One of the darker amusements the week provided - if you go in for this sort of thing - was the spectacle of Wall Street executives and other defenders of the faith huffing and puffing, raging and roaring and otherwise decrying the pinheads and know-nothings at the U.S. Securities and Exchange Commission for charging Goldman Sachs, the New York investment bank and Ubermeister of the Universe, with fraud.
For people who have been immersed in 13th-century texts about alchemy - not that Wall Street is so different - the SEC lawsuit contends that in April of 2007, Goldman and one of its vice-presidents, Fabrice Tourre, knowingly sold a collateralized debt obligation (a bundle of mortgages, some of which were "shitty," to use the word a congresswoman employed on TV last Tuesday) to two European banks.
The problem, the SEC says, is that Goldman failed to disclose to the buying banks that Paulson & Co., a hedge fund, was betting that the investment would fail. The Europeans lost about $1-billion. The Paulson fund, by contrast, made $1-billon on the deal - increasing its value sixfold that year.
The lawsuit is the Baby Huey of securities-fraud cases - simple but dangerous - and has raised the ire of the bonuserati. The complaints generally take the same line: That the SEC is doing Barack Obama's White House's bidding and unfairly harassing Wall Street (it was a zero-sum transaction!) because the Democrats need to blame someone for the financial crisis that people really brought upon themselves, especially now that midterm elections are six months away.
I'm paraphrasing. But I think I have that right.
Kenneth Griffin, the founder of the Citadel Investment Group, has said the case was "childish" because it intended to make a one-deal example of the king of Wall Street. (Goldman Sachs's net income last quarter almost doubled, to $3.29-billion). Lloyd Blankfein, the chief executive officer of Goldman, haughtily denied the charges.
Hovering over the case is the spectre of the 1,400-page financial-regulation bill the Democrats are trying to whisk through Congress. The plutocracy and its pals insist the bill will bankrupt the nation. A fraud trial would be treason. What's good for Goldman is good for America, etc.
Impoverished commoner that I am, I labour under the delusional notion that the worst financial crisis in 70 years occurred because no one, not even Goldman, understood how complex capitalism had become. As a result, I have this even crazier idea that a trial, conducted in open court, in front of the ravenous eye of the public press, for all and sundry to see, is exactly what the financial system needs.
Think about that. It might be like the O.J. trial, except that … well, okay, it'll be about numbers. But it could be fun anyway.
Suddenly the public will have a chance to see how powerful hedge funds actually work. We'll get to see - probably with a PowerPoint presentation or two - how John Paulson, the hedge-fund manager, asked Goldman to design a short-sell investment for him, and then got to insert components that were more likely to fail, even though Goldman claimed the vehicle was designed by an independent company.
We'll get to see how Goldman and Mr. Tourre then sold it to a bunch of "sophisticated investors" on the grounds it would rise in value. That's what the SEC alleges. We'll be able to revise our definition of the phrase "sophisticated investor," possibly by adding the words "shark" and "boneheaded" simultaneously.
The transparency of banks will get a full inspection. The role of the rating agencies such as Moody's, which gave the hollowed-out investment a AAA rating, will get a thorough airing. That will be like cleaning out a really filthy bathtub.
If all is as well with the financial system as the apologists on Wall Street say, just a good clean game of roughhouse shinny, then why do the optics look so compromised? You know the old saying: If it looks like a duck and walks like a duck and sounds like a duck, it probably smells like duck crap.
Plus it will be fabulously entertaining. But don't take my word for it. For a preview of how thrilling Goldman vs. Baby Huey will be, one only needed to watch the U.S. Senate Affairs Subcommittee on Investigations roast Goldman executives on C-Span this week.
It was endlessly fascinating, and I'm not just talking about committee chairman Carl Levin's comb-over, which deserves an investigation of its own.
There was Senator Claire McCaskill, Democrat from Missouri, dressed and talking like the chairman of a PTA committee. She tore into Daniel Sparks, the besuited former head of the mortgage department at Goldman's of Wall Street. She talked to him like he was a bookie in Times Square.
"What is the vig you make, if all you're trying to do is not playing, but just staying close to home?" Ms. McCaskill kept saying, like she was arguing with an obstinate husband.
She was showboating for the cameras, but she also seemed riled. She has a right to be: A lot of her constituents in Missouri lost their jobs and their savings as a result of the downturn.
And there was Mr. Sparks, his massive head like a tombstone on top of his necktie, answering as slowly and unhelpfully as he could, implying every question was incomprehensible, drawing the hearings out - and yet begging on national TV: "Can I not use the betting analogy?"
It was like watching a small terrier bark excitedly at a lump of clay. It was as entertaining as many movies.
I know the SEC lawsuit, already expanding to other deals and other companies, has driven bank shares down. But if Goldman is as squeaky as Goldman says it is, Goldman will be exonerated. I know the SEC has tried this before, that past reforms didn't prevent this crisis. That's the way capitalism works, lurching from breakdown to breakdown like an old Renault.
But no other crisis has been so enormous. And none has opened so wide a door into the secretive world of the financial big leagues. A trial will open it wider still. Even Wall Street may learn something.
Ian Brown