Senator Levin Slams Department of Justice's Inaction Against Goldman Sachs

August 10, 2012

Subcommittee Chairman Carl Levin ,D-MI, questi...

Subcommittee Chairman Carl Levin ,D-MI, questions Daniel Sparks, a former Goldman Sachs partner who ran the mortgage department, on Capitol Hill in Washington, DC, April 27, 2010, during a Senate Homeland and Secruity and Government Affairs Committee Permanent Subcommittee on Investigations. US senators demanded answers on what caused the 2008 global economic meltdown and grilled Goldman Sachs executives on the investment giant's alleged role in the collapse. (Image credit: AFP via @daylife)

There's simply no polite way to put it: Senator Levin is pissed.

Michigan Senator Carl Levin (D) is a graduate from Harvard Law School and was first elected to the U.S. Senate in 1978, and has continued in office since.  He is Chair of the Senate Armed Services Committee and the Permanent Subcommittee on Investigations; and he serves as the senior Democrat on the  Homeland Security and Governmental Affairs Committee. He's as much of a career politician as there is these days - notwithstanding that he often seems genuinely frustrated with the games that go on in Congress and Wall Street.

On August 10, 2012, Levin issued a statement responding to the announcement by the United States Department of Justice that it was declining to prosecute Goldman Sachs for matters that were nationally televised during the appearance of a number of the firm's executives before Levin's Permanent Subcommittee on Investigations.  You all should remember that stuff about Goldman's alleged conflicts of interest and Abacus and Paulson and subprime mortgages and Fabulous Fab and - well, tell you what, if you don't recall, then what's the point in my retelling that sordid tale?

Rather than extract Levin's relatively short press release, here it is in full text: "Sen. Levin Statement on DOJ Announcement on Goldman Sachs" (August 10, 2012):

WASHINGTON - Senate Permanent Subcommittee on Investigations Chairman Carl Levin, D-Mich., issued the following statement on the Department of Justice's announcement regarding Goldman Sachs:

"Our investigation of the origins of the financial crisis revealed wrongdoing and failures among mortgage lenders, banking regulators, credit rating agencies and investment banks. One of those investment banks, Goldman Sachs, created complex securities that included "junk" from its own inventory that it wanted to get rid of. It misled investors by claiming its interests in those securities were "aligned" with theirs while at the same time it was betting heavily against those same securities, and therefore against its own clients, to its own substantial profit. Its actions did immense harm to its clients, and helped create the financial crisis that nearly plunged us into a second Great Depression.

"Those are the facts the subcommittee found. Whether the decision by the Department of Justice is the product of weak laws or weak enforcement, Goldman Sachs' actions were deceptive and immoral. That's why I and others fought so hard to include tough new conflict-of-interest provisions in the Dodd-Frank Wall Street reform law, to help ensure that Wall Street could no longer engage in such blatant behavior.

"Yesterday's announcement makes it even more important that regulators implement Dodd-Frank with rules that do not water down it down, and that they enforce those rules with vigor. The integrity of our financial markets and the strength of our economy demand that we make sure that actions such as Goldman Sachs' and other recently discovered misdeeds by financial institutions are ended."

Bill Singer's Comment

As I contemporaneously noted during the Senate hearings on Goldman Sachs, too many of the Senators questions were inartful, most of the questioners seemed clueless, and the folks answering were evasive.  I opined then and seem vindicated today, that nothing substantive would likely come out of that embarrassment of a public circus.  Those hearings were a waste of time and may well have compromised any subsequent federal criminal prosecution - many of the questions were so poorly compounded as to provide refuge for those answering.  We needed an intense federal investigation; instead, we got political circus.  Like what else is new?

I have long expressed my contempt for Goldman Sachs' conduct in the underlying matters that gave rise to the Senate's hearing.  More than two years ago, during the ballyhoo attendant to the then ongoing Securities and Exchange Commission. v. Goldman Sachs, these were my concluding observations in "SEC v. Goldman Sachs: Regime Change or Crowd Control?" ("" April 10, 2010)

No Slam Dunk Case

As such, the SEC does not have a slam dunk case.  Further, given Goldman's deep pockets, one should expect a robust defense.

I still wonder if SEC v. Goldman Sachs is just so much political theater.  In Act I, the SEC and Congress throw the rabble just a small slice of bloody, red meat. In Act II there is a multi-million dollar settlement, a cloud of harmless dust, and, after a few calendar pages are pulled off the pad, things pretty much get back to usual - with some juicy campaign contributions down the road

Forgive an old Wall Street veteran's cynicism.  After some three decades of sitting through these staged dramas, I've become a bit jaded.  Like I said at the beginning, is this about regime change or crowd control?

Guess we got crowd control.  Senator Levin and I seem to agree on at least that much.

