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What follows here is an abridgement and clarification of Matt Taibbi's recent article in Rolling Stone magazine.
They weren't murderers or anything; they had merely stolen more money than most people can rationally conceive of, from their own customers, in a few blinks of an eye. But then they went one step further. They came to Washington, took an oath before Congress, and lied about what they had done.
Goldman Sachs was not the only target of the 650-page indictment just released by the Senate Subcommittee on Investigations, titled Wall Street and the Financial Crisis: Anatomy of a Financial Collapse. This unusually scathing bipartisan report also includes case studies of Washington Mutual and Deutsche Bank, and provides a panoramic portrait of a bubble era that produced the most destructive crime spree in American history -- "a million fraud cases a year" is how one former regulator puts it. The mountain of evidence collected against Goldman by this 15-desk office of investigators, headed up by Senator Carl Levin, includes details of gross, bald-faced fraud delivered up in such quantities as to almost serve as a kind of sarcastic challenge to the curiously impassive -- criminally complicit? -- Justice Department. As such, it stands as the most important symbol of Wall Street's aristocratic impunity and prosecutorial immunity produced since the crash of 2008.
And yet, many of the earlier criminals in this chain of corruption -- from subprime lenders like Countrywide (who virtually herded old ladies and ghetto families into bad loans), to rapacious banks like Washington Mutual, who pawned off fraudulent mortgages on investors -- wound up going belly up, sunk by their own greed.
Goldman, as this report (hereafter referred to as the Levin report) makes clear, remains an ascendant company precisely because it used its canny perception of an upcoming disaster (one which it helped create) as an opportunity to enrich itself, not only at the expense of its clients, but ultimately through the bailouts and the collateral damage of the wrecked economy, all at the expense of society as a whole. Goldman seemed to count on the unwillingness or inability of federal regulators to stop them -- and when called to Washington last year to explain their behavior, Goldman executives brazenly misled Congress, strangely confident that their perjury would carry no serious consequences.
Thus, while much of this report describes past history, the Goldman section describes an ongoing crime. For here we have a powerful, well-connected firm, with the ear of the president and the Treasury, that appears to have suborned the entire regulatory structure and stands now on the precipice of officially getting away with one of the biggest financial crimes in history. And if the evidence in the Levin Report is ignored by the Justice Department, then Goldman will have achieved a kind of corrupt-enterprise nirvana: Caught, but still free -- guilty but above the law.
Goldman CEO Lloyd Blankfein hedged and stammered like a brain-addled boxer who couldn't quite follow the committee's questions. When Senator Carl Levin, one of the two chairmen of the investigating committee, asked how Blankfein felt about the fact that his company collected $13 billion from U.S. taxpayers through the AIG bailout, the Goldman CEO dodged the question again and again, insisting, by way of doubletalk, that his company would somehow have "made that money anyway" through its private insurance policies on AIG. When Levin pressed Blankfein, repeatedly pointing out that he hadn't really answered the question, Blankfein finally did nothing more than peer at Levin as if he didn't understand.
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A Senate committee has clearly laid out the evidence. Now the Justice Department should bring criminal charges. But will it?
Defenders of Goldman have insisted that while the bank may have had a few ethical slips here and there, its only real offense was being too good at making money. However, this is bullshit.
To fully grasp the case against Goldman, one first needs to understand that the financial crime wave described in the Levin report came on the heels of a decades-long lobbying campaign by Goldman and other titans of Wall Street, who pleaded over and over for the absurd right to regulate themselves.
Before that campaign, banks were closely monitored by a host of federal regulators, including the Office of the Comptroller of the Currency, the FDIC and the Office of Thrift Supervision. These agencies had examiners poring over loans and other transactions, probing for behavior that might put depositors or the system at risk. When the examiners found illegal or suspicious behavior, they built cases and referred them to the Justice Department. And this system of referrals was the very backbone of financial law enforcement right up through the early Nineties. William Black was senior deputy chief counsel at the Office of Thrift Supervision in 1991 and 1992, the last years of the S&L crisis, a disaster whose pan-systemic nature was comparable to the current mortgage fiasco, albeit vastly smaller. Black describes the regulatory M.O. back then: "Every year," he says, "you had thousands of criminal referrals, maybe 500 enforcement actions, 150 civil suits and hundreds of convictions."
Yet beginning in the mid-Nineties, the government began moving toward a regulatory system that relied almost exclusively on "voluntary compliance" by the banks. Old-school criminal referrals disappeared down the memory hole of history along with floppy disks and scripted television entertainment. Result: Prosecutions plummeted. (Surprise, surprise.) In 1995, according to an independent study, banking regulators filed 1,837 referrals. Yet during the height of the more recent financial crisis, between 2007 and 2010 they averaged just 72 a year.
But nixing almost all criminal referrals wasn't enough for our Wall Street overlords
In 2004, in an extraordinary sequence of regulatory rollbacks that helped pave the way for the financial crisis, the top five investment banks -- Goldman, Merrill Lynch, Morgan Stanley, Lehman Brothers and Bear Stearns -- persuaded the government to create a new, 'voluntary' approach to regulation called Consolidated Supervised Entities. CSE was the soft touch to end all soft touches. Here is how the SEC's inspector general described the program's pitifully small regulatory army: "The Office of CSE Inspections has only two staff members in Washington and five staff members in the New York regional office."
Among the bankers who helped convince the SEC to go for this ludicrously understaffed program was Hank Paulson, Goldman's CEO at the time. And in exchange for 'submitting' to this laughable new, 'voluntary' regime of law enforcement, Goldman and other banks won the right to lend in virtually unlimited amounts, regardless of their cash reserves -- a move that lit the fuse for the catastrophe that arrived, predictably, in 2008, when greed-blinded banks like Bear and Merrill were lending out 35 dollars for every one in their vaults.
