The Guilty of Goldman and Abul Ghraib

One constant in outrageous behavior by American organizations is that only underlings are punished. Just as top people escaped responsibility in the Abu Ghraib tortures, the only culprit named so far in the massive Goldman Sachs fraud is a 31-year-old trader named Fabrice Tourre, who is on leave and facing Congressional grilling tomorrow.

Even after filing civil charges, the SEC, according to a former government regulator, has not "kicked into gear fully, or they'd be naming [Chairman Lloyd] Blankfein and other senior leaders of Goldman...they've only gone after a junior person. And if they were really in gear, there would be criminal charges here."

At the end of the day in the Abu Ghraib disgrace, Don Rumsfeld and Dick Cheney were embarrassed, the general of the military prison was demoted to colonel, but it was only low-ranking officers and soldiers who were put on trial and punished.

Rumseld said later he had twice offered to resign but that President Bush had refused to let him until after an election debacle two years later, and Jay Bybee, author of a Justice Department memo defining torture down, was named a Federal judge.

Now Blankfein, Goldman's leader, is deploying an army of lawyers and lobbyists to defiantly defend his firm, admitting only that it "participated in things that were clearly wrong and have reason to regret."

As Congress closes in on a financial regulation bill, the only certainty is that, whatever is put in place to curb excesses of greed that have damaged so many investors, those in charge will face no worse fate than taking their hundreds of millions in ill-gotten bonuses and retiring to a gilded life of leisure.

"Crime doesn't pay" is an old American aphorism. In the 21st century, it does--very well.

Update: David Brooks describes Goldman Sachs' choices in the Congressional hearings: "The firm can claim to be dumb but decent, like the rest of the establishment, and emphasize the times it lost money. Or it can present itself as smart and sleazy, and emphasize the times it made money at the expense of its clients. Goldman seems to have chosen dumb but decent, which is probably the smart narrative to get back in the establishment’s good graces, even if it is less accurate."

And a lot safer for its top brass.

Goldman Sachs' Stolen Umbrellas

As CIT goes bankrupt and Treasury Secretary Geithner warns today that the "damage caused by this crisis" will "take some time" to repair, a key Wall Street player has managed to weather the storm at the expense of an unwary, drenched public.

"All men are equal," E.M. Forster wrote a century ago, "all men, that is to say, who possess umbrellas." An old saying puts it more tartly: "The rain falls equally on the just and the unjust, but more on the just because the unjust have stolen their umbrellas."

According to the McClatchy Newspapers, Goldman Sachs spent years cornering the umbrella market:

In 2006 and 2007, they "peddled more than $40 billion in securities backed by at least 200,000 risky home mortgages, but never told the buyers it was secretly betting that a sharp drop in U.S. housing prices would send the value of those securities plummeting.

"Goldman's sales and its clandestine wagers, completed at the brink of the housing market meltdown, enabled the nation's premier investment bank to pass most of its potential losses to others before a flood of mortgage defaults staggered the U.S. and global economies.

"Only later did investors discover that what Goldman had promoted as triple-A rated investments were closer to junk."

Pension funds, insurance companies, labor unions and financial institutions have been hit with large losses as a five-month McClatchy investigation finds that "Goldman's failure to disclose that it made secret, exotic bets on an imminent housing crash may have violated securities laws."

Meanwhile, after raking in more than $23 billion of taxpayer money (most of it funneled from the AIG bailout), Goldman is repaying the $10 billion it received directly to escape federal limits on $20 billion in bonuses it wants to pay executives from more than $50 billion in expected revenue this year.

In these rainy days for the American economy, there is one place on Wall Street where everybody is staying very dry.

Wall St. Wins, We Lose, What Else is New?

Juggling money is still America's biggest growth industry, according to the new earnings boom for Goldman Sachs, Citigroup, JP Morgan Chase and Bank of America, who only months ago came to Washington to fill their begging bowls with taxpayer bailout funds.

Cranky Paul Krugman says such news "shows that Wall Street’s bad habits--above all, the system of compensation that helped cause the financial crisis--have not gone away" and "that by rescuing the financial system without reforming it, Washington has done nothing to protect us from a new crisis, and, in fact, has made another crisis more likely."

Back to business as usual, the big firms are generating huge profits from trading and underwriting securities to make up for the failure of those who are losing jobs to keep up with payments on mortgages and credit cards.

At the same time, the pain is being spread equally to prudent retirees who saved without gambling in the stock market but, thanks to the Fed's concern for Wall Street's ability to keep wheeling and dealing, are earning a fraction of one per cent on their hard-earned money, much of which will now go to keeping up the huge bonuses of those who shuffle it around.

Is this a great country or what?

Banks/Treasury Mating Dance

Wall Street and Washington are not known for subtleties, but bailout discourse is getting to be like the dialogue in a Jane Austen novel with coy hints, convoluted language and hidden meanings in every line.

In "a delicate balancing act," we are told, "The administration has decided to reveal some sensitive details of the stress tests now being completed" to offset rumors about some of the weakest institutions.

This breach of etiquette is prompted by recent declarations of some impoverished but proud banks that they are actually making money again and will pay back or decline future government charity.

Translation: Banks want the money but only without being told how to pay not only top executives but, as one returner of bailout cash puts it, "our best sales people, our best relationship bankers."

If Obama is Mr. Darcy in all this folderol, Goldman Sachs is turning out to be his Elizabeth Bennet, pridefully announcing plans to disdain further help: “We just think that operating our business without the government capital would be an easier thing to do. We’d be under less scrutiny, and under less pressure."

But Goldman's newfound haughtiness can't cover the fact that it has been kept afloat by billions of never-to-be-returned Federal Reserve money paying off AIG obligations at face value rather than deep discounts, as the Wall Street Journal observes:

"The point is that Goldman and other banks can't have it both ways. If they want taxpayers to save them, then they have to take fewer risks and become smaller. Either that, or we need a new financial resolution or bankruptcy process that lets these companies fail while protecting the larger banking system."

Meanwhile, the plots keep thickening and, unlike Jane Austen's works, are not guaranteed to have happy endings.

Warren Buffet Shows the Way

While Chris Dodd et al in Congress arm-wrestle with Henry Paulson on how to invest taxpayer money to rescue the financial system, the 78-year-old sage of Omaha is putting $5 billion into saving Goldman Sachs and getting a nice deal for the money, preferred shares and a 10 percent annual dividend, thank you very much.

Wall Street, which respects Buffet in the extreme, will undoubtedly be buoyed by his move on the theory that the master investor, unlike the bipartisan bumblers in Washington, knows what he's doing and is taking action rather than debating about it.

It might settle the impasse if the government could persuade Buffet, who has more money than he will ever need and plans to leave most of it to charity, to come to Washington and help oversee the $700 billion portfolio that taxpayers are being urged to acquire.

That would inspire confidence well beyond Wall Street.