Remember the lame excuses we gave as children when we got caught purloining something that wasn’t ours? “Oh, this is yours?” we uttered, acting surprised when caught removing a CD from their collection in their room or the idle basketball resting in their driveway. We knew we were lying, they knew we were lying and we knew that they knew we were lying. But this didn’t prevent us from standing by an indefensible position because we felt sure this would give our siblings or friends room to overlook our misdeed , this time, to avoid a conflict. At that age we were all relatively naive.
“When I was a child, I Spoke as a child, I understood as a child, I thought as a child: but when I became a man, I put away childish things”, Paul informs us in 1st Corinthians. This insight must have been lost on the defense team for Goldman-Sachs as they prepare to fight the charges of fraud that the SEC has laid at their doorstep. According to a recent Washington Post story, upper management, which presumably includes the CEO, Lloyd Blankfein, are “arguing that the firm was unsure whether housing prices would rise or fall” when they made behind-the-door arrangements with hedge fund billionaire John Paulson. Both Goldman and Paulson conspired to create a financial product that was certain to fail and then schemed to invest against its success as they sold it to unsuspecting investors as a winner for the foreseeable future. (Revealed: Goldman Sachs’ Defense, By Zachary A. Goldfarb, The Washington Post, 4/24/10)
Goldman Sachs cannot even pretend to think this is a viable defense with the presumption that it should be overlooked “this time”. As I stated in an earlier piece, this is the not the first time the most powerful bank on Wall St. has been found engaging in unethical and illegal behavior. Nor can they presume that they are unwitting accomplices to a deal that was manipulated which, if discovered by the SEC, would automatically bring forth an indictment. E-mails between Goldman executives in 2007 reveal that they were aware of their actions as they bet “against the very securities it had underwritten and sold” according to an article by Shahien Nasiripour in the Huffington Post (Goldman Sachs Emails: Firm Had ‘The Big Short’ As Economy Fell, 4/24/10). They also brought in a third party entity, ACA Management LLC, to conceal their involvement by acting as the “Portfolio Selection Agent” for the contrived product known in the business as a CDO (Collateralized Debt Obligation).
Further incriminating evidence came in this week as Senate hearings with bond rating company executives from Moody, Standrd & Poor and Fitch revealed that they worked with Wall St. banks like Goldman to make certain financial products like the CDO in the SEC indictment look respectable. According to one former member of Fitch academic advisory board, Dan Rosen, “[The rating companies] have to explain how to do things [to the Wall St. financial institutions they do business with], but that sometimes allowed people to game it”. (Rating data aided Wall Street in mortgage deals, by Gretchen Morgenson and Louise Story, the NY Times, 4/24/10)
Goldman Sachs has deep pockets to invest in their defense. They have brought on board attorney Richard Klapper of Sullivan Cromwell to head the defense team. Klapper has gained the services of a former Obama White House counsel, Gregory Craig, “to aide in political and legal matters” (Sullivan & Cromwell Lawyers Takes Lead in Goldman Sachs Case, JDJournal, 4/21/10). Goldman Sachs also has former employees working at high levels in the Obama administration. There are five of them who hold top positions in the White House.
Mark Patterson, a former Goldman Sachs lobbyist, is the chief of staff to Treasury Secretary Timothy Geithner. Reuben Jeffery III, former managing partner at Goldman Sachs, holds the post of undersecretary of state for economic, business, and agricultural affairs and former Goldman Sachs partner Gary Gensler is Obama’s Commodity Futures Trading Commission head.
Neel Kashkari, former Goldman Sachs vice president, is the assistant secretary of the treasury for financial stability, responsible for administering the TARP funds and Dianna Farrell, former financial analyst at Goldman Sachs, serves as deputy director of the National Economic Council. Both Larry Summers, White House National Economic Council head and Treasury Secretary Timothy Geithner had ties to former Clinton Treasury Secretary Robert Rubin who once served as Goldman Sachs CEO.
This has the appearance of a conflict of interest on the surface but it must be noted that the Securities and Exchange Commission is an independent agency that is not under the authority of any of these former Goldman Sachs employees. This won’t prevent many on the right from trying to malign the case by such associations between the White House and the Wall St. banker however. It will succeed though in keeping the government under the microscope by all parties to make sure there is no quid pro quo that might materialize as the SEC makes it case and should it ultimately wound up in a court of law.
In the final analysis Goldman is banking on a defense that hopes the SEC and the public are easy dupes – “Oh, you mean this is your money?” They have wiggled their way out of equally tighter messes in the past. It remains to be seen if they will succeed again. The SEC needs to expose not only Goldman Sachs but the entire Wall St. financial institution as the predators they were in the sub-prime mortgage fiasco to make their case. Millions of lives have been ruined by their cavalier approach to making money where they make off like bandits and the public is the victim of their hi-jinks. This deserves more than an adolescent and naive response.
Terms, players in the Goldman Sachs fraud charges