Subject: Fight On, Goldman Sachs!
From: "Eric Schwerin" <[email-masked]>
To: "Hunter Biden" <[email-masked]>
Date: Tue, 27 Apr 2010 15:51:30 -0400

Fight On, Goldman Sachs!
Source: New York Times

By Frank Rich

April 24, 2010

Maybe Lloyd Blankfein was doing “God’s work” after all.

When the Goldman Sachs chief executive made that tone-deaf remark to  
an interviewer in November, he became the butt of a million insults,  
the ultimate symbol of Wall Street’s abdication of responsibility for  
its sleazy role in the Great Crash of ’08. But now we’ve learned that  
Blankfein was actually, if inadvertently, on the side of the angels.  
It’s his myopic, unrepentant truculence that left Goldman exposed to a  
Securities and Exchange Commission accusation of fraud that will be  
litigated in public rather than bought off in private. And it’s that  
S.E.C. legal action that has, in a single week, radically transformed  
the politics and prospects for financial reform in America.

In just that week, the Party of No’s intransigent campaign of  
obstruction and obfuscation went belly up. The Obama White House moved  
to get its act together with an alacrity lacking in its health care  
campaign, abruptly adding Thursday’s New York speech to the  
president’s schedule. The bipartisan Financial Crisis Inquiry  
Commission at last issued its first subpoena — to Moody’s, one of the  
rating agencies that for a fat fee slapped AAA ratings on the toxic  
garbage Goldman packaged and sold to benighted suckers on the other  
end of a huge bet placed by a favored client, the hedge fund player  
John Paulson.

Salutary as this rush of events is, it still adds up so far to just  
one small step for mankind. We don’t yet know how many loopholes  
lobbyists will slip into the bill-in-progress. We don’t yet know the  
outcome of the S.E.C. case, let alone what other much-needed legal  
pursuit of Wall Street may follow it. And we still don’t know what, if  
any, true correction lies ahead for the financial sector’s runaway  
casino culture — much of it legal — that turned a subprime-mortgage  
bubble in a handful of overheated American states into an  
international economic meltdown.

But before we get to those gloomy caveats, let’s smell a few roses.

The farcical spectacle of the Republican retreat has been particularly  
enjoyable. It was only last Sunday that Senator Mitch McConnell went  
on CNN to flog his big lie that the Senate reform bill somehow  
guaranteed bank bailouts — a talking point long ago concocted for the  
G.O.P. by its favorite spin strategist, Frank Luntz. McConnell’s House  
counterpart, John Boehner, was meanwhile waging a campaign to portray  
the Democrats as shills for Goldman, a major source of Obama donations  
and personnel. Never mind that the Bush White House chief of staff,  
Joshua Bolten, was a Goldman alumnus and that both McConnell and  
Boehner had voted for the very bailouts they now profess to abhor (a k  
a TARP) after a sales job by Henry Paulson, the Bush Treasury  
secretary who was Blankfein’s predecessor as Goldman’s C.E.O.

In another bit of hubris, McConnell boasted of a letter signed by his  
caucus pledging 41-vote unity to block the reform bill. But on Monday,  
Senator Bob Corker of Tennessee, a Republican who had been negotiating  
with his Democratic peers in good faith, took to the Senate floor to  
start breaking ranks with his dear leader. The bill at hand, Corker  
said, was “anything but” a mandate for bank bailouts. On Tuesday, the  
House G.O.P. leadership distributed a spreadsheet publicizing  
Goldman’s donations to Democrats, and this too backfired. Politico  
reported the next morning that Goldman’s political action committee  
donated more money to politicians in March than in all of 2009, most  
of it to Republicans. The total take for Boehner was double that of  
Harry Reid’s.

That afternoon Charles Grassley of Iowa, up for re-election this fall,  
became the first G.O.P. senator to vote with the Democrats on part of  
the pending package. Maybe someone showed him another spreadsheet — a  
Pew poll finding that even in a divided America 61 percent favor  
financial regulatory reform. The unity pledge in McConnell’s pocket  
was now worth as much as a mortgage-backed security.

The White House’s own shift last week, though far less momentous than  
the Republicans’, was also promising. A year ago, President Obama had  
delivered an address labeling the financial crisis a “perfect storm” —  
the term long favored by Robert Rubin, the discredited guru of bailed- 
out Citigroup and mentor to many on the White House economic team. At  
Cooper Union on Thursday, the president, while far from fiery, was no  
longer likening the calamity to a natural disaster beyond anyone’s  
control. He chastised those in the financial sector who saw the free  
market as “a free license to take whatever you can get, however you  
can get it.” He was no longer describing Blankfein, sitting before  
him, as a “very savvy” businessman — a compliment he had bestowed on  
him and Jamie Dimon of JPMorgan Chase just 10 weeks earlier.

