Too evil to live

While much of the world news at the end of last week was focused on the skyborne ash that has brought international air travel to a near standstill, another volcano erupted that may have more significant ramifications for the future of the American people. At last, at long last, the Securities and Exchange Commission announced it was going to take action against one of the bankster organizations responsible for the 2008 financial crisis. In fact, it was filing a lawsuit against the political capo dei tutti capi of Wall Street, Goldman Sachs.

As Matt Taibbi of Rolling Stone and others have chronicled, Goldman Sachs is easily the most evil of America's bankster organizations. It specializes in playing both sides of a trade and regularly engages in trading practices that are considered by most people to be unethical, if not outright illegal. It is extremely well-connected in Washington; many of the top bureaucrats at the U.S. Treasury and top executives at the Federal Reserve have close ties with Goldman. For example, Henry Paulson, the Bush administration's Treasury secretary who orchestrated the 2008 banking bailout, was formerly the CEO of Goldman Sachs, while Adam Storch, Mark Patterson, Gary Gensler and Neel Kashkari are all Goldman executives given high-level government positions in the Obama administration.

The lawsuit filed by the SEC is a relatively small one considering the gargantuan amount of fraud committed by the various Wall Street banks over the last decade. Moreover, it is a civil suit rather than the criminal charges that Karl Denninger of the Market Ticker and other informed observers have been calling for ever since the "too big to fail" policy was announced. But that did not stop the Goldman gang from immediately leaping to the vampire squid's defense, vigorously protesting that Goldman had done nothing illegal, that if Goldman had done something illegal it hadn't meant to, and that the German bank in question deserved to get swindled anyhow.

William D. Cohan, a Goldman Sachs investor, actually dared to present the following argument in the New York Times:

Goldman also was not above working with a client like Paulson to structure a security – for a fee – that Paulson could then short. Would those European banks not have bought Abacus if they had known that Paulson had helped select what went inside it? Possibly. But no one forced them to buy Abacus. And if the housing market had soared for a few more years, and Paulson and Goldman had lost billions instead of making billions, would the SEC have filed a lawsuit against Abacus' investors?

Of course the SEC would not have filed a lawsuit, for the rather obvious reason that Abacus' investors were not responsible for structuring or selling the fraudulent security. Goldman was! Moreover, we already know what would have happened if Goldman had lost billions in the housing market – the federal government would have bailed it out at the expense of the taxpayers. We know this because the federal government not only bailed it out at the expense of taxpayers in 2008, but actually allowed Goldman to change its legal status from an investment bank to a commercial bank-holding company that September to permit it to receive TARP money.

I'm sure you will be shocked to learn that it is the aforementioned Mr. Kashkari, formerly of Goldman Sachs, who is responsible for running the TARP program. More interestingly, it is his ex–comrade in Goldman arms, Mr. Storch, who is now the COO of the enforcement division of the Securities and Exchange Commission. Yes, the very same SEC that just filed a lawsuit against Goldman.

This confluence of facts and of ex–Goldman employees suggests to me that contra the stock market's judgment, which on Friday sent Goldman stock down 10 percent, the civil lawsuit is intended to defang the legion of furious institutional investors who suspect, quite likely correctly, that they were shamelessly and illegally defrauded by the vampire squid. The fact that Goldman arranged to place a squidling at the enforcement division in the last six months – Storch was only named to his present position at the SEC the second week of October last year – indicates that it knows it's in too much trouble to expect to escape unscathed.

And while there is talk that Goldman is going to boldly fight this lawsuit rather than settle it, that is little more than spin for the shallow minds of the financial media. As soon as the story falls from the front pages of The Wall Street Journal, it seems probable that Goldman will offer to pay a handsome fine consisting of billions of dollars so long as it is granted immunity from similar lawsuits. Perhaps a compensation fund will be set up. And how fortuitous it will be for the taxpayers that there should be an ex-Goldmanite sitting on the other side of the negotiating table, since the whole matter can be brought to a speedy and final end without subjecting the penal system to any additional expenses. Thus the vampire squid will survive.

There is, however, the possibility that something else is taking place here. Since the lawsuit was announced almost simultaneously with the Obama administration's financial-reform plan, it is possible that it is actually nothing more than a warning shot fired across the bow of Wall Street's most politically influential bank. While the plan, like most such plans, will almost surely benefit Wall Street at the expense of Main Street, there are nevertheless elements of it that might possibly get in the way of a bank making a few dollars, which normally has the financial community tearing its silk suits and proclaiming that Armageddon is nigh.

Having just survived and barely won a bruising battle for health-care reform, Obama doubtless has little desire to waste time and energy wrestling with the very lobby for whom he has imperiled his re-election. So, the lawsuit could simply be the administration's way of telling the banks to keep its lobbyists leashed and to stay out of the public discussion. We'll know this is the case if the financial-reform plan passes without a peep from the banks, followed by the quiet abandonment of the lawsuit a few months later.

What Obama should do, of course, is salvage his 2012 campaign by harpooning the vampire squid and, in doing so, reclaiming the affection of the American people. His decision to surround himself with squidlings indicates that he probably won't, but if he wants to win a second term, he should.