Simon Johnson: Our Pecora Moment Has Finally Arrived With Fraud Charges Against Goldman Sachs

Baseline Scenario:

We have waited long and patiently for our Ferdinand Pecora moment - a modern equivalent of the episode when a tough prosecutor from New York seized the imagination of the country in the early 1930s and, over a series of congressional hearings: laid bare the wrong-doings of Wall Street in simple and vivid terms that everyone could understand, and created the groundswell of public support necessary for comprehensive reregulation. On Friday, that moment finally arrived.

Read the whole story: Baseline Scenario

Comments

[Santiago A Cueto]

11:56 PM on 04/20/2010

To appreciate the depths of Goldman’s duplicity, just take a look at its 2009 annual report. In the opening salvo of the report, Goldman is downright indignant and asserts that its only role in the financial markets has been positive.

To deflect attention away from Wall Street matters, Goldman went to great lengths to say that it spent the year acting in the interests of its clients and that these actions were the driving force behind its business.

That fails to address the huge sums of money that Goldman made in proprietary trading that did nothing to benefit clients, but enriched Goldman's shareholders and employees. The investment bank pressed the case that it paid workers only for their performances and nothing more.

On page 39 of the 2009 report, you find Goldman’s broad-brush disclosure in all its vague and generalized glory. Specific references to open investigations, lawsuits, administrative actions? Move along. Nothing to see here.

This was also the subject of an article “Goldman Sachs' Annual Report: It's All Smoke and Mirrors” on the International Business Law Advisor www.IntlBusinessLaw.com

[AirViceMarshalPark]

12:08 AM on 04/19/2010

Pecora was responsible for over 3,000 bankers and brokers being sent to prison. A little civil suit isn't much in light of that track record.

What we need is a lot of perp walks and orange jumpsuits. It ain't real until that happens.

[Billl]

09:18 PM on 04/18/2010

Proven systems exist for fair and honest financial regulation unfortunately two catastrophic changes were made in 1999 when Newt Gingrich lead the Republican controlled legislature passed repeal of Glass-Steagle and enacted Grahm-Leach-Bililey which were then signed into law by President Clinton.

These two changes and the absence of enforcement of existing laws have nearly bankrupted our country and allowed Wall Street oligarchs to control our regulatory and political processes.

Enforcement of existing laws which could have prevented much of the looting and political corruption has been blocked by both Presidents Bush and Obama and Republican and Democrat legislators.

Were crimes committed by blocking enforcement?

Eliot Spitzer, or an equally tough prosecutor (if one exists) that really wants to catch crooks, and a squad of Untouchables with an unrestricted crime fighting budget, needs to go through government and Wall Street to clean house.

To correct several obvious legislative mistakes legislators should reinstate Glass-Steagle, which successfully protected banks and their customers for fifty years before its repeal in 1999, repeal Grahm-Leach-Bliley which allows the unbridled use of financial schemes of mass destruction, repeal the unlimited Christmas guarantees given to Fannie and Freddie, enact the pending legislation to audit the Fed, and make AIG’s records available for public review.

Enacting an Elizabeth Warren version of a stand alone Consumer Financial Protection Agency will eliminate the marauding pirates who are wreaking havoc on consumers.

[JVM Fan]

06:06 PM on 04/18/2010

I just saw a movie in Hollywood called "Stock Shock" about all this Wall Street corruption and the audience was pretty shocked. It was the same hedge fund story told through the eyes of Sirus XM investors that nearly went broke because of market manipulation. The movie is now sold on DVD just about everywhere, but cheaper at www.stockshockmovie.com

[booki]

03:12 PM on 04/18/2010

i am not holding my breath.

i also remember Paulson saying , early September 2008, that our economy was in great shape

[kmk04]

04:47 PM on 04/18/2010

Wrong Paulson.

[booki]

05:00 PM on 04/18/2010

i am not sure how u can correct me...........
i was referring to HANK

[blogisti]

03:10 PM on 04/18/2010

I am wondering whether the Pecoras' of today are all owned by the oligarchs? If they are we could be headed for another O.J. decision(remember O.J. Simpson when indicted for murder hired the best lawyers money could buy). Goldman Sachs will do no less than O.J. did.

