DownWithTyranny!: Ready For Another Goldman Sachs Wrist Slap?

J.P. Morgan was never tried for treason... so no one remembers what he did-- and people still do it

I've been reading Glen Yeadon's book, Nazi Hydra in America and everyday I come across more and more iconic American names complicit in the rise of fascism, certainly in Italy, Spain and Germany but also in attempts to bring fascism to America in the 1920s and '30s-- right up to and including an attempted coup d'etat against President Roosevelt by Wall Street and Big Business titans with names like duPont, Rockefeller, Bush, Mellon and Morgan.

Yeadon quotes Newsweek here:

The fresh look at wartime culpability may extend to other American icons. In 1940 one of the nation's most prestigious law firms, Sullivan & Cromwell, joined together with the Wallenberg family of Sweden--famed for producing Raoul, a Holocaust martyr who saved Jews in Budapest--to represent Nazi German interests, says Abe Weissbrodt, a former Treasury Department lawyer who prosecuted the case in 1946. The scam? Sullivan & Cromwell drafted a voting trust agreement making the Wallenbergs' Enskilda Bank a dummy owner of the U.S. subsidiary of Bosch, a German engine-parts maker, so the Nazis could retain control. The papers were drawn up by John Foster Dulles, a Germanophile who later became secretary of State and whose name today graces Washington's international airport. (The scheme worked during the war, but in 1948 Bosch was finally auctioned to a U.S. buyer.) The record is compelling in terms of warranting questions about Dulles's motives and his own allegiances," says historian Masurovsky. "One might say about him what Treasury said about Chase and J.P. Morgan, that they had allegiance to their own corporate interests and not to their country."

None of the worst culprits were ever punished. In fact, they or their progeny went on to attain the highest levels in our society, mostly still working towards fascism. Never punished... it just keeps me awake at night. We never seem to punish the rich and powerful no matter how heinous their crimes against society. So it was with an "I'm believe it when I see it" attitude that I took in Wednesday's announcement by Carl Levin (D-MI) that one of the decades-long institutional grand criminals of American life, Goldman Sachs might be in for a rough time. I'm not sure if Senator Levin is being duplicitous or naive... we'll see. Tom Braithwaite covered it for the Financial Times.

Carl Levin, chairman of the Senate investigative subcommittee, said there was “real hope” law enforcement authorities would act on his panel’s report accusing Goldman Sachs of misleading investors and Congress.

The Senate report criticised rating agencies, regulators and other banks. But Goldman has drawn particular focus. Eric Holder, attorney-general, said this month the justice department was looking at the report “that deals with Goldman."

The possibility of more legal and regulatory issues at the bank has weighed on its stock in recent weeks. Dick Bove, analyst at Rochdale Securities, wrote last week that “pressure on the justice department to bring a criminal lawsuit against Goldman [appeared to be] building to a high pitch."

Mr Levin added to that in an interview with the Financial Times on the Senate report, which examined Wall Street practices in the run-up to the crisis. The senator was confident officials were taking it seriously. “There’s real hope here that there’s going to be a good scrub by a number of law enforcement entities, so I am not pessimistic about this.”

The senator said Goldman’s payment of $550m to settle fraud allegations from the Securities and Exchange Commission in connection with the marketing of one structured debt product did not preclude other allegations. He said Goldman executives misled his committee but suggested they might have stopped short of lies with “wiggle words."

Matt Taibbi has been prone to use stronger terms than "wiggle words" in describing the banksters in his powerful, muckraking Rolling Stone series. This week he held open the possibility that the hammer could possibly be coming down-- and he's neither duplicitous nor naive. His hope: New York state's crusading and brilliant new Attorney General, Eric Schneiderman (who we first met here at DWT early in 2008 when he was a state senator in upper Manhattan. Taibbi posits that Schneiderman's investigation "looks like it might be the first for-real attempt at a prosecution of the systemic corruption that led to the financial crisis," targeting the banks’ mortgage securitization process during the bubble years and focuses on Morgan Stanley, Bank of America, and Goldman Sachs.

This investigation has the potential to be a Mother of All Nightmares situation for the banks for a couple of reasons. For one thing, the decision to go after the securitization process is a total prosecutorial bullseye. This is the ugly heart of the wide-scale fraud scheme of the bubble era. Again, the business model during this time was a giant bait-and-switch scam. Sleazy lenders like Countrywide and New Century first created huge masses of bad loans, committing every conceivable kind of fraud to get people into loans (from doctoring income statements with white-out to phonying FICO scores to engineering fake appraisals). They then moved the bad loans quickly to the big banks, which pooled them and chopped them up (this is the “securitization” process), sprinkled hocus-pocus math on them, and them sold them to suckers around the world as AAA-rated securities.

The questions Schneiderman will seek to answer are these: did the banks securitize loans they knew were fraudulent, throwing the rotten mortgages into the stew before serving them to customers? Did they also commit insurance fraud by duping the bond insurers (known as “monoline” insurers) into thinking the mortgages were not as risky as they really were? And did they participate in the fraud scheme on a more basic level by lending huge amounts of money to the Countrywides of the world, knowing that they in turn would immediately use that money to create the bad loans? In other words, did the banks finance the fraud in addition to brokering it?

The reason this is such a potentially deadly investigation for the banks is that they seemed to be so close to getting away scot free. There is another investigation into the banks’ mortgage abuses by the states’ Attorneys General, led by Iowa AG Tom Miller, that was rumored to be headed toward a settlement, despite the fact that nothing like a complete investigation has been done. The expectation for some time has been that the banks would eventually have to pay a significant, but eminently survivable, settlement for abuses during the bubble era. Although the Miller probe was focused on practices like robo-signing and other such documentation abuses, it could theoretically have covered securitization as well.

But if the AGs were to sign off on a friendly global settlement for mortgage abuses prematurely, it would be like a DA offering a millionaire murderer a 2-year plea bargain before the cops even had a chance to interview all the eyewitnesses. It would be a blatantly political arrangement. Such a desire to get some kind of deal done and sweep the mortgage mess under the rug once and for all seems almost universal among high-ranking politicians, and particularly in the Obama administration, which has acted throughout like it wants more than anything to simply get all of this over with and put in the past.

Schneiderman’s investigation throws a monkey wrench into all of this. The banks cannot enter into a settlement with 49 states. They need all 50 at the table. But if Schneiderman breaks ranks and goes off on an end-run investigation that plunges right into the rotten core of the fraud era, then the whole pipe dream of an easy settlement vanishes in an instant. This is particularly true since Schneiderman is the most important AG, being from the state of New York, where most of the crime was probably committed.

The amount of money investors lost in this fraud scheme is probably gigantic. The ill-gotten money the banks made off that same fraud is probably similarly huge. And the damage to society, in the form of mass foreclosures and other losses, is incalculable. If the banks end up being found liable for all of these offenses, they could face truly crippling fines and penalties. This goes far beyond the question of whether one bank like Goldman defrauded a client or two or lied to investigators. This probe could be asking whether the banks’ entire revenue model during the crisis years was based on fraud.

Taibbi says Schneiderman is serious. He always has been in the past. I might caution that the banksters have paid politicians-- on both sides of the aisle-- direct bribes of $1,515,876,043 since 1990 (protection money) and have also been active in lobbying politicians as well. Take a look and how they have corrupted our entire political system: