By Nicholas Santiago on April 16th, 2010 12:52pm Eastern Time
The financial world was rocked this morning as Goldman Sachs Group (NYSE:GS) was charged with fraud by the Securities and Exchange Commission. The actual details of the charges are really unclear at this stage. However, it is clear that it involved sub-prime loans and hedge fund king John Paulson. When the news involves one of the most famous financial institutions along with one of the most famous hedge fund managers it could be very serious and linger for quite sometime. Many other past Goldman Sachs Group deals could come under the microscope in the near term.
Traders and investors are now wondering if any other financial institutions did any deals similar to Goldman Sachs Group. The other financial giants that could come under scrutiny are J.P. Morgan Chase & Co (NYSE:JPM), Morgan Stanley (NYSE:MS), Bank of America Corp (NYSE:BAC), Wells Fargo & Co (NYSE:WFC), and Citigroup Inc (NYSE:C). There is an old saying that if you see one cockroach there are usually many more.
The recent rally since the March 2009 low has been lead by the financial stocks. The obvious plan by the government and the Federal Reserve Bank was to save the banks and that would save the system. Today a lot of trust has been lost by many investors and people all over the world. These alleged allegations could effect the entire global economy in the near term.
The push for financial reform is now going to become front and center. It is important to remember since the financial crisis occurred in 2008 there has not been any financial regulatory reform in the financial arena. It is important to remember that every large financial institution was bailed out by the taxpayer via the government TARP program.
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