[The Meek]

12:55 PM on 04/18/2010

I read a lot of commentators on this subject demanding that these people be sent to jail. You are being far to kind. Why should the tax payer spend $30k or so to house and feed them.

Strip them of their assets and sentence them to minimum wage jobs for the rest of their working lives. Millions of Americans are surviving on or competing for these jobs right now. If they can do it these geniuses ought to be able to do so also.

[ncmom54]

05:36 PM on 04/18/2010

I want them to sleep with one eye open in prison... and get work release during the day with Waste Management - operating the 'Honey Truck' at all the NASCAR Events.

[The Meek]

05:53 PM on 04/18/2010

You are such a softy ncmom54. In your scenario the taxpayers will still be paying their for their room and board and for their supervision. I don't think they deserve that.

[PilotZ27]

12:46 PM on 04/18/2010

Part I

The International Swaps and Derivatives Association (ISDA), created roughly in 1985, is "**Patient ZERO**" in the melt-up of 2008, since the Notational Value of all Credit Default Swap Contracts prior to the Lehman Collapse is reported to have exceeded twice the Gross Domestic Product of the Entire World for that year [roughly 130 Trillion Dollars!].

http://siteresources.worldbank.org/DATASTATISTICS/Resources/GDP.pdf

What was actually at stake and being traded were the "premiums" on the "insurance" which actuarial experts assured AIG and other Wall Street Risk Seekers, had almost no chance of simultaneous default, or of becoming drains on cash flow.

It was the "risk assessment mathematicians", working at various financial institutions and firms, whom were proven to be absolutely wrong by events preceding and surrounding the collapse of several "Markets" and financial products in 2007-2008. It was the complex formulas for assessing "risk", drawn up by arcane practitioners of mathematics and actuarial "science", whom were taken to the financial woodshed and spanked mercilessly by the actual events and markets.

~ Part II follows ~

[PilotZ27]

12:57 PM on 04/18/2010

The legacy of the Bush II Presidency and the unprecedented wave of White Collar Crime which took place in the decade of **The Dick Cheney Decision Making Apparatus**, is what the Obama Administration now has to deconstruct and litigate. The 1980's saw the S&L Crisis, after which over 1,000 white-collar criminals were prosecuted and sent to prison.

It is HIGH TIME for the SHOW TRIALS of the "Trickle-Up Wealth Crooks" to begin.

"Government Sachs" needs to be taken apart and distributed to the citizens of These United States, whom were the actual "risk takers" in their fixed game, conducted in a private Fraternity called The International Swaps and Derivatives Association.

Were Jesus to return tomorrow, I am quite certain he would waste no time and head straight for the places where today's "money changers" do their business, and run their sorry asses out of the temples of "Crapitalism", where the added "r" stands for the" Risk" borne by the citizens who now suffer the consequences of the crimes committed without their knowledge.

Let the show trials and the Perp-Walks begin soon.

[Greg Petty]

09:36 PM on 04/18/2010

Make all of them allocate on television ,so the world sees them ,then the Bernie sentence75 years concurrent

[spinns17]

11:25 AM on 04/18/2010

time for the house of cards to come down.

[drkazmd65]

12:12 PM on 04/18/2010

Long since past time spinns17,.. long since past time.

[bola47]

10:42 AM on 04/18/2010

the indictment of goldman is another "show" for the public. charges will eventually be dropped by some judge saying there is not enough evidence of wrongdoing or the sec worded their complaint incorrectly. wall st. will go on as usual and the next time some institution that is too big to fail goes bust, the treasury dept. will be opening their coffers to help out their buddies. remember the fact that wall st. money controls our govt. and the greedy congress (dems & repubs) who live on piles of cash donated by the pigs at the trough.

[whitemale08]

09:53 AM on 04/18/2010

Mr. Simon,

it's nice to see that those like you who are recognize in the mass-media, are increasing in numbers to calling for a real Pecora Commission.

