Tories and Lib Dems Query Goldman Sachs' Role as Treasury Adviser
Goldman Sachs should be suspended from working for the Government until the outcome of a fraud case brought against the investment bank by US regulators is known, opposition politicians said yesterday.
The demand from the Tories and the Liberal Democrats came as the Financial Services Authority (FSA) began an investigation into the Wall Street giant's operations in London. Goldman Sachs is on a rota of investment banks that advise the Treasury about debt issuance, which has risen dramatically as the budget deficit has escalated.
Goldman is also keen to be involved in a potential fees bonanza from the privatisation of Northern Rock and the state's interests in Royal Bank of Scotland and Lloyds Banking Group, together with a rash of sales of state assets including the Tote bookmaker, the Student Loans Company and the Channel Tunnel rail link.
Yesterday, however, there were calls for Goldman to be taken off the list of approved banks pending the outcome of a fraud investigation by the US Securities and Exchange Commission (SEC). America's financial regulator claims Goldman and one of its vice- presidents, Fabrice Tourre, defrauded investors by mis-stating and omitting key facts about a financial product tied to subprime mortgages as the housing market began to collapse. Goldman denies any wrongdoing.
After Gordon Brown described the US bank as "morally bankrupt" at the weekend, Vince Cable, the Liberal Democrat Treasury spokesman, said yesterday: "The Government should not be paying for the services of a bank that is being investigated on both sides of the Atlantic. The allegations made against Goldman Sachs are extremely serious. Not a penny of taxpayers' money should be paid while these allegations hang over [the bank]."
The Conservatives also questioned whether Goldman should still be on the roster of approved banks. Mark Hoban, the shadow Financial Secretary to the Treasury, said: "If Gordon Brown believes Goldman Sachs are 'morally bankrupt', why is he still using them as advisers? ... He is lashing out at the people he was very happy to work with over the last 13 years as both Chancellor and Prime Minister."
Unions and think-tanks also lined up to criticise the company. Brendan Barber, general secretary of the Trades Union Congress, said: "The accusations against Goldman Sachs are the most serious legal intervention since the crash ... However, many think this case is just the tip of an iceberg, and such behaviour was systemic and widespread. It is therefore much more important to give a new impetus to the effective global regulation of banking."
Gavin Hayes, of the left-wing think-tank Compass, said: "I would go so far as to say that Goldman Sachs should be suspended from advising the Government in any professional capacity - not just on government bonds.
"[It advises] the Government on all sorts of things, including recently on Northern Rock and on privatisations. The Government plans a number of asset sales in the near-future.
"While [Goldman] is investigated by the FSA [it] should not be providing any services to government. If [it is] found guilty [it] should be sacked and barred from being awarded any public procurement contracts for the foreseeable future."
The FSA is understood to be preparing to ask why it was not told about the US investigation into Goldman and Mr Tourre before Friday night, when the SEC announced the charges. The SEC claims that Goldman failed to tell investors of the involvement of the New York hedge fund Paulson & Co in selecting a portfolio of risky subprime mortgages for the Abacus bond it was betting against. …