The Levin Report Triggers Subpoena for Goldman Sachs

Senator Carl Levin's recent report issued by the U.S. Senate's Permanent Subcommittee on Investigations seems to have triggered an investigation of Goldman Sachs by the Manhattan District Attorney's office. (http://www.bloomberg.com/news/2011-06-02/goldman-said-to-get-subpoena-from-manhattan-prosecutor-over-senate-report.html) The report is explosive and could finally prod even Washington to go after the fraud and other potentially criminal activity perpetrated by Goldman and others in the years leading up to the crisis. The report also makes it pretty clear that top Goldman officials misled or even lied to Congress in testimony before the Levin subcommittee. As Matt Taibi had warned in his recent article in Rolling Stone, “Here it is, and the evidence has been gift-wrapped and left at the doorstep of federal prosecutors, evidence that doesn't leave much doubt: Goldman Sachs should stand trial.” Stock markets are starting to price in those criminal prosecutions: Goldman's stock price has fallen by 17% since the report was issued. Here's the deal: fraud was and still is rampant at the biggest financial institutions—it will be found wherever prosecutors choose to look. As my colleague Bill Black has been arguing, the largest institutions were run as “control frauds”, as criminal enterprises to enrich the top management. They took hundreds of millions of dollars each. They then used some of their loot to buy protection in Washington. They placed operatives in federal government, especially in the Treasury. They got their bail-outs that allowed them to concentrate power in the hands of the survivors—with the NY Fed and Treasury deciding which institutions would be saved and which would be allowed to be taken over as Goldman, Citi, Bank of America, and Wells Fargo consolidated their positions to become even bigger “too big to fail” institutions. This enabled them to prevent any real financial reform. They helped to guide Washington in the rescue, postponing reform. But the truth is—a truth we learned in the 1930s—that rescue and reform must take place simultaneously. If you first rescue financial institutions then you will never get the reforms. The saved institutions will argue that since the crisis is over, and since they have learned their lessons, no real reform will be necessary. And that is exactly what happened this time around—with the completely impotent Dodd-Frank reforms. Lloyd Blankfein was laughing all the way to the bank as he jacked up his bonuses. But Senator Levin (as well as the previous FCIC report) threw a monkey wrench into Wall Street's schemes. Get ready for some prosecutions and even more explosive revelations. As Bill Black says, we are all going to hear the “F” word (fraud) a lot in coming months.