Why Wall Street ‘Gets Away with Murder’

A against Citigroup:

Securities law experts say there are ways that the S.E.C. might be able to strengthen its enforcement efforts and make Wall Street fearful of penalties that sting. Jill Gross, a law professor and director of the Investor Rights Clinic at Pace University, said that as a result of the judge’s decision, companies were now likely to have to admit some kind of fault in their settlements.

“It doesn’t need to be a full admission of all culpability,” Ms. Gross said, “but they are going to need some type of admission that something went awry.”

Goldman Sachs did so last year when it settled S.E.C. charges similar to the case against Citigroup that Judge Rakoff rejected. Both firms were charged with selling a mortgage bond investment without telling investors that the people assembling the portfolio were betting that it would drop in value.

In its S.E.C. settlement, Goldman acknowledged that its marketing materials “contained incomplete information,” and that it committed “a mistake” in leaving the full disclosures out of its marketing documents.

I don’t know what the New York Times meant to say in this piece but it only underscored that, while bankers are complaining about the burden of anti-business regulation, the S.E.C. enforcement regime is actually a farce. Not that the two aren’t related.  If the S.E.C. legal and enforcement regime had teeth, lawmakers would not have to keep making new laws to hide the fact the first ones didn’t work and CEOs could play golf instead of complain

What is the difference between Citigroup giving no examples of what it did that brought about the settlement and Goldman Sachs offering excuses like its materials ‘contained incomplete information’ or we made a ‘mistake’ not giving full disclosure in marketing documents.

Neither company made a ‘mistake.’ They knew what they were doing.  Goldman and otherinvestment houses had clients who wanted to ‘short’ (sell the home mortgage securities market by betting that it would collapse.  So they got busy putting together some of the worst mortgages they found and selling them ‘long’ to other investors betting that the market would go up.  Goldman had clients betting against each other and not knowing it.

In Las Vegas, this would be called a rigged game.  It is illegal.  The action go farther than making mistakes in marketing materials or even in tiny prospectus print.  Transparency and disclosure are touted are guards against fraud and phony schemes like this.  The errors here were only a symptom of a much larger transgression.  Not only should Goldman be punished for disclosure errors, it should be openly found guilty of violating security laws.

People all over the country are asking why Wall Street officials haven’t been charged indicted like bankers were in the late 1980s S&L scandal.  The derivative market has functioned on private contracts between firms and individuals.  Wall Street believes the investors who buy these products are savvy and wealthy enough to handle negative consequences.  However, this time the consequences went far beyond a clubby group of financiers on Wall Street, bringing down the global financial system, robbing retirement funds of years of returns, aggravating unemployment and diverting financing from innovation, entrepreneurs and small business.

Goldman can’t seriously believe Americans will believe that the company’s near collapse resulted from a few ‘marketing errors’?

Then again, the Republican Party has diligently hyped up a strange meme saying liberal politics are worse for Wall Street than bankers lying.




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