By David Caploe PhD, Chief Political Economist, EconomyWatch.com.
Like nearly every other element of the global financial and economic mess that both caused and has followed from Black September 2008,
the April 16 announcement by the US Securities and Exchange Commission [SEC] civil suit for fraud against Goldman Sachs has raised more questions than answers.
Despite the seeming significance of the move – involving, as it does, Goldman Sachs, the most visible / profitable / and politically connected of the many Wall Street firms that have prospered mightily, DESPITE the world-wide pain their actions have caused – several aspects remain unclear.
So let’s start with what we DO know, and then try to illuminate some of the many areas that remain murky.
1) In spite of Goldman’s prominence, the way the SEC handled the announcement was, to put it bluntly, unusually rude, and quite different than the manner it usually handles relations with the targets of its investigations.
In general, there are extensive discussions between the SEC and its targets BEFORE any announcement is made.
Indeed, the “normal” course of action is the announcement of both the bringing of charges AND the settlement agreed to at the same time.
However cozy an overall relationship that might indicate between the SEC and the industry it regulates, the fact the announcement clearly caught Goldman by surprise was a radical variation in standard operating procedure [SOP], and is hard to interpret as anything OTHER than an intentional slap in the face.
2) Given this clear departure from SOP, the SEC and, without doubt, the Obama administration – which HAD to give the go-ahead for such a potentially explosive move, as well as the way it was handled – were clearly trying to signal SOMETHING.
But it remains completely unclear WHAT they were trying to say – and to whom.
Were they trying to tell an angry public – worried by the worsening spectre of joblessness, while Wall Street profits and compensation skyrocketed –
that, to use the Clinton phraseology, they “felt their pain,” and were going to – finally – DO something about the corporations that had caused it ???
Were they trying to tell Wall Street they were – finally – fed up, and going to start riding herd on them,
regardless of their massive power via the endless and, given the insane decision in Citizens United, ever-increasing need for campaign finance contributions ???
This was certainly the – hopeful – interpretation of many consistent critics of the “kid glove” treatment Team Obama has given Wall Street to this point.
3) But if this does, in fact, signal a radical turnaround in the way the Obama administration is handling Wall Street, that only raises more questions – first and foremost, why would they pick what many informed observers see as a – legally – relatively weak case on which to make a stand ???
Now there is a comeback to that: namely, this is only the beginning,
and the rude departure from SOP by the SEC is intended to make sure Goldman will, as it has said, fight this case in court, and NOT, as is usual, seek a settlement.
The significance of an open and extended legal battle, many observers point out, would be to open up to public view – via the legal process of discovery –
the entire sordid game not just Goldman, but the entire inter-connected web of Wall Street banks, have been playing, both before and after Black September.
In that context, perhaps the most hopeful sign is that the SEC move will give an imprimatur of legitimacy to what some of these same observers argue is going to be a cascade of lawsuits that build on the SEC action.
If that DOES happen, then it may indeed turn out to be the "straw that broke the camel's back" in terms of what has been, until now, the reluctance of ANY of the parties involved in these sorts of transactions to seek legal redress -
in which case, this could be the harbinger of a very big change in the whole political / legal framework in which not just Goldman, but all Wall Street firms, conduct their business.
4) But that possibility, in turn, only raises MORE questions, most immediately:
given that Obama has essentially continued the Cheney / Bush policy of giving Wall Street and other Too-Big-To-Fail [ TBTF] banks whatever they want,
why make a seemingly radical change NOW ???
This is where the whole “double game” theory comes into play.
Proponents of this view – one of whom was quoted in the Room for Debate piece linked to above – see the move as related, even if indirectly, to the imminent Senate debate on “financial reform”.
The argument here is that – having seen he got nowhere with the Republicans and their corporate handlers in the various “health” industries when it came to health care “reform” –
Obama realizes he has to ramp up the “community organizer / tough Chicago pol” aspect of his admittedly multi-faceted personality, dump the “bi-partisan”
IF he has any hopes of getting through the Senate even the – in our view, totally weak-kneed and inadequate – financial “reform” he is proposing.
Put bluntly, given the Senate Republicans’
not to validate the “bi-partisan”
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