Justice probe of Goldman goes beyond deals cited by SEC

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    is the title of this breaking story which went up on the Washington Post web site at 8:43 EDT this evening. Citing law enforcement sources, the article notes in its second graf:

    The Justice Department probe began weeks ago and is essentially on a parallel track with the SEC investigation, the sources said. While prosecutors and investigators are focusing on some of the same mortgage-related transactions as the SEC, the sources said, the Justice Department has cast a wider net.

    Further down we read

    The U.S. attorney’s office in Manhattan and the FBI are conducting the criminal probe, which sources said has been underway for weeks. Sources said a decision on whether to file any charges has not been made.

    Nothing in the story is specific about what other transactions/activities are under scrutiny.    Meanwhile, the value of Goldman is taking a beating:  

    Banking analysts at Standard & Poor’s and Bank of America-Merrill Lynch downgraded Goldman’s stock on Friday.

     The stock is down 20% since the SEC probe was announced, a loss for shareholders of more than $20 billion.

    One more brief quote:

    The threat of criminal prosecution can doom a business. A criminal case ruined the Wall Street firm Drexel Burnham Lambert in the 1980s even though it settled.

    The story discusses some overlap between Bear, Stearns and Goldman, particularly with respect to Abacus, the program that was involved in the failed Justice prosecution of Bear, Stearns.

    Goldman is of course a much larger entity.  It is also incredibly well connected politically, its top officials having included over the years prominent Republicans like John Whitehead (#2 at State under George Schultz) and Henry Paulson,  and such Democrats as Jon Corzine and Robert Rubin.

    If the firm turns out to be corrupt, then the question will be raised how far back that corruption goes, and who gets tainted.

    This is a story worth watching as it develops.

    Let me add a few observations/reactions:

    1.  As a Haverford Alumnus, I have long been aware of Goldman Sachs.  John Whitehead was the long time chair of our Board of Managers, I have known him for three decades.  People with whom I attended Haverford have gone on to work at Goldman.  Whitehead and others have been very generous to the College.

    2.  I have long felt that the investment banking sector of the economy needed regulation.   And I was concerned at the number of people who wound up in top positions, particularly at Treasury, who had come out of that environment.  I mentally go back to the one Republican in Kennedy’s original cabinet, Douglas Dillon of Dillon, Read.  I think we should have concern that such people may be overly concerned with the industry from which they have come possibly at the expense of the interests of the American people.  Here I am reminded of Eisenhower’s Sec Def, a man named Wilson who had headed GM, who once said that when he ran GM he operated on the basis that what was good for GM was good for the country.  As one who values the labor movement I cannot agree with that sentiment, and certainly not at the time the statement was made.

    3.  We are long overdue for rolling back the accumulated power of the wealthy.  It is critical that we use the current moment to do as much of that as is possible.

    Peace.

    • Teddy Goodson

      Ah, yes, at the time we had two Charles Wilsons at the tiptop of American industry: Engine Charlie from GM and Electric Charlie from GE. Engine Charlie was to turn the government into as efficient an operation as General Motors. You know, “run government like a business.” Streamline procurement, make personnel more productive, $ave Money. We never seem to learn that Government is not the same as business, it is fundamentally based on a different business plan.