Just when you thought Goldman was a rigged, unstoppable money-printing machine, the bank's profits fell 86% in the first quarter of 2010, missing estimates badly, as it settles with the U.S. government for a half-a-billion-dollar fine.

Did you really think Goldman was that good? Or did you think they were just a bunch of proprietary traders playing with free government money. It would be interesting to see what Goldman's profits would be if they had to borrow at 4% like the rest of us, instead of the 0% gift from the U.S.A.

In other news:

• Here's an update on the oil spill (AP). Now there's seeping. When will it end?
• Five things to watch on Appl's earnings (Macworld). Will you be able to hear Steve Jobs on the conference call or will you get disconnected?
• Home construction sinks again (AP). Shocking, isn't it?
• Nokia-Siemens has won a $7B contract with the LightSquared venture (Reuters). That's a lot of bandwidth.
• Great story: Social networking sites are as annoying as cable companies (TechCrunch). That's pretty annoying.
• Amazon says its selling more e-books than hardcovers (Wall Street Journal).
• Top 30 Android apps for 2010 (PCMag).
• The mysterious Facebook claimant has a few questions to answer (Bloomberg). My question: Who the heck are you?

Yesterday we covered the brewing story of the mysterious lost iPhone prototype which was scooped up by voracious journalists at Gizmodo (for cash) and then shown to the world. Well, the story has, of course, bloomed, with Apple requesting its property be returned. Seems reasonable to me. I mean, you lost your phone, you know who has it, so you ask for it back, right? That's just common courtesy. We'll see what happens with Gizmodo. I have a hunch that this could get really ugly. Read on, for that story, plus even more about the guy who lost the phone:

• This is the new  iPhone. And everything about it (Gizmodo). I wonder, did they try to hotwire it too?
• Here's the letter from Apple's lawyer (AppleInsider).
• Shameless Gizmodo has also published a detailed account about how they think the iPhone was lost (Gizmodo). By an Apple employee. In a German-style beerhouse. Drinking. On his birthday.
• ZDnet asks if Apple will sue (ZDnet). Well, of course they're going to sue.
• In other news, Google is being pinned down on privacy policies (WSJ).
• Google's services are currently blocked in a quarter of the countries in which they operate (Washington Post). Didn't know that.
• Google takes a picture of a woman 43 times (CNET).
• Steve Jobs: If you want porn, buy an Android phone (TechCrunch). And don't lose your phone in a bar.
• IMF say high debt levels are dangerous ( Bloomberg). Thanks, Dr. Obvious.
• Goldman Sachs doubles profit, says it's clean (Bloomberg).
• Microsoft is looking at sweatshop allegations (Eurogamer). Sweatshops? In Asia? No, you have to be kidding...
• Euro flights are slowly resuming (CNN). Just watch out for spewing volcanoes.
• The most-loved CEOs (Forbes). That is, until their scandals break.
• Facebook owns 41% of social media traffic (Mashable). So what are they going to do with it?
• Watch out for the Internet coupon that knows everything about you (New York Times).

It was fascinating how the SEC lawsuit against Goldman Sachs precipitated a global selloff in just about everything on Friday: Stocks, commodities, pieces of paper. Its seems to me the mass hysteria was overdone. What gives? After all, the SEC launches lawsuits all the time -- and often fails to win them. What's more, this was a civil suit, not even a more official prosecutorial effort by a real organization, such as a District Attorney. Here's what I think: The markets are dumb. Really. The market is not going to go up or down based on the output of this SEC lawsuit. The markets are going to go up or down based on whether or not there is a strong recovery in the economy. The lawsuit itself has virtually no bearing on this, because it consists of government bureacrats picking over the carcass of a Wall Street disaster that started unfolding nearly 3 years ago. The damage is done. The SEC is looking in the rear-view mirror.

Now, I don't want to get off on a rant here, but nobody trusts the government, it's confirmed by the Pew Research Center and The Atlantic magazine. And why should we? We all know that our system is now run by a bunch of greedy, power-hungry, and pork-infested politicians. What's interesting is this comes at a time when the public's confidence in Wall Street is also at an all-time low. So who to trust if you don't trust the beltway or Wall Street? I vote for main street, where hardworking people are still struggling get it done the right way, without pork-barrel spending or shady derivatives products. Since distrust and cynicism are rampant, let me present you today's "Conspiracy +" News Brew, where you can take hold of how the Powers That Be are doing their best to keep hard-working people down:

