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Jewish World Review
April 22, 2010
/ 8 Iyar 5770
Selective ignoring and ignorance
I feel about the civil lawsuit for fraud the Securities & Exchange Commission (SEC) has filed against Goldman Sachs pretty much the way I felt about the Iran-Iraq war in the 1980s: I didn't want either side to win, and I hoped casualties would be high on both sides.
Rolling Stone writer Matt Taibbi described Goldman Sachs as "a great vampire squid wrapped around the face of humanity, relentlessly jamming its bloody funnel into anything that smells like money." That seems to me to be about right.
The SEC's job is to police Wall Street. The subprime mortgage meltdown is proof of how terrible a job it does of it.
Democrats would like you to believe the subprime crisis was caused by inadequate regulation. But at its core was fraud, which has been against the law for a very long time. The problem was not inadequate regulation. It was inadequate regulators.
The financial instruments at the heart of the subprime crisis collateralized debt obligations and credit default swaps were somewhat complicated, apparently too difficult for the dimwits at the SEC to understand, back when it mattered. But the SEC has also shown itself incapable of dealing with even the simplest of financial frauds.
They don't get more simple than the Ponzi scheme. A fraudster takes money from investors, but doesn't actually invest it. The original investors are paid "returns" from investments made by the next group of suckers.
Bernard Madoff ran the biggest Ponzi scheme in history, bilking suckers of $21 billion before his arrest in December, 2008. The problem was not just that the SEC failed to detect Mr. Madoff's scheme. As early as May, 2000, a whistleblower, Harry Markopolos, had brought the SEC proof Mr. Madoff was running a Ponzi scheme, and the SEC still refused to investigate.
That was not the only Ponzi scheme the SEC ignored. On the day the SEC filed its charge against Goldman, the Wall Street Journal reported: "The Securities and Exchange Commission suspected Texas financier R. Allen Stanford of running a Ponzi scheme as early as 1997 but took more than a decade to pursue him seriously."
If the SEC had not charged Goldman with fraud the same day, that story would have dominated the business news.
The timing of the Goldman indictment was also propitious for the Obama administration, coming just as the administration began its push for passage of its financial reform bill. So propitious that Rep. Darrell Issa, R-Cal, wants to see the record of contacts between the nominally independent agency and the White House.
There is irony or hypocrisy in the effort of Democrats to use Goldman as the poster boy for the need for its financial reform bill, because Goldman Sachs supports the measure, and its lobbyists reportedly helped draft it.
"We're not against regulation," a Goldman executive told the Politico. "We're for regulation. We partner with regulators."
The reason why is obvious to all who pay more attention to what's in the bill than in how Democrats describe it. It would institutionalize bailouts of "too big to fail" banks like Goldman, and put onerous restrictions on potential Goldman competitors.
A whistleblower sent the left wing blog The Huffington Post a five page list of firms and industries most of them major contributors to the Democratic Party or representatives of important Democratic constituencies that are exempted from the provisions of the bill.
"Obtaining a carve out isn't rocket science," said a financial services lobbyist. "Just give (Sen. Chris) Dodd (the author of the bill) and Chuck Schumer (the chairman of the Democratic Senatorial Campaign Committee) a ****load of money."
As with Obamacare, Democrats want to pass the financial reform bill before Americans find out what's in it.
"Republicans have been accurately attacking the Dodd bill for authorizing bailouts of big Wall Street firms and giving them unfair advantages over small competitors," wrote columnist Michael Barone. "They might want to add that it authorizes Gangster Government the channeling of vast sums from the politically unprotected to the politically connected."
Many expect the SEC suit against Goldman to be settled with a wrist slap once the financial reform bill does pass. This is partly because the SEC's case is weak. But it's mostly because the lawsuit will have served its purpose.
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JWR contributor Jack Kelly, a former Marine and Green Beret, was a deputy assistant secretary of the Air Force in the Reagan administration.
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