Wall Street NOT Above the Law

Well...well...well! As it turns out, Wall Street is not above the law after all. While we expect much of the Street is calling the SEC charge against Goldman Sachs a witch hunt, we cannot imagine the SEC filing the kind of charge it did today without darn solid proof of wrongdoing. So Wall Street is not above the law then, but what about Water Street, where America's largest rating agency resides and still sits pretty? Looks like this action will be just one of many actions taken to right the wrongs of Wall Street and Water Street alike though. So, those of you homeless or jobless now thanks to the fallout of Wall Street greed, take comfort in the fact that there is a God, and justice will be served.

"The Greek" earned clients a 23% average annual return over five years as a stock analyst on Wall Street. While writing for Wall Street Greek and others, he presciently predicted the financial crisis and housing and banking failures of the Great Recession. Visit the front pages of Wall Street Greek now to see our current coverage of business news, global financial markets, real estate, shipping, fine art, technical analysis and global affairs.

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Wall Street is Not Above the Law

The day started out well enough, before turning decidedly negative on an onslaught of bad news. The pre-market wire offered a strong Housing Starts report for March. However, from that point on, things went from bad to worse. Bank of America (NYSE: BAC) started spoiling things when it offered an earnings report that focused market attention on rising home loan losses. Not long after the opening bell rang, Reuters/University of Michigan produced its latest Consumer Sentiment Index, which offered an unexpectedly deep slide in confidence. At this point, the market, already well beaten, took its knockout blow. The SEC charged Goldman Sachs (NYSE: GS) with fraud, signaling financial market participants are not going to get off easy after creating the worst financial crisis since the Great Depression. At this hour of publishing, the Dow Jones Industrials are off by 1.1%, and the party may really be over.

SEC Charges Goldman Sachs

The biggest news of the day, and a reviver of the Volatility Index (S&P 500), which is up 20% today, was the news that the Securities and Exchange Commission (SEC) was charging Goldman Sachs (NYSE: GS) and a VP of the firm with "defrauding investors by misstating and omitting key facts about a financial product tied to subprime mortgages as the U.S. housing market was beginning to falter." Goldman's shares are down 12% on the news, through the hour of publishing. In the end, the greatest navigator of financial chaos is discovered to have cheated, allegedly. Not only that, the royalty of Wall Street proves not above the law when the peasants light their torches and march in the pale moonlight. And it looks like the Administration is determined to see Wall Street pay up on its bailout, one way or another.

"The SEC alleges that Goldman Sachs structured and marketed a synthetic collateralized debt obligation (CDO) that hinged on the performance of subprime residential mortgage-backed securities (RMBS). Goldman Sachs failed to disclose to investors vital information about the CDO, in particular the role that a major hedge fund (Paulson & Co.) played in the portfolio selection process and the fact that the hedge fund had taken a short position against the CDO."

Goldman's shares are off 12% at hour of publishing, and the stock market has been turned upside down. The market is rightly flustered, as the most significant investment bank and largest hedge fund are implicated in wrong doing. Note, however, that Paulson & Company has not been charged for wrongdoing; it is only involved. This is going to take some further inspection to get my arms around too...

Well, it is about time some action is being taken, and we are sure America is looking forward to seeing Standard & Poor's receive its due punishment for allegedly rating mortgage-backed securities without regard for the possibility of a real estate price decline. Dennis Kucinich, US Congressman, actually called it "criminal" during the hearings on the Hill. The MBA market would not likely have grown to its massive size without AAA ratings on pooled securities, and perhaps the financial sector would not have fallen like dominoes set in a row either. So, I say it is about time, and time is still ticking for justice; but it's coming! We're looking forward to your comments on this one!

Housing Starts

The National Association of Home Builders (NAHB) posted a strong Housing Market Index for April, showing builder confidence improved significantly. The HMI improved four points to 19, and Housing Starts, which were reported this morning for March, showed us some of the reason why. Privately owned housing starts improved 1.6% in March, to an annual pace of 626K, versus the revised February rate of 616K. The data showed a 20.2% improvement over perhaps the darkest period in a generation; March 2009 starts measured 521K.

