Harvey Silverglate checks in on the Goldman Sachs case:
I think you have it just right. The ideologues, especially some New York Times reporters and liberal columnists, would like to deem Goldman’s conduct “fraud” of either the civil and/or criminal variety. From time to time, a sane and informed voice peeks through the miasma and realizes what is really going on — the SEC is trying to salvage is reputation by blaming the economic melt-down on fraudsters, rather than on the incompetence of Congress, the SEC, the Treasury Department, the Fed (why did Alan Greenspan keep interest rates so low for so long? one might usefully ask) and other regulators or would-be regulators.
While there was doubtless some fraud (for example, in the writing or sub-prime mortgages to home purchasers without adequate income or even jobs), a large measure of the blame for the meltdown goes to our government, that allowed the casino to proceed and that even provided low-interest-rate money to help finance it. Those of us who took notice, as the price of houses on our respective blocks continued to escalate to the point where we never could have bought our homes had we not done so years earlier (and way beyond what we knew the houses to be worth), realized something was amiss. But the big boys on Wall Street, blinded by the huge paydays and bonuses, just kept betting more and more.
The creation of synthetic vehicles, the only purpose of which appears to have been to magnify the amount of the bet without requiring a huge amount of capital to make the bet, made the situation infinitely worse, for the vehicles were so non-transparent that they achieved higher ratings from the rating agencies (or the underlying securities did) than they intrinsically deserved. And so the combination of incredible leverage, plus non-transparency of the underlying securities, was a formula for disaster. This is the great failure of government regulators (as well as the independent rating agencies, by the way, such as Standard & Poor, Moody’s, and so forth).
What bothers me is that the SEC is being allowed to get away with absolving its own grotesque errors and incompetence by shouting “fraud.” You can fool some of the people all of the time, and all of the people some of the time, but….there comes a time when the game is up. To prevent this from happening again, sane government regulation of these markets is required, period.
Watch Silverglate talk about Goldman its similarities to the case of Michael Milken, whom Silverglate represented.