retrospect at what happened. Today it appears outrageous that someone who was betting against the market was allowed to help construct the bet. In 2006, when the bettor was unknown, few gave it a second thought because everyone knew housing prices would keep rising. At best, Goldman looks foolhardy, a serious dent to its reputation, even if it wins its court case. Predictably, the SEC sued Goldman just in time to help build support for laws to control such behavior in the future. Even if Goldman wins, it may take years for it to recover the power that it had.