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Goldman Loses + Paulson Loses = Wall Street Losses

1. Goldman is going to suffer enormous reputational capital loss which is going to hinder their ability to make money for themselves and others.  Their argument is either we are idiots' or criminals neither defense is helpful in client retention.  It doesn't help that they knew of pending charges and insiders continued to sell as likely their employees continued to buy, a la Enron.  HFOF UBP went from $50B to $18B in one year due to reputational capital loss from Madoff money.  HFOF IVY Assets isn't even around having also found they invested $200MM in Madoff.

2. Paulson & Co., is going to also suffer enormous reputational capital loss and substantial credibility loss if their actions are aligned with transactions most typically defined as insurance fraud.  This exercise is without a doubt insurance fraud in spirit as to whether the CDS and CDO products are legal insurance products and protected under current fraud statutes, this is primarily the question of where this hinges on criminality.  AIG thought they were insurance products hence their participation.  This could ensnare Goldman as well. 

3.  Wallstreet - this will kickoff a significant selling cycle that was already likely in place with sell the news earnings profit taking and starts a cycle of selling that could be greater than we've seen in the last year.  Banks and Hedge Funds are receiving redemption requests as we speak on the new money just placed or about to be placed with HF's and IB' especially those close to the Goldman / Paulson & Co.  Selling will beget selling as people will sell first and ask questions later, especially with the open endedness of the SEC's statement.