McClatchy is out with an incredibly important series on Goldman Sachs, the first two parts of which have gone up already, that raises questions about whether Goldman committed securities fraud at a massive level. I am guessing the next three parts of this series are going to be really explosive as well. What Goldman essentially did was to have one big group of their traders, call them Group 1, marketing mortgage securities as triple-A investments, while other traders in the company, call them Group 2, were secretly betting that there would be a steep drop in housing prices, which would mean the values of those securities Group 1 was selling would drop off a cliff. Goldman Sachs was making money coming and going, and it is virtually impossible to believe senior management did not know that the securities they were selling were junk. Now I'm not a securities lawyer but that sure sounds like fraud to me.
Gordon's superbly researched series follows on Matt Taibbi's brilliant Rolling Stone article on Goldman Sachs earlier this year, which walks through many of the same issues. With what Gordon and Taibbi have both been able to document, folks at the DOJ sure ought to be looking at whether criminal charges should be filed against Goldman. And the Obama White House should be coming down on the executives at Goldman Sachs with both feet, hard. This kind of financial manipulation, which has cost public pension funds and other investors many billions of dollars, needs to be stopped, and huge conglomerates like Goldman need to be broken apart. This story is not just a story about simple greed or securities fraud, it's a story about a company that has gotten so big and powerful that it can manipulate markets at will. This story goes to the heart of the recent financial collapse, for which Goldman Sachs deserves a sizable share of the blame. They need to be broken into pieces so that they can't wreak this kind of havoc again. And it sounds increasingly like some of their executives might deserve to go to prison for a long time.