"The welfare of humanity is always the alibi of tyrants" - Albert Camus

Monday, July 26, 2010

Goldman Sachs and Democrats: Cronyism Triumphs At The Expense Of Free Markets

About three months ago, I had written a couple of  articles chronicling the incestuous relationship between Goldman Sachs (GS) and the Democrat party.  The events of the past week solidified my arguments even more.  

For those who have not been following the aftermath of the crisis of 2008, the government had been litigating GS for allegations of mortgage securities fraud.  Thursday's settlement—in which Goldman agreed to pay a $550 million fine, but didn't have to admit it committed fraud—capped one of the most closely watched cases in the SEC's 76-year history. The agency had charged Goldman with intentionally duping clients by selling a mortgage-security product that secretly was designed by another Goldman client betting that the housing market would crash.

Now, $550 million fine seems a tad high to many, but remember that GS has $162 billion in liquid assets.  In other words, at less than one third of one percent of its assets, this was a drop in the bucket for GS whose stock rallied on Thursday with the news of this historic settlement.  They got off cheap; but this story isn't entirely about that. 

The current controversy erupted when it became apparent that the two Republican members of the Securities and Exchange Commission who did not want to settle (because it would mean dilution of the more serious fraud charges) were overridden by the three Democrat members.  I will not bore you with the details of the alleged violations which you can read on the SEC site.

According to Wall Street Journal, Republican Commissioner Kathleen Casey questioned the SEC staff last Thursday on their decision to abandon the strongest fraud charge and strike a settlement involving a lesser allegation. 

The political split over the case comes at a time when the agency remains under fire for its policing of the financial markets during the financial crisis.  The division in the settlement vote casts a cloud over what the SEC had claimed on Thursday was a major victory. Investors had expected any SEC fine in the case to be $1 billion or more.  Why did the Democrat members of SEC jump the gun, just before the Wall Street bill passed the Senate?

In the latest development, the Securities and Exchange Commission inspector general has agreed to a request from Rep. Darrell Issa, R-Calif., to probe the timing and political motivations of the settlement. 
Issa requested that I.G. Kotz examine whether there was any political reason that the SEC’s announcement of the settlement came two hours after the Senate approved legislation overhauling financial regulation.

This is looking messier by the day for Democrats - the darlings of G.S. - in the light of their incestuous relationship with the key players in this whole affair.  Re-read my posts from April and May for a refresher!

No comments: