Goldman Sachs is robustly protesting their innocence. The SEC accusations--that Goldman is guilt of fraud and duplicity--are "completely unfounded in law and in fact."
But even if Goldman is proven right, that does not make the SEC wrong.
As the old saw goes,
When the law is against you, pound the facts.
When the facts are against you, pound the law.
When both the law and the facts are against you, pound the table.
It is table pounding time.
In essence, the SEC is raising the question as to whether Goldman created synthetic collateralized debt obligations (CDOs) for the purpose of allowing one group of investors to short the subprime market, while not disclosing this activity to other clients holding or purchasing those same bonds. The SEC is asking whether Goldman benefitted from both sides in a manner that violated their fiduciary obligation to their clients.
And the simple answer is, of course they were.
This is not a legal conclusion, but rather a systemic one. Given the size and scale of its operations, Goldman--like the rest of the financial Goliaths that have emerged from the global financial crisis--cannot help but be on both sides of almost any trade, and ultimately be in a position of advising different clients in opposite directions. But most importantly, Goldman is a trading firm, whose activities inevitably lead them to be putting their own considerable capital to bear against their client's own interests.
Trading has become the most profitable activity in banking institutions, and derivatives trading--including synthetic CDOs and credit default swaps--has magnified potential profitability by allowing firms to realize nearly unlimited leverage as they position their bets in the global markets. While in years past, Goldman had a far smaller share of the market and prospered through a client-centric culture, that was then and this is now. Today, in a world of previously unimaginable trading profits and bonus payouts, concerns for clients and firm culture have been rendered quaint.
The blinding allure of trading profits has replaced raising and lending capital for the real economy as the singular focus of banking industry. This was evident last month when RBS--Royal Bank of Scotland, the largest bank in the world before the crisis that is now 84% owned by the British taxpayers--decried any limits on its trading activities. Trading profits, RBS asserted, were the key to rebuilding its balance sheet.
That RBS would publicly embrace the view that it intended to trade its way to prosperity begged the question of whether there aren't any losing sides of any of these trades. Barely a year has passed since the low moments of the financial collapse--a collapse characterized by highly leveraged bets gone wrong--and dementia has truly set in.
As Congress considers major financial system reform, it is increasingly apparent that what emerges will be far from a stringent restructuring of the financial system that is warranted. Wall Street leaders have made no bones over the fact that they intend to protect their own interests in any legislation that emerges, and in particular will fight any efforts to curtail the highly profitable derivatives trading.
That we have reached a table-pounding moment should have been evident to all on February 7th when, in a front page story in the New York Times, Wall Street publicly expressed its "buyer's remorse" with the Democrats, and now looked to shift their political contributions to Republicans, who eagerly sought to offer Wall Street contributors a more appreciative home for their largesse.
Back in the day, political contributions in exchange for governmental action was viewed as the essence of corruption, and contributors and recipients went to great lengths to deny linkages between the money and legislative outcomes. But apparently there is no longer any shame in--or prohibition against--the buying and selling of political influence.
Today, regulatory reform is being debated publicly between the two largest recipients of banker largesse: Senators Christopher Dodd and Mitch McConnell. Accordingly, instead of focusing on issues of the size and capitalization of banks, the role of deposit insurance, and limitations on derivatives that provide no social utility, debate has focused on consumer protection and the locus of dissolution authority for failed institutions. These may be important questions, but they are predicated on doing nothing to curtail the massive aggregation of financial and political power within the banking sector. Wall Street, it would appear, has spent its money well.
While the debate among Wall Street and Congress continues, others suggest that the issues are not so complicated. One week after the story about Wall Street's buyer's remorse, a clique of octogenarians gathered around former Fed Chairman Paul Volker to support his call for more stringent restrictions on the trading activities of commercial banks.
Standing with Volker were former Citigroup chairman John Reed, Bush 41 Treasury Secretary and Dillon Read Chairman Nicholas Brady, Wall Street legend and former SEC Chairman Bill Donaldson, Vanguard founder John Bogle, among others. For these men, whose days in the trading pits and positions of power were behind them, the answers were simple. As Nick Brady intoned: "If you are a commercial bank and you wish the government to guarantee your deposits and bail you out if necessary, then you can't be involved in speculative activity."
Arguing that the lure of excessive profits and bonuses had undermined the core values of the banking system, Brady pushed back on those who argued that trading and derivatives were important to the banking system and dismissed self-serving the arguments for preserving the status quo. "You draw a line that is too tight, that doesn't bother me a bit."
Volker and his old friends were sending a simple message: Like it or not, we have not yet come close to a real discussion of effective, systemic financial reform. Self-interest--of bankers and politicians alike--stands firmly in the way.
The SEC charges against Goldman may or may not stick, but it should be clear to all that, as Jack Bogle observed, the system has gone badly awry and needs massive reform. That Goldman Sachs has become the poster child for all that ails us is its own fault. Like its banker brethren, Goldman has used the global financial crisis to its own advantage--gathering tens of billions of public dollars as AIG was unwound and gaining access to the Fed window--and has made effective use of political money and influence to perpetuate a system that assures Wall Street freedom to pursue massive profits, while the public continues to bear the risk.
