Weekly fundamental: Goldman Sachs SEC charge rocks forex and equity markets

[Exto Capital]

The news on Friday that the Securities and Exchange Commission of the United States was suing Goldman Sachs of Fraud related to subprime mortgages rocked the equity markets disturbing a week that had seen the Dow and the S&P 500 make new 18 month and 19 month highs. The petroleum complex was also hammered as crude oil fell more than $2.25 dollars a barrel. The news overshadowed excellent earnings released during the week from Intel, JP Morgan Chase, Bank of America and GE which all beat analyst estimates by robust margins.

Will Europe formally discuss Greece?

The summit in Madrid appears to be underway and the general news environment is not promising. The Greek Prime Minister still is denying that funds are needed, claiming the facility is a safety net and unbelievably suggests that the IMF involvement was not a Greek idea. Germany, in effect, for its own reasons, called the Greek Prime Minister Papandreou’s bluff, and will use this advantage to demand more concessions from Greece. Many European officials still seem to be in denial. Rather than prepare the public for an eventual use of those funds, for example, the German Finance Minister, is saying that Greece is on the right path and there is no need for emergency funds. The ECB’s is saying that backstop can only be activated if Greece losses market access. To summarize, an issue that desperately needs closure will not likely see an end to Greece’s insolvency problems for a while. Europe’s proposed facility, even if implemented, has a few important short falls. First, the sums discussed a little more coverage for only one year for Greece. Second, Europe is not considering what will happen to other countries such as Portugal or Spain. European officials could have helped stabilize investor sentiment if they would have used the Greek crisis to recognize the sovereign risk and come up with a scalable blueprint and facility. Additionally, interest in a Greek dollar-denominated issue is reportedly unsatisfactory and the anticipated size has been cut dramatically which could lead to the whole issue being pulled. Comments by ECB’s Trichet about the difficulties Greek banks are facing in terms of liquidity have somewhat undermined the Euro. A Brookings Institute report highlights the bribery, patronage and corruption behind Greece’s debt. The study estimates that there nefarious activities cost Greece 8% of GDP or around 20 billion Euros.