Goldman's Double Game

Goldman Sachs (GS) was once a punchline. During the Great Depression, the then-small partnership on Pine Street became a target of national ridicule because of a scandal involving the Goldman Sachs Trading Corporation, a publicly traded investment trust that blew up after the stock market crash of 1929. For years, comedian Eddie Cantor, who had lost $100,000 and sued Goldman for $100 million, made Goldman Sachs a running joke in his stand-up routines. In one of his bits, Cantor would appear onstage with a stooge who tried to squeeze juice from a dry lemon. “Who are you?” Cantor would ask. Without missing a beat, the stooge would say, “The margin clerk for Goldman Sachs.”

Ever since being subjected to Cantor’s barbs, Goldman Sachs has cultivated an image not just as Wall Street’s preeminent firm but also as a paragon of financial virtue. But Goldman’s supposedly pristine reputation has always been more invented than earned. In 2010 the Securities and Exchange Commission, Goldman’s principal regulator at the time, sued the firm for failing to make adequate disclosures regarding a synthetic collateralized debt obligation it manufactured and sold at the height of the housing bubble. Rather than fight the SEC, Goldman settled the charges for $550 million, the largest fine ever extracted from a Wall Street firm.

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