In a recent Rolling Stone article “The Great American Bubble Machine,” Matt Taibbi called global investment banking and securities firm Goldman Sachs “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.” Aside from this 19th century monopoly imagery and the dehumanization of Goldman executives, Taibbi went on to accuse the financial firm of being responsible for everything from the Great Depression to the more recent Great Recession.
The Security Exchange Commission took a small step in Taibbi’s direction last week when it filed securities fraud charges against Goldman, Sachs & Co. and Fabrice Tourre, a London based senior vice president at Goldman.
In 2006, Goldman structured a collateralized debt obligation (CDO) involving subprime residential mortgage backed securities (RMBS). The violation, however, did not occur in the simple structuring of the CDO. The SEC alleges that Goldman failed to represent a possible conflict of interest.
Paulson & Co., the company that approached Goldman in 2006, indicated it would like to position itself favorably in the event housing prices declined. As a result, Goldman structured a CDO and sold its securities to three companies: IKB, a large German bank, ACA Capital Management and Paulson. IKB and ACA were positioned to benefit from a rise in housing prices. As a result of this transaction, investors lost about $1 billion.
The SEC alleges that Goldman Sachs failed to tell investors that Paulson was involved in selecting the RMBS involved in the venture. The SEC also alleges that Paulson selected RMBS that would fail.
According to The Economist, the deal closed in April 2007 and by January 2008 99 percent of the securities involved in the CDO had been downgraded by credit-rating agencies.
Tourre is said to have been the orchestrating banker in this deal. This is why he has been charged alongside Goldman.
Companies like Goldman give capitalism a bad name. A free market does not mean you can lie, cheat and steal your way to more money.
When companies like Goldman abuse our free market, Americans and American corporations lose.
By abusing an American market that gives corporations the freedom to engage in such transactions, Goldman is limiting this freedom for future companies.
Not every American financial institution lies, cheats and steals but it is the likes of Goldman Sachs and Lehman Brothers that seem to represent them in the realm of politics.
Liberal senators and representatives should not use Goldman as the quintessential financial firm in their push for banking regulation, nor should conservative senators look at Goldman as a rogue firm. There are a multitude of problems on Wall Street and these problems transcend the happenings of this most recent financial crisis.
A positive we can take from the Goldman charge is the fact that one of the vice presidents was also charged. It seems like the SEC has taken the necessary steps to create accountability on Wall Street. The Daily 49er has long felt that specific individuals need to be held accountable for the actions of big financial companies.
Later in his article, Taibbi declared, “[Goldman] is a huge, highly sophisticated engine for converting the useful, deployed wealth of society into the least useful, most wasteful and insoluble substance on Earth — pure profit for rich individuals.”
The ability to earn large amounts of money is not what’s wrong with American capitalism. No one should be angry at the wealthy simply because they are wealthy. What’s wrong with American capitalism is represented in cases filed by the SEC. Lying, cheating, stealing and just general immorality need to be eliminated from Wall Street — not the ability to make large amounts of money.
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