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Fight On, Goldman Sachs!
Source: New York Times

By Frank Rich

April 24, 2010


Maybe Lloyd Blankfein was doing “God’s work” after all.

When the Goldman Sachs chief executive made that tone-deaf remark to
an interviewer in November, he became the butt of a million insults,
the ultimate symbol of Wall Street’s abdication of responsibility for
its sleazy role in the Great Crash of ’08. But now we’ve learned that
Blankfein was actually, if inadvertently, on the side of the angels.
It’s his myopic, unrepentant truculence that left Goldman exposed to a
Securities and Exchange Commission accusation of fraud that will be
litigated in public rather than bought off in private. And it’s that
S.E.C. legal action that has, in a single week, radically transformed
the politics and prospects for financial reform in America.

In just that week, the Party of No’s intransigent campaign of
obstruction and obfuscation went belly up. The Obama White House moved
to get its act together with an alacrity lacking in its health care
campaign, abruptly adding Thursday’s New York speech to the
president’s schedule. The bipartisan Financial Crisis Inquiry
Commission at last issued its first subpoena — to Moody’s, one of the
rating agencies that for a fat fee slapped AAA ratings on the toxic
garbage Goldman packaged and sold to benighted suckers on the other
end of a huge bet placed by a favored client, the hedge fund player
John Paulson.

Salutary as this rush of events is, it still adds up so far to just
one small step for mankind. We don’t yet know how many loopholes
lobbyists will slip into the bill-in-progress. We don’t yet know the
outcome of the S.E.C. case, let alone what other much-needed legal
pursuit of Wall Street may follow it. And we still don’t know what, if
any, true correction lies ahead for the financial sector’s runaway
casino culture — much of it legal — that turned a subprime-mortgage
bubble in a handful of overheated American states into an
international economic meltdown.

But before we get to those gloomy caveats, let’s smell a few roses.

The farcical spectacle of the Republican retreat has been particularly
enjoyable. It was only last Sunday that Senator Mitch McConnell went
on CNN to flog his big lie that the Senate reform bill somehow
guaranteed bank bailouts — a talking point long ago concocted for the
G.O.P. by its favorite spin strategist, Frank Luntz. McConnell’s House
counterpart, John Boehner, was meanwhile waging a campaign to portray
the Democrats as shills for Goldman, a major source of Obama donations
and personnel. Never mind that the Bush White House chief of staff,
Joshua Bolten, was a Goldman alumnus and that both McConnell and
Boehner had voted for the very bailouts they now profess to abhor (a k
a TARP) after a sales job by Henry Paulson, the Bush Treasury
secretary who was Blankfein’s predecessor as Goldman’s C.E.O.

In another bit of hubris, McConnell boasted of a letter signed by his
caucus pledging 41-vote unity to block the reform bill. But on Monday,
Senator Bob Corker of Tennessee, a Republican who had been negotiating
with his Democratic peers in good faith, took to the Senate floor to
start breaking ranks with his dear leader. The bill at hand, Corker
said, was “anything but” a mandate for bank bailouts. On Tuesday, the
House G.O.P. leadership distributed a spreadsheet publicizing
Goldman’s donations to Democrats, and this too backfired. Politico
reported the next morning that Goldman’s political action committee
donated more money to politicians in March than in all of 2009, most
of it to Republicans. The total take for Boehner was double that of
Harry Reid’s.

That afternoon Charles Grassley of Iowa, up for re-election this fall,
became the first G.O.P. senator to vote with the Democrats on part of
the pending package. Maybe someone showed him another spreadsheet — a
Pew poll finding that even in a divided America 61 percent favor
financial regulatory reform. The unity pledge in McConnell’s pocket
was now worth as much as a mortgage-backed security.

The White House’s own shift last week, though far less momentous than
the Republicans’, was also promising. A year ago, President Obama had
delivered an address labeling the financial crisis a “perfect storm” —
the term long favored by Robert Rubin, the discredited guru of bailed-
out Citigroup and mentor to many on the White House economic team. At
Cooper Union on Thursday, the president, while far from fiery, was no
longer likening the calamity to a natural disaster beyond anyone’s
control. He chastised those in the financial sector who saw the free
market as “a free license to take whatever you can get, however you
can get it.” He was no longer describing Blankfein, sitting before
him, as a “very savvy” businessman — a compliment he had bestowed on
him and Jamie Dimon of JPMorgan Chase just 10 weeks earlier.

Still, the Republicans had half a point when they indicted the White
House for being too close to Goldman and its brethren. The truth is
that both parties are too often in hock to the financial sector, and
both parties bear responsibility for the meltdown. In response to a
question from Jake Tapper of ABC News last weekend, Bill Clinton was
right to say that he and two of his Treasury secretaries, Rubin and
Lawrence Summers, “were wrong” to leave derivatives unregulated. They
deserve regulation, Clinton said, because “sometimes people with a lot
of money make stupid decisions and make it without transparency.”

Those same people also make smart decisions without transparency —
smart for them, if not the country. Even if the reform bill does bring
stringent regulation to derivatives — a big if — that won’t rectify
capitalism’s worst “innovation” in our own Gilded Age: the advent of
exotic, speculative “investments” that have no redeeming social value
and are instead concocted to facilitate gambling for its own sake.
Such are the Goldman instruments of mass financial destruction that
paid off for John Paulson. In 2007 alone, according to Gregory
Zuckerman in his book “The Greatest Trade Ever,” Paulson’s personal
take amounted to over $10 million a day, “more than the earnings of J.
K. Rowling, Oprah Winfrey and Tiger Woods put together.” That
“financial alchemy,” as Zuckerman calls it, explains why the finance
sector’s share of domestic corporate profits, never higher than 16
percent until 1986, hit 41 percent in the last decade.

As many have said — though not many politicians in either party —
something is fundamentally amiss in a financial culture that thrives
on “products” that create nothing and produce nothing except new ways
to make bigger bets and stack the deck in favor of the house. “At
least in an actual casino, the damage is contained to gamblers,” wrote
the financial journalist Roger Lowenstein in The Times Magazine last
month. This catastrophe cost the economy eight million jobs.

Lowenstein argued for a transfer tax on financial trading, a reform
that has found favor with Britain’s prime minister, Gordon Brown, if
not our own Treasury secretary, Timothy Geithner. Equally compelling
is the notion articulated by Ryan Avent, a blogger at The Economist,
that “public anger” and “hooting derision” be increased to shame Wall
Street into changing its ethos. This assumes, of course, that there is
any capacity for shame. Perhaps the most productive tactic comes from
Ted KAUFMAN, Democrat of Delaware, who is using his lame-duck
residence in the Senate (as the appointee to Joe Biden’s old seat) to
demand that we root out the “fraud and potential criminal conduct”
that “were at the heart of the financial crisis.”

To achieve this overdue reckoning will require action — by the S.E.C.,
the Justice Department and any other legal authority that wants to get
into the act. That no one at Lehman Brothers has yet been held liable
for its Enronesque bookkeeping deceit is appalling. That we still
haven’t seen the e-mail and documents that would illuminate A.I.G.’s
machinations with Goldman and the rest of its counterparties amounts
to a cover-up. That investigative journalists have consistently been
way ahead of the authorities, the S.E.C. included, in uncovering Wall
Street’s foul play is a scandal. If this culture remains in place, the
whole crisis will have gone to waste.

As a reminder of the unchastened status quo, Blankfein remains the
gift that keeps on giving. On Thursday, The Financial Times reported
that he had been calling clients to argue that the S.E.C. case against
Goldman would ultimately “hurt America.” The opposing point of view
was presented by Ira Glass on his radio show “This American Life” this
month. With reporters from the nonprofit journalistic organization
ProPublica, it told the story of another hedge fund, Magnetar, that
gamed the housing bubble. Bankers who worked on Magnetar deals walked
away with their huge bonuses well before disaster struck — or, as the
program put it, “bankers made money even when they were buying things
that eventually blew up the bank.” Not to mention the economy. And it
was all legal.

To award the audience a bonus, “This American Life” concluded with a
Broadway song commissioned from a co- author of the satirical musical
“Avenue Q.” Titled “Bet Against the American Dream,” it distills a
complex financial saga to its essence: Those who shorted the housing
market shorted the country.

Go online, listen to it and laugh. But the fact remains that those who
truly hurt America are laughing harder still, all the way to the bank.


Eric D. Schwerin
Rosemont Seneca Partners, LLC
1010 Wisconsin Ave., NW
Suite 705
Washington, DC 20007
(202) 333-1880
eschwerin@rosemontseneca.com
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