• The SEC fraud charges against Goldman continue to dominate the news. I'm sure the lawsuit will be a tricky one. BusinessWeek has a nice article detailing what the SEC will have to prove. Namely, that Goldman Sachs was being 'materially misleading.'
• Was there fraud? It's not clear-cut, says much of the Monday-morning analysis (Wall Street Journal)
• For you legal eagles, here's a nice wrap of the defense strategies Goldman might use (The Atlantic)
• 20 Winners and Losers from the Goldman Sachs accusations (The BusinessInsider)
• Malaise on Wall Street continues, with the markets bleeding red (MarketWatch).
• The consensus is that the Goldman lawsuit will embolden the Obama agenda to regulate the finance industry. There's only one thing worse than conniving and greedy investment bankers -- politicians trying to clean up the mess. It just never works out the right way.
• How financial regulation might resemble airport security (The Atlantic).
• You have to love all the headlines linking selling to Goldman Sachs. I think the most far-fetched would be a connection to the wheat market (BusinessWeek).
• It looks like there was a secret, government run prison in Iraq (L.A. Times).
• Jim Sinclair has a brilliant analysis of how TARP money translated directly into bank bonsues (JSMineset).
• What's next for the "Volcano Crisis" -- Reuters has a full report.
• An incredible collection of Volcano images (Huffington Post). Resembles, in some way, the portfolios of mortgages that Goldman Sachs was selling.
• Here's an interesting report on the tax bills for some of the largest companies in the world (CNNMoney). I don't feel like I got any of it.
• For those who still care about Guantanamo, Col. Lawrence Wilkerson's charges are certainly interesting (The Public Record).
• Al Gore's environmental organization is fueling up with cash from Dow Chemical (The Independent). What's wrong with this picture?

Well, I like to look at the bright side of the SEC fraud charges against Goldman Sachs. At least by the look of the 5-day chart of GS, nobody saw it coming. So we know that the SEC wasn't leaking information and trading on it!

I'm reading through the SEC complaint and many of the news stories about the alleged fraud in a mortgage-backed security called ABACUS 2007-AC1 (it just sounds diabolical, doesn't it?). The complaint  charges that the game was rigged, with Goldman Sachs allowing a hedge fund, Paulson & Co. (which was predominantly short the mortgage market) help select the securities that were in ABACUS, which was loaded with poor-quality mortgages, and then sold it to an unsuspecting client. Now, in Goldman's defense... it was acting as a broker between the two parties. So the question is what material knowledge it should have disclosed to the buyer. The SEC is essentially saying that Goldman was rigging a little time bomb on the declining mortgage market, and did not disclose that it knew the deal was filled with danger and conflict. It says that a Goldman executive, Fabrice Tourre, structured the deal and purposely left out material information about how dangerous the securities in ABACUS were. You can read the complaint here. Here is the Wall Street Journal article. And the Reuters story. If true, this story will confirm what we already knew: that the large Wall Street operators are filled with snake-oil salesmen trying to sell stuff to people to fill up their own bank accounts. What will probably happen? Goldman will get a wrist-slap, and we'll go back to business as usual... The market is currently freaking out with a big selloff. Presumably, this is because we'll now have suspicion about Goldman Sachs and all of Wall Street and it will be harder for them to mint money churning trades onto unsuspecting fools. The market is possibly also selling off because this will impact Paulson & Co., one of the largest hedge funds on earth, may have to liquidate some positions or be investigated itself. Have we learned anything?

The Black Swan is one of my favorite books, if only because it proves the absurdity and unpredictability of life. It ratified something I had suspected for many years: Nobody has any idea what's going to happen next. Take the volcano ash, for example. I don't imagine a lot of people this week thought  that they could wake up on Thursday to find that a large volcanic eruption in Iceland had pretty much shut down most air travel in Europe... and that it might extend through the weekend. Just like  CEO of Bear Stearns played golf, having no clue that his company could be vaporized in a matter of days. Whoops! Yes, Nassim Nicholas Taleb is onto something. Black Swans happen all the time! So let's review the strange and unpredictable things that are happening on this news day:

• The volcanic ash cloud is spreading and getting worse, wreaking havoc on European air travel.
• The ash cloud may prevent President Obama from attending the state funeral for late Polish President Lech Kaczynski (Associated Press)
• Obama says that we will end up on Mars, in his lifetime (SFgate.com). Funny he can't even get to Europe but thinks we can get to Mars.
• What's up with Larry King and 8 wives? See this video clip: Why the ladies Love Larry King. Um, the money? The fame? um... I just dunno.And, by the way, somebody says he didn't have a prenup.
• The hottest blondes in sports (Bleacher Report). I dunno, I realize this has nothing to do with anything. It's Friday. I just felt like I had to link that that.
• The HTC Droid Incredible will be out on Verizon by the end of April (PCWorld).
• How about that meteor (Telegraph). Or was it something else?
• Headline of the week: "'Tyrant King' Leech Discovered, Attacks Orifices" (National Geographic). You just have to see the picture. By the way, don't look if you haven't had breakfast.
• Don't you hate it when you find a Python in your hotel room? (Associated Press). In the toilet!
• "Has Steve Jobs gone mad?" (Fortune). Another great headline.
• The SEC is suing Goldman Sachs (Bloomberg). Good luck, SEC. You couldn't even catch Bernie Madoff.
• The Bank of America has returned to profitability (Bloomberg). That has a nice ring to it. We hope it's real.
• China has adjusted policy on home ownership, requiring larger down payments (Wall Street Journal). You think they don't learn from us?

