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Will the Law Finally Catch Up to Goldman Sachs? Goldman Sachs, one of the richest, most powerful, politically connected Wall Street banks, has demonstrated a Teflon-like ability to bounce back from egregious misdeeds, illegal conduct, and horrible publicity. Remember the AIG backdoor bailout of Goldman? The infamous Abacus deal that Goldman paid $550 million to make go away?  The “sh**ty” deals it sold its clients? The “great vampire squid wrapped around the face of humanity” description/expose? Well, a lawsuit in London might just break through that Teflon, as detailed in a recent Huffington Post piece by Better Markets’ President and CEO, Dennis Kelleher. Goldman is alleged to have lost 98 percent of a client’s $1.3 billion investment while pocketing $350 million in fees in a matter of months.  While much isn’t known and all is disputed, it appears that Goldman might have been positioning this client opposite the way it was positioning its own balance sheet at the same time.  Plus, if their client lost almost $1.3 billion, who won, i.e., who did Goldman have on the other side of the deals?  And, were the clients really as sophisticated as Goldman claims or were they just muppets?  

Speaking of the Law, Don’t Miss The Latest Shameless, Laugh Out Loud Big Bank Whining:  At a recent Securities Enforcement Forum, that brought together current and former SEC and DOJ officials, Washington’s white-color defense lawyers cried about what they laughably claim is excessive punishment by government regulators. Despite their clients crashing the global financial system, almost causing a second Great Depression, and engaging in a pandemic of illegal conduct, these big bank defense lawyers have the chutzpa to claim that Wall Street’s biggest banks are the “victims” of excessive punishment. ProPublica reporter and NYT columnist Jesse Eisinger dismantles these attorneys’ assessment of the regulators by pointing out that the bank fines might seem high because bank behavior has been so frequent and egregious.  He also explains how the strategies of the attorneys representing these corporations have been employed to “glittering success” to soften the punishments. To top that off, these defense lawyers who complain about onerous punishment are former S.E.C officials who held senior positions at our most important regulatory agencies. Eisinger writes, “This is how power and influence work in Washington. Former top officials, whose portraits mount the walls, weigh in on matters of enforcement. Now working for the private sector, they assail the regulatory ‘overreach.'”  Presumably, after they catch their breath, they are laughing all the way to the bank.

OK, Even More Law (or Less Law as the Case May Be): The New York Times Reports on Wall Street’s Repeat Offenders while Bank of America’s $16.7 Billion Mortgage Settlement Stalls due to SEC Dispute over How Tough/Not Tough to Be:  The New York Times reported today that “Prosecutors Suspect Repeat Offenses on Wall Street.” The word “suspect” is suspect.  It’s clear that some of finance’s biggest banks are in fact repeat lawbreakers.  But, why wouldn’t they be:  crime unpunished rewards past crime and incentivizes future crime.

As if to prove this point, the SEC was apparently planning to routinely waive the consequences to the Bank of America arising from its recent $16.7 billion settlement.  According to Bloomberg, that settlement hasn’t yet been finalized due to a disagreement at the Securities and Exchange Commission. Part of the settlement is to be distributed to the SEC, but two SEC commissioners, Kara Stein and Luis Aguilar, are reportedly objecting to giving the bank a waiver from the collateral consequences that result from the penalties. The waiver arguably could affect the banks’ ability to lend and raise capital. Crowing to the public about how tough they are on Wall Street while in fact minimizing the so-called “punishment” is yet another example of prosecutors and regulators working overtime to make sure that the seemingly very large fines don’t really hurt Wall Street’s biggest banks to much.  Be interesting to see if the SEC does what it always does to lighten the impact on the biggest banks.  (BTW, there was a terrific recent report in Newsweek about another way government officials trumpet big settlements — $16.7 BILLION!! – while misleading the public:  they don’t mention that the banks get to write off much of the settlement amounts, effectively making taxpayers subsidize the banks’ settlements for inflicting widespread damage to, you guessed it, the taxpayers themselves.)

Lobbyists, Bearing Gifts, Pursue Attorneys General: Eric Lipton has an outstanding New York Times investigative report on how lawyers, lobbyist and cash are corrupting “the people’s lawyers” in state Attorney General Offices. Unsurprisingly, much of this is greased by former public official swinging through the revolving door.  When corporate executives get wind of potential investigations that could have serious financial ramifications for their company they “move quickly, and with great success, to shut the investigation down one state at a time.” This laser like focus on state attorneys’ general’s offices serves to guard against “legal exposure, potentially in the billions of dollars for corporations that become the target for state investigations.” According to Lipton, this largely hidden dynamic of successful lobbying by using campaign contributions, personal appeals at lavish corporate-sponsored conferences and other means to push the AG offices to drop investigations, change policies, negotiate favorable settlements or pressure federal regulators has led to the selling out of our state justice system.

Don’t miss a conference looking at Too-Big-To-Fail on November 5th:  Has the threat of too-big-to-fail been ended?  That will be the topic of a day-long event on November 5 in Washington, D.C., which is co-hosted by Better Markets. Among those speaking at the conference at The George Washington University Law School will be Thomas Hoenig, Vice Chairman of the FDIC, Jeffrey Lacker, President of the Federal Reserve Bank of Richmond, Anat Admati, Professor of Finance and Economics at Stanford Graduate School of Business, and Simon Johnson, former Chief Economist at the IMF and now a Professor of Entrepreneurship at MIT’s Sloan School of Management.  It is open to the public and registration details for the event can be found here.

Better Markets in the News:

Too Big to Tax: Settlements Are Tax Write- Offs for Banks: Newsweek by Lynnley Browning 10-27-2014

Will the Law Finally Catch Up to Goldman Sachs?: Huffington Post by Dennis Kelleher 10-23-2014

Risk Retention Rules Adopted for Asset-Backed Securities: Thomson Reuters Tax & Accounting News 10-23-2014

Articles of Interest:

High-Speed Traders Avoid Low-Speed Website: Bloomberg View by Matt Levine 10-29-14

Prosecutors Suspect Repeat Offenses on Wall Street: New York Times by Ben Protess and Jessica Silver-Greenberg 10-29-14

Fed’s grand experiment draws to a close: Financial Times by Michael Mackenzie 10-28-2014

Big banks’ stunning setback: Meet two officials saying no to Bank of America: Salon by David Dayen 10-28-2014

Lobbyists, Bearing Gifts, Pursue Attorneys General: The New York Times by Eric Lipton 10-28-2014

E.C.B. Stress Tests Seen as Bolstering Confidence in Banks: New York Times Dealbook by Peter Eavis 10-27-2014

Voters have wanted the same thing for years. They’re not getting it.: The Washington Post by Peyton M. Craighill, Scott Clement and Jim Tankersley 10-23-2014

Banks Again Avoid Having Any Skin in the Game: New York Times by Floyd Norris 10-23-2014