Shame on Goldman Sachs if they have committed fraud. But shame on us if we do nothing to change the rules of the game.
1. They make TOXIC “SURE-FAIL” JUNK Products selecting only SURE-FAIL Loans
2. Bribe Ratings Agencies with a % of Action for “AAA Treasury safe” to make them salable to suckers around the world
3. Sell them without revealing the TRUTH in the process
4. Then BET MASSIVELY against their OWN CLIENT’S INVESTMENTS to make $BILLIONS in PROFITS!
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
Wallstreet is the oligarchy capital of the world. Today’s corporate management structure is a classic oligarchy bureaucratic pyramid management flowchart. Hundreds of thousands of American jobs depend on the success of this business model.
Hypothesis:
Wallstreet corporate industries will be back for more government assistance precisely because these industries are in reality “too big to succeed”. Like a huge dinosaur with a walnut sized brain, these entities roam without consciousness of direction and the trampling under their feet.
There is limit to the oligarchy bureaucratic pyramid management flowchart business model that guarantees breakdown when business size gets “too big to succeed”.
It is not possible to prove this hypothesis until too late. Recent occurrence of large corporate failures, however, suggests a pattern. (Citibank, AIG, Chrysler, Enron, Massey…) Large corporate failure is not limited to any particular industry.
It is only prudent our federal government plan carefully for re-occurrence of massive corporate “bailout”. The American taxpayer wants readiness when another starving brontosaurus corporation comes foraging for food. A thoughtful dismantling may be just what these business systems need.
How much “bailout” denial is required before this hypothesis is accepted and we face the problem squarely?
Citizen is coach to team democracy. Coach is responsible for success. It’s your call, coach.
http://coach-1640280.newsvine.com/
We don't need 'reform' only a restoration of an ultra-strict Glass-Steagall.
I love how after the victim finds out he's been swindled he's suckered back into the game with 'reform'.
Terms like 'institution' and 'goliath banks' in reference to Goldman Sachs is cowardly and insulting the victims of their fraud.
We don't 'reform' crime - we outaw it
We don't 'reform' rape - we prosecute it
The minute we start down this road of 'reform' then we loose all credibility again when we accept it instead of rejecting it for what it is - fraud.
Put Goldman Sachs and JP Morgan into RECEIVERSHIP NOW and get it over with and then re-organize the rest of our economy around an ultra-strict Glass-Steagall to protect ourselves from the parasites on Wall Street/City of London.
Let's try to get the issueing of money back into the hand it belongs, namely the state - as the Constitution provides.
The basic idea is to first have the state issue debt and interest free money, as for example here:
http://www.monetary.org/amacolorpamphlet.pdf
and here
http://www.swarmusa.com/vb4/content.php/184-Freedom-s-Vision-Monetary-Reform-Outline
In a second step the money must be brought into circulation. One way of doing that is by the state guaranteeing a basic income to its citizens, as outlined here:
http://www.usbig.net/whatisbig.html
The third step is to fix the tax and inheritance laws to be able to put a cap on income and wealth, so as to stop wealth accumulation beyond a certain treshold.
untill americans see the difference between a social democracy and capitalism this insanity will continue.
but americans cannot see this difference as they see the world as dualistic
god devil, good bad, blame nonblame, etc.
the capitalists are ten times smarter than most americans
check history the capitalists are always ten times smarter than society of a nation.
so americans continue your love affair with capitalism while the capitalists smile all the way to t he bank.
michael moore is one of the few americans that sees the evil of capitalism
surely our wars for profits and imperialism would show americans the evils of capitalism with all the suffering we cause around the world
give most americans a pick up truck, a gun and a trailer and they think they are in hog heaven.
bye bye middle class remember you stood in line to vote for politicans that loved reagan economics.
I guess no good can come from that and expecting a change is foolish.
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.
Goldman-Sachs represents the worst of the worst in capitalist equities trading. As Mr. Paul correctly notes, their tentacles are so thoroughly intertwined in all aspects of the equities and commodities trading markets that they can's help but be engaging in conflicts-of-interests on an hourly basis all around the world. Their ongoing breaches of their fiduciary duty to every one of their clients is of such a staggering proportion that if the SEC will only keep up with this line of prosecution, it will keep the public angry enough to insist that Congress and the White House keep pushing toward real banking and equity trading regulation. That MUST include the regulation of derivatives and commodities or the entire effort is wasted. The bankers and the traders will flash boatloads of cash at legislators to try to mitigate the effects of this legislation. But the only thing that politicians respond to faster than money is an angry electorate. Harsh and extensive prosecution of Goldman-Sachs' multitudes of illegalities will keep the electorate angry because it confirms every angry preconception that the electorate has held about the crookedness of Wall Street. Press harder, not less!