What's this today in the New York Times? Hank Paulson has penned an incredibly patronizing, simplistic and revisionist "Op-Ed" titled "How to Watch the Banks." Is that title a one-liner? Upon first reading this insulting exercise in pedantry, I sat in shock that somebody could really think the American public could be so stupid. '"Watch the Banks." Seriously, Mr. Paulson -- or can I call you Hank -- really? Isn't it a little late to watch the banks? And dude, wasn't that YOUR job? Oh, wait, Hank -- that's right. You didn't lose any money, at all. That's because you conveniently, as the Treasury Secretary, had already sold all your hundreds of millions of dollars in Goldman Sachs stock, for which you were exempted on paying capital gains taxes on, and most of that actually ended up going UP in the crisis because you put a whole lot of that dough into Treasury bonds and the government bought treasury bonds. That's right, by becoming Treasury Secretary, Hank, you saved hundreds of millions of dollars in taxes. Nice trade, bro! Talk about talking your book, Hank!

I'm not sure U.S. Treasury Secretary Geithner is sleeping especially well tonight, knowing that as he puts his head down on the pillow,  the Internet is boiling over with a mounting amount of evidence that he didn't take taxpayers' interests into full account in funding the AIG bailout when he was President of the New York Fed. Now, it is interesting that former U.S. Treasury Secretary Henry Paulson also "knows nothing," about mounting evidence that Goldman Sachs and other banks were ready to settle for concessions on their insurance contracts for an AIG failure.  Wasn't Paulson, the former Goldman boss, actually U.S. Treasury Secretary when the AIG bailout commenced? So what's going on here, anyway? For those of you not paying attention, the debate surrounds key details in the mega-billion federal bailout of AIG (Now well in excess of $100 billion at last count). It's come to light that key documents appear to indicate that the bank counterparties to AIG -- the ones that would get paid insurance in the case that AIG failed -- were willing to take "haircuts" on their insurance countracts for AIG. The federal government, instead, paid full price on those contracts -- straight out of the taxpayers' pockets. And now the bloggers, journalists, and Congressmen are opening up a can of whoop-ass on Geithner. Here's just a taste of it: Who Will Succeed Tim Geithner as Next Treasury Secretary? (HuffPost) Two at Fed Had Doubts Over AIG's $30 Billion Payout (New York Times) Presenting BlackRock-AIG Presentation In Which It Becomes Clear That Soc Gen Had Pledged Sub-50 Cent Securities... (ZeroHedge) New York Fed documents reveal more detail about AIG bailout (Washington Post) Lawmakers Request GAO Audit On AIG Bailout (Wall Street Journal) New Questions Surface About Bernanke's Roles In AIG Bailout (BigGovernment) Geithner defends AIG investments, says value may rise (Reuters) I think maybe the clearest indication of where this is all going comes from the latest New York Times story, linked above, which was posted just an hour ago:

Weeks after rescuing the American International Group with an $85 billion taxpayer loan in late 2008, Federal Reserve Board officials rejected a proposal that would have forced the insurer’s trading partners to return $30 billion in cash that they had received from A.I.G. in the preceding months. The Fed chose instead to let the banks keep the cash and to receive additional billions from taxpayers. This decision was made, internal documents show, after two Fed governors expressed concern that such a plan might be “a gift” to the company’s trading partners, including Goldman Sachs and Société Générale, a major French bank. The documents were provided to Congressional investigators by the Federal Reserve and were obtained by The New York Times.

Source: New York Times Geithner has been called before Congress to testify next week. But this may run deeper, as clearly the Federal Reserve Chairman Ben Bernanke should have been in the loop. Good luck Timmy. Even odds you last past next week. As for Ben Bernanke, he's lucky that his confirmation vote is being rushed through Thursday, because the sharks are smelling blood on him, as well. What does this all mean for the markets? It's certainly not good. When's the last time there was a simultaneous confidence of crisis with the U.S. Treasury Secretary and the Federal Reserve Bank of the United States?