So, yeah, sure, the good Senator from Michigan is upset.  He wails about Goldman Sachs having created junk and engaging in "actions [that] did immense harm to its clients, and helped create the financial crisis that nearly plunged us into a second Great Depression." But, honestly, where was the good Senator and all his saintly colleagues when Goldman Sachs and others were mixing the toxic stew of junk?  And where were all these outraged politicos when it came to slamming the doors in the faces of the lobbyists from Wall Street and refusing to accept a single penny form the folks that they now point the finger of blame at?

Oh, but Senator Levin says that Goldman Sach's actions was deceptive and immoral - as if, what, that opprobrium cannot be slung at many who sit in the Senate and the House of Representatives?  Given Senator Levin's legal training at Harvard Law School, he, of all folks, should know that our criminal laws do not necessarily provide for the indictment of all who are merely deceptive and immoral.  If that were the case, many of the Senators colleagues might well be cooling their heels in jail.  And, puhlease, don't get me started on the issue of deception of one's family and the immorality of one's conduct when it comes to Congress's sordid recent past history of extramarital affairs, inappropriate online posts, and playing footsie in public bathrooms.

As to Senator Levin's final commentary in his press release, methinks that he foolishly expects that Dodd-Frank will protect us and that our financial markets' regulators have the capacity to  "enforce those rules with vigor." Vigor?  I wish the Senator would read my Street Sweeper Blog: "Judge Rakoff's Wall Street Zombies Arise In FINRA Citi Settlement: (March 19, 2012), in which, among other commentary, I concluded with these points:

Second Circuit Victory for SEC and Citi

On December 15, 2011, the SEC filed a Notice of Appeal seeking a ruling by the United States Court of Appeals for the Second Circuit that would reverse Judge Rakoff's rejection of the proposed consent judgment and his order directing the parties to prepare for trial in July 2012. In his public comment on the appeal, SEC Enforcement Direct Robert Khuzami argued that Judge Rakoff was

incorrect in requiring an admission of facts - or a trial - as a condition of approving a proposed consent judgment, particularly where the agency provided the court with information laying out the reasoned basis for its conclusions. . .

On March 15, 2012, Khuzami and his SEC got its wish.  The Second Circuit set aside Judge Rakoff's rejection of the settlement. As I commented on the SEC's victory in "The SEC Couldn't Stop Madoff or Stanford But Jams Up Judge Rakoff Over Citigroup Settlement" (" Street Sweeper" March 15, 2012):

We now find ourselves in an Alice-In-Wonderland world where the Circuit Court seems to agree that Rakoff should not be required to merely rubber stamp the SEC's settlement but, on the other hand, the judge should defer to the SEC's assessment that the settlement is fair.  A fine enough proposition but one that seems made in a vacuum of recent history.

The SEC has run off these cookie-cutter settlements without admission of liability for decades.  It is a bankrupt approach to regulation that partially contributed to the onset of the Great Recession and seems likely to saddle our society with a future filled with more impotent responses. If this regulatory policy is fair and effective, then why has it only left a swath of devastation in its historic path?

Recidivist Zombies Arise!

Clearly this never-ending predilection for the expediency of tepid settlements by Wall Street's cops shows no signs of ending.  Even as the smoke is still in the air from the SEC's barrage against Rakoff, we see yet more proof that this bankrupt regulatory policy continues unabated - not only at Wall Street's federal regulator but even at the industry's self-regulator FINRA.

Having rebuffed one federal judge's principled rejection of a settlement, those charged with regulating our financial markets now seem emboldened to permit the big boys to write out large checks for fines, which are ultimately paid by public shareholders, and without one word of meaningful admission of wrongdoing.

Wall Street's Too-Big-To-Fail sure as hell must find these developments encouraging.  The likes of JP Morgan, Goldman Sachs, Bank of America, Morgan Stanley, and their ilk can set up a spreadsheet and do the cost-benefits analysis.  Of course, for the small fry, I'm not so sure that all these ardent advocates at the SEC and FINRA will feel the same about their not having to admit wrongdoing.  As to this checkbook diplomacy approach to violations, I doubt that the little guys' matters reach the deductible.

Failing to contain this counter-productive and discredited regulatory practice at the SEC, we now see that it retains its vibrancy at FINRA.  Rakoff's zombies have arisen in force. Sadly, both the SEC and FINRA still think that such mealy-mouthed settlements justify self-congratulatory press releases.

After some 34 years of service in the Senate, Carl Levin is angry but, yet, he still thinks that Congress can legislate while subject to the corrosive corruption of lobbying and he still thinks that federal regulators have the political will to truly take on (and take down) the too-big-to-fail.  As if Dodd-Frank will not be eviscerated by influence peddlers.  As if the voices of meaningful Wall Street reform were not long ago drowned out and now silenced.

Last one out of the Senate and DOJ, please, do me a favor, turn off the lights. This dance is over. Those of us who cast the votes long ago gave up on the whole concept of "change." You guys don't want it. It's all a game.  Senator Levin, you think you're pissed?  How do you think we all feel?