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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

June 6, 2011 at 10:10 AM

For ’embattled’ Goldman, the fix is already in

In 2009, when the real reform of financial markets that had been promised as part of the massive taxpayer bailout stalled, Sen. Dick Durbin said of the Senate, that banks “frankly own the place.” That’s why it’s rich that Goldman Sachs is laying plans to fight a damning Senate report about the bets the firm was placing against complex mortgage derivatives even as it was peddling them to clients, even as the bubble was on the verge of popping.

“The securities firm is considering releasing documents about its mortgage bets that are aimed at showing what Goldman officials claim is sloppy math and incomplete analysis by the Senate Permanent Subcommittee on Investigations as the panel sifted through tens of millions of documents turned over by Goldman,” according to the Wall Street Journal.

When the report came out, New York Magazine’s Nitasha Tiku wrote, “It only took a two-year Senate investigation into the mortgage crisis and 5,901 pages of confidential e-mails and documents to figure out what everyone already knew: Investment banks sold collateralized debt obligations (of risky mortgage loans) without letting investors know that it sure would help Wall Street out if the value of those CDOs plummeted.”

She added, “Who wants to take the bet that Goldman will still find a way to come out of this mess by paying off another settlement that amounts to tacking on a zero to the amount they pay their top executives?”

Wall Street doesn’t just own the Senate. It owns the Obama White House, where its luminaries, led by Larry Summers, protege of Robert Rubin, thought saving the big banks would be tantamount to saving the economy. Maybe President Romney (or Pawlenty) won’t make the same mistake, but I wouldn’t bet on it. This is what a financialized economy looks like, especially one that has gained such political power. You don’t have to be Matt Taibbi (Goldman “is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money”) to see how deeply the problem goes.

Until the political leadership is willing to return to a Glass-Steagall type of regulatory regime that makes banking a dull business of raising capital for productive enterprise, the perils to the economy, whether from fraud or “sloppy math” will remain. And guess who will get the bill when things go bad again?

P.s., Goldman says it’s sorry for its forecast of a coming U.S. economic “renaissance” back in December. As Upton Sinclair said, “It is difficult to get a man to understand something when his job depends on not understanding it.”

Today’s Econ Haiku:

Tim Geithner’s trumpet

Global derivative rules

Barn door, meet horses

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