A Tougher SEC Could Be Long-Term Positive for Stock Market

The SEC has charged Goldman Sachs with fraud over the structuring and marketing of commercial debt obligations. The suit says that Goldman misstated and omitted key information about CDO's, which were closely tied to subprime mortgages as the housing market was crumbling down. The biggest key may well be the relationship between Goldman Sachs and Paulson & Company, a hedge fund which was allowed to take a short position against those commercial debt obligations that came crashing down. No doubt, this is the top story on Wall Street right now and it probably will be for quite some time to come.

As the news was first announced it really took the financial world by storm. This is Goldman Sachs after all! Goldman is widely thought of on the street as the gold standard for financial corporations. After the initial shock of the charges, the next thought turned to which financial corporation might be next. Certainly there have been other companies who have dealt in the same market that could be in the crosshairs at some point. The stock market reacted by losing more than one percent of its value on the day of these charges against Goldman Sachs.

While it may seem strange to say at this point, I think it is very possible that the SEC cracking down on financial corporations in cases like these could help the stock market over the long haul. The two biggest keys to a successful stock market are the health of the overall economy and the confidence of the investors in the market. Over the past few years there have been quite a few questions about lending practices and the housing market as a whole that have scared potential home buyers away from closing the deal. At the same time, the stock market has faced headwinds because of the perceived disconnect between Wall Street and Main Street. A tougher SEC that looks out for the consumer and keeps corporations in check could certainly go a long ways to restoring the trust between Main and Wall Street.

There is no doubt that over the short and intermediate terms this case could hang over the market like a black cloud and cause a lot of worry. I think that the market could take its lumps as more rumors continue to leak out about this case and possible others. When dealing with the stock market, I think it is always wise to look at things from a long-term prospective. In that time period I fully believe a tougher SEC be a positive catalyst.