The really good news came from the Building Permits data point though. Permits improved 7.5%, to 685K in March, versus the revised February rate of 637K. Take Note: Permitting was hot in the Midwest and South, and cold in the Northeast and West. Permitting activity is, of course, a fore runner to new homestead starts and a leading indicator for real estate. The only problem is that the data is not without noise now, as April's end marks the deadline for entry into contract for those seeking to benefit from the New Homebuyers Tax Credit. Thus, May, June and July might offer different insight. Of course, the tax incentive might also be extended, similarly to the ongoing extensions of unemployment insurance.

Consumer Confidence Index

Maybe Easter get-togethers put relatives into close proximity with the economic-victims within their own families, and changed the bright view they held just a few weeks earlier. In a period of just two weeks, consumer sentiment slid sharply. This mid-April reading of the index offered a measure of 69.5, well off the March close of 73.6 and even shorter than the economists' consensus for 75 (Reuters).

"It does not help that unemployment has been stubbornly holding, and small business sentiment lacking. These are the realities that are sinking in on consumers these days."

The Index has components that help to color the view of consumers further. The opinion on Current Conditions soured in April, with the component index slipping to its lowest point since December (to 80.7). However, expectations have been the key driver of sentiment, as hope has been plentiful for economic recovery. As that fact has been slow proving though, the Expectations Index dropped to 62.3, down from 67.9 at the end of last month. This latest reading is the lowest since last March, which we remind you was a pretty tough time for most of us. It does not help that unemployment has been stubbornly holding, and small business sentiment lacking. These are the realities that are sinking in on consumers these days.

Corporate News Drivers

Bank of America

Bank of America (NYSE: BAC) reported earnings of $2.83 billion, as strong trading revenue outweighed mounting losses on consumer loans. The bank earned $0.28 a share, after preferred dividends, beating the Street's estimate for just $0.09. Still, earnings were well below the prior year mark of $0.44.

The market's focus was on the more forecastable banking operations though, the core business of lending. That's where BofA raised concerns, as it reported a $2.1 billion loss in its home mortgage business. Analysts are looking for loan losses to peak this year, and BofA set aside less money this quarter for loan losses, just $9.8 billion... Note that while the bank set less money aside for overall loan losses, it increased its reserve for mortgages. That bit of news and its forecast for a dull lending environment helped bank stocks across the segment take a step down in the early AM. Bank of America was off 4.5% at our last check.

General Electric

General Electric (NYSE: GE) reported earnings that beat the street, but its revenues fell short. The stock was off about 3% through the hour of publishing, though the stock had risen approximately 4% from Monday. GE's EPS of $0.21 for Q1 exceeded the analysts' consensus view for $0.16, and CEO Jeff Immelt said he sees economic stabilization and positive earnings growth through the year ahead. However, investors penalized the stock, which we remind you had already risen ahead of the news, for a revenue figure that fell short of analysts' consensus, and was 4.9% short of last year's tally. Revenues softened due to the failings of GE Capital, and its rapid downsizing in the earth-shifting financial sector marketplace.

Earnings

ING (NYSE: ING) is scheduled to hold an investor day in London. Google (Nasdaq: GOOG) reported last evening and disappointed investors. EPS reports arrived from Eastern Virginia Bankshares (Nasdaq: EVBS), First Horizon National (NYSE: FHN), Gannett (NYSE: GCI), Genuine Parts (NYSE: GPC), Knoll Inc. (NYSE: KNL), Lakeland Industries (Nasdaq: LAKE), Mattel (NYSE: MAT) and Petrobras (NYSE: PBR).


This article should also interest investors in NYSE: TOL, NYSE: HOV, NYSE: JPM, NYSE: BZH, NYSE: DHI, NYSE: PNC, NYSE: TD, NYSE: WFC, NYSE: C, NYSE: MS, NYSE: MHP, NYSE: MCO.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.