Gene Marcial's Inside Wall StreetThe last thing Goldman Sachs (GS) needed was to add fuel to the fire that threatens to engulf the giant investment bank. But once again, it has done just that. So its stock continues to get slammed, plunging to $136 a share, way down from its 52-week high of $193.60 back in mid-October of 2009.

For a while, Goldman enjoyed some respite from the blaring hostile headlines about its problems with Congress and the fraud charges filed by the Securities and Exchange Commission -- thanks to the disastrous oil spill in the Gulf of Mexico. Unfortunately for the most profitable Wall Street house, however, the media focus is back because of Goldman's defiance of the Financial Crisis Inquiry Commission (FCIC) in what it described as Goldman's delaying tactics to hinder a government probe. So, the FCIC issued a subpoena to Goldman on June 4 to force it to comply with its request for certain documents.

Specifically, the bipartisan expert commission, set up by Congress to probe the causes of the financial meltdown, accuses Goldman of not submitting in a timely manner documents it had been asked asked for months ago. FCIC Chairman Phil Angelides says Goldman is dragging its feet in a "deliberate effort over time to run out the clock." He says instead of complying with the request -- specifically asking for the names of some Goldman customers involved in particular deals, as well as documents concerning its mortgage-backed securities and derivatives -- Goldman provided some 5 terabytes of data equivalent to more than 2 billion pages.

"We did not ask for a dump truck to our offices and dump a bunch of rubbish," says Angelides. FCIC Vice Chairman Bill Thomas, a Republican ex-congressman, says Goldman's conduct has been a "deliberate obfuscation." The FCIC is scheduled to complete its inquiry by yearend.

"Difficulty Handling the World Outside"

Goldman's latest imbroglio has sparked more calls for Chairman and CEO Lloyd Blankfein to resign. Among those urging Blankfein to quit is Richard Bove, an analyst at Rochdale Securities who, in fact, still rates Goldman a buy. In an interview on Bloomberg TV, Bove said Goldman needs to make top management changes, led by the CEO's ouster. It isn't that Blankfein doesn't know how to run Goldman, said Bove, but "I think he has to go because he has difficulty handling the world outside Goldman Sachs."

Bove said Goldman has enough candidates on its deep bench with a better grasp and understanding of the global economy who can take the top job. He recommends replacing Blankfein with "someone who has a wider vision of the economy and where Goldman sits in it and where Goldman sits relative to the government."

The analyst says Goldman should also restructure some of its business lines to reduce conflicts of interests, an issue that grabbed headlines when it provoked a Senate committee to grill Blankfein and other Goldman officials on its various operations that smacked of double-dealing and betting against the interests of its own customers.

Under Attack in China

Meanwhile, Goldman's stock continues to dive even though Wall Street analysts are firmly standing by Goldman. A total of 17 of the 27 analysts who track Goldman continue to recommend that investors buy the stock, while nine others rate it a hold. Only one analyst, Matthew Albrecht of Standard & Poor's, recommends dumping it.

Adding to Goldman's array of woes is a report by The Financial Times that the company is facing a tide of criticism worldwide -- including China's state-controlled media, which has assailed some of Goldman's deals. One newspaper said Goldman's deals have "created even bigger losses to Chinese companies and investors than it did with its fraudulent actions in the U.S."

Goldman's stock was trading at $184 a share on Apr. 14, 2010, several days before its legal troubles with the SEC surfaced. The SEC has filed fraud charges against Goldman regarding the structuring and marketing of a collateralized debt obligation tied to subprime housing mortgages. A criminal investigating is also under way, plus various legal lawsuits from multiple sources.

"Legal reserves [to cover the expense and penalties from such legal suits] could hurt future earnings, but we think the firm's reputation faces a greater risk," says S&P analyst Albrecht. "Goldman must assure investors and its clients that it holds employees to the highest ethical standards in a business that depends on relationships."

Will Wall Street's Wall Start Cracking?

When I wrote about S&P's downgrading of Goldman on Apr. 30, I noted that the first sell recommendation on the firm might encourage a rethinking among analysts on the stock. Wrong. The analysts have stayed steadfast in their loyalty and bullishness toward Goldman. Never say that the Street doesn't stick with its own comrades.

But the wall could crack once Congress finds some more things to be alarmed about. The FCIC was formed to trace what caused the financial crisis. As Vice Chairman Thomas commented, Goldman "may have more to cover up than maybe we thought."

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