To quote Lowenstein: "...these sentiments (about no prosecutions) imply that a financial crisis was caused by fraud; [imply] that people who take big risks should be subject to a criminal investigation;"...."The claim that it (the crisis) was 'caused by financial fraud' is debatable, but the weight of the evidence is strongly against it. The financial crisis was accompanied by fraud,..."
It is hard to see how no fraud occurs when a crisis is accompanied by fraud. The Levin/Coburn report illustrates in detail with accompanying documentation how Blankfein and Co. played a leading role in carrying out fraud against investors. Goldman Sachs fraudulently took taxpayer bailout money via AIG and created and sold securities rated AAA that were really junk.
Fraud is deceit, trickery, sharp practice, or breach of confidence perpetrated for profit or to gain unfair or dishonest advantage. (Collins English Dictionary)
Lowenstein uses weasel words to mask what is really fraud: words like exacerbate, lax policy, weak regulation, overconfidence, ill-considered, multi-causal, frightful behavior, unfairness, incompetence, societal breakdown, part of a corrupt system, to act badly, to act unwisely, sharp practices, etc. Use the word FRAUD, man, as that is what these actions led to. When you see a pig, call it a pig!
It is criminal to commit fraud. It is criminal to be unethical in a business that requires ethics and trust. Committing fraud is not as trivial as you would have us believe with all these euphemisms for fraud.
For a refreshing alternative, let's look at Robert A. Green's take called,
It's Getting Harder to Defend Goldman Sachs
By Robert A. Green - Forbes
. . . .
As Congress and the media were debating the controversial and populist-tinged Dodd-Frank Financial Regulation bill, my first inclination was to defend Wall Street and traders overall. I didn’t like Dodd-Frank’s Volcker Rule, which divests proprietary trading and alternative investments (hedge funds and private equity) from Wall Street (commercial) banks. I believed the bill was similar to reinstating the Glass-Steagall Act separating investment banking and trading from commercial banking.
I argued that banks need trading profits — where the main profits have been the last decade — to offset losses on lending, especially during a recession. But now I agree with Chairman Volcker. We can’t be certain Goldman Sachs CEO Blankfein and other sleuths won’t steal client inside information to front run, compete, and trade against their clients and the public’s interests. The Chinese Wall is the biggest myth and lie on Wall Street.
What’s clear to me now after learning more is that Wall Street embraced and abused conflicts of interest for its own private good, directly at the great expense of its clients and the public.
Goldman should be tarred and feathered over the 2008 meltdown. Like others on Wall Street, Goldman had an active mortgage department designing, packaging, securitizing, promoting, and selling mortgage-backed securities and related synthetic derivatives. Goldman’s trading desk conceived, promoted, and sold various protection strategies as market maker, agent, and principal.
As the housing bubble got close to bursting, Goldman became enlightened sooner than other banks, partially from witnessing the “big short” strategies of its infamous hedge-fund client John Paulson.
The entire firm came around to believing the great mortgage bubble was a house of cards ready to collapse, based on delinquencies, no-doc loans, fraud, and more. This is where Goldman made a serious error in judgment.
Goldman had two choices: discontinue the sale of junk-mortgage securities and alerting the government, media, public, their clients, and investors; or, keep it a secret, sell off junk-mortgage securities to investors, profit from the inevitable bursting of the bubble, and steal and even front-run part of Paulson’s trade.
Here’s the most basic analogy of guilt: Picture Goldman as a used car salesman. When it learned it had an inventory of lemons, rather than return those lemons to the manufacturers (lemon law in most states), it put those cars on promotion with very aggressive sales tactics.
Before the unsuspecting and trusting customer bought the lemon and drove off with it, Goldman purchased “protection” — life and auto insurance policies on the driver that were set to profit when the lemon crashed and burned. Clearly, Goldman’s short (protection) trade was connected to clearing out their long trades (selling the lemons), so ill-gotten profits on all these transactions must be returned with penalties too.
Once Goldman had its “big short” trades on, it couldn’t wait for the payday, risking the market might recover. It knew marking down its own long portfolio of lemons could trigger the crisis and the huge short-trade payouts. Marking down the lemons lowered them for sale to investors and forced all other banks to do almost the same. Based on fair-value accounting rules, Goldman forced lower fire-sale marks on the industry which put some financial institutions out of business almost overnight. Which turned into another win, as Goldman had pre-purchased credit-default swaps to pay off on their competitors’ demise.
Read the entire article here