Those of us who have advocated a return to Glass-Steagall are counting on the likes of yourself to advocate a true Pecora commission because you have the politicians ear to some extent.

As soon as we can get rid of these financial parasites like Goldman Sachs and JP Morgan, modern day pirates, the sooner our confidence can be restored in the American sense of JUSTICE.

It's amazing how Dodd's bill approaches the problem with the idea that the Constitution and it's bankruptcy laws cannot handle the truth or justice, so it wishes seize power from the judicial branch in order to protect the paper-billionaires from fatal losses.

Society can only be free if justice is established first -- '...let the heavens fall..'

[nowhat]

09:50 AM on 04/18/2010

with you simon, could not be better put; keep it up, you hear

[rad21]

08:37 AM on 04/18/2010

We need pointed questions and comments by persons in the know. For too long, we have been getting too much hubris from the highest levels, backed by their spin machines a.k.a. advertising / PR hands.

Sadly the same type of spin and hubris comes from various sectors of American industry from education and healthcare to manufacturing, autos, insurance, banks, high finance and politicians.

In the past we thought we were protected by a 'free press' a.k.a. MSM (main stream media). But now we know, MSM has been in bed with corporate and govt. interests; whom they are supposed to keep honest. So MSM has given us the greatest spin. That is till now; the era where average citizens (a.k.a. experts masquerading as ordinary citizens) writing on blogs with some hard and pointed facts, exposing the hubris and dissecting the lies and misrepresented facts.

So I am glad that MSM is going down the tubes.

[searles7]

12:18 AM on 04/18/2010

The image of Blankfein being led off in handcuffs is too good not to savor for a moment. And please don't underestimate what it would do for public moral. Here's to an aggressive pursuit of the truth.

[joebhed]

11:08 PM on 04/17/2010

Calling the Goldman charges a Pecora moment is a bit of fashion, especially since it was 2 and a half years after the crash of '29 that Pecora took off on his mission - and since we haven't yet had our crash.
The real power of Pecora's actions was mostly political, in that bringing to light the corruption and insanity of the speculative banksters of the time was what enabled the Securities and banking reform acts for several years after.
What didn't happen then and is needed more than ever right now is definitive structural reform of the money system, so that another round of regulate - deregulate does not end up in the lap of the kids and grandkids.
The solution is rather simple.
Monetary sovereignty.
The government is the natural monopoly provider of circulating medium in a a modern fiat currency system.
Let the bankers get back to banking.
The Chicago Plan for Monetary Reform was the New Deal reform that got left undone, although Glass-Steagall and deposit insurance as well as securities regulation all were accomplished.
The separation of the money-creation power, a natural government monopoly to promote financial stability, from the banking and lending function, a natural private market-oriented function.
The Money System Common
www.monetary.org

[thinking4]

12:07 AM on 04/18/2010

Pecora did the nation a favor by exposing banking, in common language, to all Americans. It was little comfort to the 25% unemployed but it certainly exposed the people to the big bankers of the day and why the Depression happened. This debacle needs the same type of individual, who is patient and wants the world to know about the corrupt and venal practices of the investment banks in their attempted accumulation of global power.
As with Pecora, get ready for the screaming of "foul" as the titans are exposed. The Wa Mu hearing demonstarted one thing to me, these guys have no scruples and do not care. We need a real parade of these "titans" with feet of clay, exposed to the American public again so people will understand the need for regulation and the "smartest guys in the room" do not have any common sense.

[joebhed]

08:34 AM on 04/19/2010

I totally agree.
But regulation is not enough.
We left the Chicago Plan on the shelf - that is unfinished legislation, while Glass-Steagall, FDIC and Securities reforms all passed with a promise that the work was undone.
It was never done.
The only measure that is totally preventative of another round of financialization chicanery is to remove from ALL private bankers the people's right to create thenation's circulating medium of exchange - a.k.a., our own money.
We've waited 75 years for the opportunity to complete the job of the Chicago Plan, supported by Milton Friedman's Fiscal and Monetary Framework for Economic Stability.
Thanks.