Born in the Bronx, raised in Brooklyn, valedictorian at Thomas Jefferson High School, B.A. from Harvard College, J.D. from Harvard Law, Board Member of the Robin Hood Foundation, Chief Executive Officer and Chairman of Goldman Sachs. A perfect background and training for Lloyd Blankfein, who by now should be an outlaw on the run, pursued by FBI agents for plundering clients and destroying small countries in a successful bid for enormous personal wealth.
On April 16, 2010, Goldman Sachs, a bank holding company clearly gone rogue, was justly charged by a newly-energized Securities and Exchange Commission with deceiving its own clients by selling them worthless mortgage securities, marketed as Abacus, and secretly designed for this very purpose by legendary hedge-fund manager, John Paulson, whose firm, Paulson & Co. then made a killing by betting on the collapse of those same securities. Lloyd Blankfein apparently eagerly pocketed enormous bonuses racked up by this reverse Robin Hood enterprise. ‘Oh the suckers!’, he must have gloated, as his clients lost their shirts in his rigged casino, and as he licked his lips, all the while stuffing large dollar bills into his bulging pockets.
The SEC evidently is no longer asleep at the wheel, as was the case throughout the two terms of President George W. Bush. Even so, it still has a long way to go before it fires on all its available cylinders. So far it has filed only civil charges against Goldman Sachs, and just one of its traders, Fabrice Tourre, not the criminal charges that should be leveled against each and every member of Goldman Sachs’ Board of Directors.
So far, the shares of Goldman Sachs have fallen only 13 per cent. The ultimate goal should be to wipe out the company completely, through the application of massive fines and of class action lawsuits on behalf of defrauded clients. That is what one might call just deserts for a criminal enterprise that masquerades as a law abiding capitalist enterprise. Whether that will happen, given the lobbying monies that pass from Goldman Sachs into the pockets of politicians on Capitol Hill, will provide an excellent measure of just how far the rule of law has been eroded by state capitalism in the United States.
Lynn Stout (The New York Times April 16, 2010) neatly pinpoints the nature of the opportunity exploited by Lloyd Blankfein on behalf of Goldman Sachs:
“Under the rules of insurance law, you can only buy fire insurance on a house if you actually own the house in question. Similarly (until 2000) under the traditional legal rules regulating derivatives trading, the only parties who could use off-exchange derivatives to bet against the Abacus deal would be parties who actually held investments in Abacus. By eliminating this centuries-old rule in the name of modernization (the Republican-majority in Congress together with President Clinton) created enormous problems of moral hazard in the off-exchange derivatives market. Imagine, for example, if we allow the unscrupulous to buy fire insurance on other people’s houses; the incidence of arson would rise dramatically. Similarly, by allowing an unscrupulous hedge fund to use derivatives to bet against an Abacus investment vehicle it didn’t own, the Commodities Futures Modernization Act invited that hedge fund to work with Goldman Sachs to make sure that Abacus would indeed fail – as it did.”
As federal prosecutors struggle to nail down their civil (and hopefully their criminal) charges against Blankfein and Goldman Sachs, Congress and the President should address the problem of moral hazard in derivatives betting by repealing the Commodities Futures Modernization Act. Whether they will do so is a good test of ethics in government. Do not hold your breath, Dear Readers. An awful lot of Goldman Sachs dollars are now surely floating around shadowy corridors on Capital Hill. And high-valued dollar bills never lie for very long on those dirty pavements.
Hat Tip to Maggie