I think Carl Levin knows the dance underway. His investigation into the financial meltdown is over. He has forwarded his findingsto the Justice Department for civil or criminal action. And, now, I suspect he thinks there will be an attempt to bury the whole mess--and the specific role Goldman Sachs played in the scams that crashed the economy. So, Levin is keeping the heat on.
In an interview with the Financial Times, Levin says he has "real hope" that the government will pursue accusations that Goldman Sachs mislead investors and Congress:
Mr Levin added to that in an interview with the Financial Times on the Senate report, which examined Wall Street practices in the run-up to the crisis. The senator was confident officials were taking it seriously. “There’s real hope here that there’s going to be a good scrub by a number of law enforcement entities, so I am not pessimistic about this.”
The senator said Goldman’s payment of $550m to settle fraud allegations from the Securities and Exchange Commission in connection with the marketing of one structured debt product did not preclude other allegations. He said Goldman executives misled his committee but suggested they might have stopped short of lies with “wiggle words”.
“They obviously spent a lot of time parsing words,” he said, adding he was “not going to judge whether they committed perjury”[emphasis added].
Two points. As I see it, a veteran lawmaker like Levin, who knows how Washington works, does not go public with an interview in the Financial Times if he isn't concerned. It is pretty typical Washington-speak to say something along the lines that you are confident action is going to be taken--when you are not, and thus you take it public in a high-profile arena.
Second, in that vein, when you think someone lied to you or committed perjury, you lay that on the table by professing to not be making any judgement about whether perjury was committed. The message is clear, IMHO: Levin believes Goldman Sachs, and, in particular, CEO Lloyd Blankfein lied to Congress. He said as much when he released his findings:
"Our investigation found a financial snake pit rife with greed, conflicts of interest, and wrongdoing," said Levin.
This is not a trivial matter because, under the law, as a Levin memo pointed out:
Under the federal securities laws, investment banks that act as an underwriter or placement agent are liable for any material misrepresentations or omissions of material facts made in connection with a solicitation or sale of the securities to investors.
Recall briefly the findings on Goldman from the Levin committee investigation:
1. Securitizing High Risk Mortgages. From 2004 to 2007, in exchange for lucrative fees, Goldman Sachs helped lenders like Long Beach, Fremont, and New Century, securitize high risk, poor quality loans, obtain favorable credit ratings for the resulting residential mortgage backed securities (RMBS), and sell the RMBS securities to investors, pushing billions of dollars of risky mortgages into the financial system.
2. Magnifying Risk. Goldman Sachs magnified the impact of toxic mortgages on financial markets by re-securitizing RMBS securities in collateralized debt obligations (CDOs), referencing them in synthetic CDOs, selling the CDO securities to investors, and using credit default swaps and index trading to profit from the failure of the same RMBS and CDO securities it sold.
3. Shorting the Mortgage Market. As high risk mortgage delinquencies increased, and RMBS and CDO securities began to lose value, Goldman Sachs took a net short position on the mortgage market, remaining net short throughout 2007, and cashed in very large short positions, generating billions of dollars in gain.
4. Conflict Between Client and Proprietary Trading. In 2007, Goldman Sachs went beyond its role as market maker for clients seeking to buy or sell mortgage related securities, traded billions of dollars in mortgage related assets for the benefit of the firm without disclosing its proprietary positions to clients, and instructed its sales force to sell mortgage related assets, including high risk RMBS and CDO securities that Goldman Sachs wanted to get off its books, creating a conflict between the firm’s proprietary interests and the interests of its clients.
5. Abacus Transaction. Goldman Sachs structured, underwrote, and sold a synthetic CDO called Abacus 2007-AC1, did not disclose to the Moody’s analyst overseeing the rating of the CDO that a hedge fund client taking a short position in the CDO had helped to select the referenced assets, and also did not disclose that fact to other investors.
6. Using Naked Credit Default Swaps. Goldman Sachs used credit default swaps (CDS) on assets it did not own to bet against the mortgage market through single name and index CDS transactions, generating substantial revenues in the process.
I also think Levin is on the mark when it comes to the question of the $550 million Goldman paid to settle fraud allegations. At that time, I wrote that the fine was a slap-on-the-wrist. If I--or, in this case, Lloyd Blankfein--could pocket hundreds of millions of dollars in compensation, play a key role in a scam that cost millions of people their jobs, sent the economy into one of the worst economic tailspins in a half century, escape any personal jail time for that scam, not have to admit any wrongdoing and, then, pay a measly fine out of the corporate treasury, not my own pocket, I'd say, "where can I sign up?".
Levins says this:
He said even large settlements were not satisfactory without admissions of guilt. “If you’re the SEC getting half a billion dollars – if that’s the biggest settlement they’ve ever got – it looks like progress and accountability,” he said. “If you’re out there in the world getting stung by the activity as individuals, or if you’re the public looking at how much money these firms made during this period of time for which a settlement of that size isn’t particularly even a major reduction in their profits, it comes across as being less than accountability.”[emphasis]
I don't believe accountability is going to come--ever--until a whole slew of these people end by sharing jail cells with Raj Rajaratman.