"NOTHING GOLD CAN STAY"...

"NOTHING GOLD CAN STAY"...or so says Robert Frost's famous poem. But the whole market wonders if Goldman Sachs can "stay gold", following last week's shocker headline that the Securities and Exchange Commission is charging the financial giant with fraud.
The SEC is alleging fraud on the part of Goldman Sachs, in relation to their actions surrounding subprime mortgages and Collateralized Debt Obligations. Here's an analogy of how the SEC sees Goldman's actions: Imagine that you asked a builder to construct a house with materials that you know will eventually cause the house to light on fire and burn to the ground. In the meantime, you place a bet that the house will burn down, and also take out fire insurance on the house for when it does burn down. The house is built - which you then sell to an unsuspecting buyer. Sooner or later, sure enough, the house burns down. You make multiple profits...but it's just not right.
The SEC is saying that Goldman acted similarly with subprime mortgages and other risky debts, profiting enormously from the failure of financial instruments that they knew were designed and destined to fail. How the story will play out remains to be seen - but the stunning allegations caused Stocks in the US and abroad to plunge lower. Stocks had been on a nice run higher based on a reasonably good kick off to earnings season, but as money flowed out of Stocks on the news, it was parked in Bonds - helping home loan rates improve.