Still, the Republicans had half a point when they indicted the White  
House for being too close to Goldman and its brethren. The truth is  
that both parties are too often in hock to the financial sector, and  
both parties bear responsibility for the meltdown. In response to a  
question from Jake Tapper of ABC News last weekend, Bill Clinton was  
right to say that he and two of his Treasury secretaries, Rubin and  
Lawrence Summers, “were wrong” to leave derivatives unregulated. They  
deserve regulation, Clinton said, because “sometimes people with a lot  
of money make stupid decisions and make it without transparency.”

Those same people also make smart decisions without transparency —  
smart for them, if not the country. Even if the reform bill does bring  
stringent regulation to derivatives — a big if — that won’t rectify  
capitalism’s worst “innovation” in our own Gilded Age: the advent of  
exotic, speculative “investments” that have no redeeming social value  
and are instead concocted to facilitate gambling for its own sake.  
Such are the Goldman instruments of mass financial destruction that  
paid off for John Paulson. In 2007 alone, according to Gregory  
Zuckerman in his book “The Greatest Trade Ever,” Paulson’s personal  
take amounted to over $10 million a day, “more than the earnings of J.  
K. Rowling, Oprah Winfrey and Tiger Woods put together.” That  
“financial alchemy,” as Zuckerman calls it, explains why the finance  
sector’s share of domestic corporate profits, never higher than 16  
percent until 1986, hit 41 percent in the last decade.

As many have said — though not many politicians in either party —  
something is fundamentally amiss in a financial culture that thrives  
on “products” that create nothing and produce nothing except new ways  
to make bigger bets and stack the deck in favor of the house. “At  
least in an actual casino, the damage is contained to gamblers,” wrote  
the financial journalist Roger Lowenstein in The Times Magazine last  
month. This catastrophe cost the economy eight million jobs.

Lowenstein argued for a transfer tax on financial trading, a reform  
that has found favor with Britain’s prime minister, Gordon Brown, if  
not our own Treasury secretary, Timothy Geithner. Equally compelling  
is the notion articulated by Ryan Avent, a blogger at The Economist,  
that “public anger” and “hooting derision” be increased to shame Wall  
Street into changing its ethos. This assumes, of course, that there is  
any capacity for shame. Perhaps the most productive tactic comes from  
Ted KAUFMAN, Democrat of Delaware, who is using his lame-duck  
residence in the Senate (as the appointee to Joe Biden’s old seat) to  
demand that we root out the “fraud and potential criminal conduct”  
that “were at the heart of the financial crisis.”

To achieve this overdue reckoning will require action — by the S.E.C.,  
the Justice Department and any other legal authority that wants to get  
into the act. That no one at Lehman Brothers has yet been held liable  
for its Enronesque bookkeeping deceit is appalling. That we still  
haven’t seen the e-mail and documents that would illuminate A.I.G.’s  
machinations with Goldman and the rest of its counterparties amounts  
to a cover-up. That investigative journalists have consistently been  
way ahead of the authorities, the S.E.C. included, in uncovering Wall  
Street’s foul play is a scandal. If this culture remains in place, the  
whole crisis will have gone to waste.

As a reminder of the unchastened status quo, Blankfein remains the  
gift that keeps on giving. On Thursday, The Financial Times reported  
that he had been calling clients to argue that the S.E.C. case against  
Goldman would ultimately “hurt America.” The opposing point of view  
was presented by Ira Glass on his radio show “This American Life” this  
month. With reporters from the nonprofit journalistic organization  
ProPublica, it told the story of another hedge fund, Magnetar, that  
gamed the housing bubble. Bankers who worked on Magnetar deals walked  
away with their huge bonuses well before disaster struck — or, as the  
program put it, “bankers made money even when they were buying things  
that eventually blew up the bank.” Not to mention the economy. And it  
was all legal.

To award the audience a bonus, “This American Life” concluded with a  
Broadway song commissioned from a co- author of the satirical musical  
“Avenue Q.” Titled “Bet Against the American Dream,” it distills a  
complex financial saga to its essence: Those who shorted the housing  
market shorted the country.

Go online, listen to it and laugh. But the fact remains that those who  
truly hurt America are laughing harder still, all the way to the bank.

Eric D. Schwerin
Rosemont Seneca Partners, LLC
1010 Wisconsin Ave., NW
Suite 705
Washington, DC 20007
(202) 333-1880
[email-masked]
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