Magazine article The Spectator

Is the Suit against Goldman Sachs a Fraud?

Magazine article The Spectator

Is the Suit against Goldman Sachs a Fraud?

Article excerpt

The official investigation into the firm's activities is pointless, says Philip Delves Broughton. Governments are too weak to punish the financial giant

I loathe Goldman Sachs as much as the next man. It's part jealousy at the firm's grip on the world's treasure. Part horror at the parade of bumptious baldies who run the firm and snigger, as the CEO Lloyd Blankfein did to the Sunday Times, that they are doing 'God's work'. The only way to rationalise this was to recall Dorothy Parker's quip that you can tell what God thinks of money by considering the people he gives it to.

Write a cross word about Goldman, and you can be sure to receive an email rocket from the firm's European PR man, surname Kafka. Goldman is more a succubus than a haven of sunshine, daffodils and smiling babies. That's how you make billions every quarter, fair weather or foul.

But I also suffer from a grudging admiration for the place. The people I know there are more likable than not, and it's hard not to be awed by their brain power. No one who calls themselves a capitalist can fail to be impressed by Goldman's effectiveness.

They take the chaos of the world and turn it into cash flowing into their coffers. It is not easy getting that rich.

So when the American Securities and Exchange Commission announced it was investigating Goldman for fraud, I leapt from my seat, hungry for details, delighted at the prospect of both a long, hot gloat and some backstage juice on Goldman's wizardry. The early reading was good. Goldman was alleged to have deprived investors of crucial information about a basket of collateralised debt obligations, the 'seedy owes' at the heart of the financial crisis.

A prized client, the hedge fund billionaire John Paulson, had paid Goldman $15 million to create this basket so he could bet against it. Paulson rightly believed the American subprime mortgage market would soon collapse and wanted an easy way to make his punt. Goldman delivered.

But then they went out and sold the basket to other investors without telling them that Paulson had selected the securities on the basis of their likelihood of default. These investors, including the hapless RBS, trusted the inept ratings agencies who assured them that the underlying mortgage securities were a far better risk than they were.

There are any number of analogies to what the SEC alleges Goldman did, none of them good. It was like selling a car to an eager buyer on the basis that it passed all the official safety standards, without telling them the safety standards were useless and the manufacturer knew as much. In any sale, there are things you are obliged to disclose and things that as a person of good faith you really ought to. Goldman seems to have failed the second test. Whether that will amount to a serious legal issue is not clear. But you can be certain that the sharpest minds and claws in American law will be manning the Goldman barricades.

So why is my joy confined? Is it that I was hoping to see centi-millionaires being led off the trading floor in handcuffs, and instead got a murky disclosure case? What degree of mental and legal anguish among Goldman's executives would have satisfied my resentment at their epic financial blessings?

The more I stewed, the clearer it became.

This suit is meaningless. If a bank like Goldman was too big to fail in late 2007, it is not going to be torpedoed by the same government which bailed it out. …

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