Goldman Sachs: What Hath Fraud Wrought?

Goldman Sachs is the Blackwater of finance, the latest
in a long line of companies you love to hate, like AIG and the Dallas
Cowboys.

Or, as
Rolling Stone's Matt Taibbi infamously characterized it last year, the
financial behemoth is "a great vampire squid wrapped around the face of
humanity, relentlessly jamming its blood funnel into anything that
smells like money." Honestly, Matt has to cut down on his couch time
watching The Discovery Channel.

Nevertheless, hit "refresh" on any financial news Web site and you're
likely to get yet another revelation of the firm's colossal and
impressively varied shenanigans. On Friday, Susan Pulliam reported on
the front page of The Wall Street Journal that, "A Goldman Sachs Group Inc.
director tipped off a hedge-fund billionaire about a $5 billion
investment in Goldman by Warren Buffett's Berkshire Hathaway Inc. before
a public announcement of the deal at the height of the 2008 financial
crisis, a person close to the situation says."

As the
Journal
notes, the Buffet deal came at a key point in the Wall Street collapse,
restoring confidence in the markets and lifting Goldman's stock from a
40 percent slide to a 45 percent surge. The hedge-fund billionaire in
question is Raj Rajaratnam, whose Galleon Group currently is embroiled
in one of the biggest insider trading scandals in history: 21, including
Rajaratnam, have been charged; 11 already have pled guilty.

The same day's Financial Times reports a potential conflict of interest
surrounding Goldman's role in the refinancing of Lloyds Banking Group,
41 percent of which is owned by the British government -- an arrangement
made to rescue Lloyd's from the financial meltdown.

Goldman Sachs was both an investor and underwriter in the Lloyds
refinancing. According to the FT's sources, Goldman got last minute changes made
that increased interest on bonds being exchanged in the deal and was
involved in discussions determining which bonds would receive highest
priority in the exchange. Top ranked was a bond in which Goldman had
invested, perhaps, one source said, buying as much as half of the issue.
Goldman insisted its position was "not substantial."

All of this, of course, a week after the Securities and Exchange
Commission charged Goldman Sachs with committing a highly sophisticated
fraud, making big profits on the backs of struggling home owners,
packaging their soaring mortgage debt as exotic investments some at
Goldman knew would fail.

Already, foes of Wall Street reform are picking away at the SEC charges,
and whether or not the accusations will ultimately stick remains to be
seen -- it's a very complex and nuanced case. The Washington Post reports that the two
Republican members of the commission questioned the strength of the case
and voted against bringing the complaint, expressing skepticism "that
the evidence showed that Goldman had misled its clients because the
investors were big, sophisticated firms who should have known what they
were doing."

But the Democratic commissioners and SEC chair Mary Schapiro "argued
that Goldman should not escape accountability simply because its clients
were big firms. They said the evidence showed that Goldman did not give
clients crucial information about the investment that likely would have
made them think again about placing a bet."

Others claim that investments like the one in the Goldman case, a swirl
of so-called "synthetic CDO's" (collateralized debt obligations) are so
newfangled and complicated, very few of even the most knowledgeable
financiers actually understand it. And those who do are not in a
position to offer an objective opinion to investors because they're
already working for companies like Goldman.

The GOP opposition to the SEC's complaint came just days before federal
campaign finance filings were released on Tuesday. In March alone,
Goldman Sach's political action committee donated $167,500 to Republican
candidates and fundraising groups and $123,000 to the Democrats. As per
the Web site Politico.com, "That March total alone -- coming ahead of a
major Wall Street reform bill -- is more than the firm donated to
political campaigns in the previous year."

A pox on all their houses. So thinks Bill Black, the one time federal
regulator who cracked down on banking during the savings and loan crisis
of the 1980's, pursuing the guilty with the tenacity of Inspector
Javert in
Les Miserables. He now teaches law and economics at the University of
Missouri/Kansas City and wrote the book The Best Way to Rob a Bank Is to Own
One.

Black
spoke with my colleague Bill Moyers on the current edition of Bill Moyers Journal on PBS. He questions
whether the SEC and the Obama White House -- don't forget, Goldman Sachs
was Obama's largest corporate campaign contributor -- will fully push
for answers in the Goldman fraud case or any others. "Is this
administration, which still has some Bush holdovers in it, and now has a
lot of Goldman people in it, is this administration going to be able to
pass judgment on Goldman Sachs?" he asked.

"... They haven't kicked into gear fully, or they'd be naming [Goldman
CEO and Chairman Lloyd] Blankfein and other senior leaders of Goldman.
And they've only gone after a junior person... If they were really in
gear, there would be criminal charges here. And if they were really in
gear, there'd be a broad investigation, not just of Goldman, but of all
of these major entities."

But, he added, if you're sitting in Congress or the White House, "Do you
want to look at these seemingly respectable, huge financial
institutions, which are your leading political contributors, as crooks?"

If Black had his way, he'd enforce a three-strike policy. "Three strike
laws, you go to prison for life, if you have three felonies," he said.
"How many of these major corporations would still be allowed to exist,
if we were to use the three strike laws, given what they've been
convicted of in the past?"

That will never happen until the corporate clout of cash is removed from
the American way of governance. Bill Black recalled a slogan he and his
colleagues invoked during the savings and loan crisis: "The highest
return on assets is always a political contribution."

Maybe that new $100 bill should read, "In Fraud We Trust."