USAToday Observes that Wall Street Banks “Are No Longer in the Game for Their Clients but for Themselves”

 

Paulson, the hedge fund manager who shorted the Goldman Sachs CDO that is the subject of the SEC’s enforcement action, and the other “shorts” were “driven by disgust and indignation ‘ against Wall Street and its corrupt system designed to generate undeserved bonuses,” according to USAToday’s article entitled “Goldman case shows what’s the matter with Wall Street.”

“The SEC’s case shows how a very cynical Goldman saw these investors not as a clarion call to fix a broken mortgage finance system ? but as yet another way to make money. All it had to do was find some dupe to take the other side of the bet, and it could make easy money as the middleman,” says USAToday.

The conclusion that investors have taken to heart, according to USAToday, is that Wall Street banks “are no longer in the game for their clients but for themselves.”

In the Goldman Sachs fraud case, the SEC’s “smoking gun” e-mail is by 31-year-old Goldman VP Fabrice Tourre. Tourre, who structured and pitched the CDO to investors without disclosing Paulson’s involvement, and who apparently refers to himself in the third person as “the fabulous Fab,” wrote: “The whole building is about to collapse anytime now. ‘ Only potential survivor, the fabulous Fab … standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstrosities.”

USAToday opined: “At a minimum, Washington needs to bring these exotic investment products, known as derivatives, into the open. That would help buyers better see their risks. More important, it might help provide a means to spot and block instruments that can turn a manageable problem into a national crisis, as happened with risky mortgages.”

President Obama’s financial reform package proposes to do that. Some Republicans have said the proposed reform would not do enough to solve the problems, but so far, the only really specific complaint from Republicans is that the proposed reform would allow another $50 billion “bailout,” implying that there would be another “taxpayer bailout.” But that is false and misleading. Under the actual proposal, the $50 billion would be paid by Wall Street, not taxpayers. Even so, President Obama has signaled a willingness to accommodate this ridiculous objection by eliminating the $50 billion.

Even William Kristol, the conservative FoxNews commentator, recognizes that radical financial reform is necessary. On last week’s FoxNews Sunday, Kristol had this exchange with Mara Liasson:

Liasson: Republicans are for breaking up the big banks?
Kristol: They should think about breaking up the banks.?Liasson: That would be a truly’ then they would join with Bernie Sanders and the left wing of the Democratic Party.
Kristol: Yeah. You’ve got to be imaginative sometimes, huh?

Otherwise, we can expect more of the same. As USAToday concludes: “[The Goldman Sachs case] is a revolting story that simply has to be told. And it’s not likely to be the last.