With baited breath, are we soon to have the thrill of seeing another indictment of a “Big Time” Wall Street crook? And — dare I say it — will we see the WALK ?
My appetite was tingled by an unusually lucid and well-researched piece in the Times (12/24/09) that described preliminary investigations into possibly criminal activities by some firms, most particularly Goldman Sachs, in marketing C.D.O.s (collateralized debt obligations). The major question appears to be whether management promoted these securities as solid investments while at the same time placing negative bets, or shorting them, so as to reap big profits when they sank to the bottom. The front page piece, written by Gretchen Morganson and Louise Story, mentioned planned or ongoing inquiries by Congress, the SEC and Wall Street’s own regulating body into this practice, and that it may lead to the discovery of violations of securities laws and “rules of fair dealing”.
Is that all? This is nothing like a Madoff ponzi scheme, but the odor of real corruption is too strong to dismiss. I mean, there have been other reports of investigations recently, and the practices described, including bonus transfers, accounting cover-ups and weird credit swap deals may be found to be criminal, perhaps, once somebody understands them and can get a grand jury to deliver an indictment. But I can’t see how actually creating and selling investment instruments with the foreknowledge that they are worthless, and then making bets on that outcome can by anything less than criminal fraud!
Of course, this is easier to imagine than prove in court. And you can bet that Goldman and the other firms will spare no expense to quash it in discovery stage. But this is the first time I feel we may hit pay dirt if we keep digging. And because this just may involve real criminal activity, I don’t want the indictment to include that wacko “loss of honest services” law that is clearly unconstitutional and, hopefully, will be found as such by the Supreme Court this term.