War on Wall Street played out in a Senate committee
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by L. IAN MacDONALD
The Gazette, Wednesday, April 28, 2010
The Goldman Sachs executives, including CEO Lloyd Blankfein, who testified on Capitol Hill yesterday, were appearing voluntarily before a Senate banking committee. But make no mistake, as the seven Goldman bankers raised their right hands and were sworn in, they stood accused in the court of public opinion of representing the worst excesses of Wall Street.
Somewhere between due process and mob rule, the Goldman Seven were caught in the glare of the headlights known as the public eye.
Goldman, the biggest investment bank in the world, is accused of fraudulently marketing derivatives built to fail; of betting against the housing market, with executives gloating of windfall profits in internal emails; of paying ratings agencies handsome fees to put top ratings on junk mortgage securities and other toxic assets.
Not to forget their $20 billion in bonuses last year, on the heels of the $700 billion bailout of Wall Street in the fall of 2008. Never mind that Goldman and many other banks have repaid the bailout money in full, or that some of them, including Goldman, had the funds foisted on them by Washington to pump liquidity into a system that was seizing up.
Wall Street's fascination with cheap mortgages and financial instruments that had no assets behind them other than borrowed money - they called them credit swaps and CDOs, collateralized debt obligations - brought American and world financial markets to the brink of ruin.
And now the Goldman Seven are the poster boys of the reckoning. It may not be fair or just, but welcome to the majors. Like tobacco executives in the 1990s or the Detroit Three CEOs flying in on their private jets to plead for bailouts of the auto industry in 2008, they are characters as timeless as those in A Tale of Two Cities. Off with their heads.
Maybe these guys had the misfortune to be in the wrong place at the wrong time. Maybe it was just their turn. But someone has to take the hit, and they sure are, including on their share price.
Many millions of people whose investments and retirement nest eggs were obliterated in the stock-market crash that bottomed in March 2009, will feel no sympathy for them. Millions who lost their homes, even if they were mortgaged over their heads, and buying cars on cheap home loans, will be outraged at the high-five emails inside Goldman about making "serious money" betting against a market it was financing. Eight million Americans lost their jobs in the Great Recession, and that doesn't include millions more who have given up looking for work. Who do they see about that?
This is what the full-throated cry of the Tea Party is really about, the American mosaic of broken dreams.
The blowback, as Eliot Spitzer put it on CNN with Fareed Zakaria, "is an existential threat to Goldman and all the investment banks," because of the perception that "this is what they do."
Yes, that Eliot Spitzer, once the scourge of Wall Street as New York attorney-general, who became governor of New York only to be proven all too human himself in keeping company with the wrong kind of ladies.
Not that Goldman and other Wall Street banks don't have the means to make their case in Washington. The big Wall Street firms are generous to candidates on both sides of the aisle - Goldman executives have given over $1 million to Barack Obama - and in this off-year election season are contributing heavily to members of the Senate Banking Committee, which has oversight of their industry.
As the financial-services reform legislation rolled out in the Senate on Monday, hundreds of industry lobbyists had already flooded the zone around the U.S. Capitol.
And in terms of defending against the fraud suit, Goldman is very well placed. Two of their outside counsel used to work for the Senate permanent sub-committee for investigations that has been following the firm's email trail, and a third, Dave Craig, was until recently counsel to the president at the White House. The president's own former counsel. So much for changing the culture of Washington, symbolized by a revolving door.
Meanwhile, in other financial news, the Securities and Exchange Commission has taken disciplinary action against dozens of enforcement officers, nearly half of them senior management, who spent hours of every working day surfing porn sites on the Internet.
No wonder the SEC missed out completely on Bernie Madoff's $65-billion fraud, the biggest Ponzi scheme of all time.
One more reason for the SEC to try to recoup in the Goldman case. On one side, it's about the regulator restoring its reputation, and on the other it's about a legendary bank salvaging its storied brand.
The stakes have never been higher. Quite simply, it's Washington vs. Wall Street.