Goldman Sachs has a lot of friends in high places, including many former Goldman execs. But the company has also made a few enemies along the way to becoming arguably the most powerful firm on Wall Street, including the Chairman and Ranking Republican on the Senate Permanent Subcommittee on Investigations.
"In my judgment, Goldman clearly misled their clients and they misled the Congress," Sen. Carl Levin (D-MI) said yesterday as he and Sen. Tom Coburn (R-OK.) released a two-year study on the financial crisis and its cause.
Generally speaking, Sen. Levin has accused Goldman of selling clients mortgage-backed securities (MBS) while at the same time holding a "huge short" position in the MBS market in 2007. "They gained at the expense of their clients, and they used abusive practices to do it," he said.
In a statement, Goldman denied any wrongdoing; still, its shares were down 2.4% in recent trading vs. a 0.8% decline for its peer group, as measured by the Financial Select SPDR (XLF).
In the accompanying video, Dan and I discuss the fallout from Sen. Levin's report with William Cohan, author of Money and Power: How Goldman Sachs Came to Rule the World.
"Based on my investigation...there's no question Goldman did exactly what Levin said: bet against the mortgage market at the same time it continued to sell mortgage-backed securities," Cohan says. "It sure looks wrong to me. If what they did is not against the law, it should be against the law."
Sen. Levin reportedly plans to refer the case to the Department of Justice, meaning Goldman CEO Lloyd Blankfein and other executives could be charged with perjury.
"I'm not a lawyer [but] I know that…documents they produced to Sen. Levin show a very different scenario then what Lloyd Blankfein was talking about under oath to Sen. Levin's committee a year ago," Cohan says.
The real crime here is that much of what Goldman is accused of doing -- and what firms did more generally in the years leading up to the financial crisis -- was standard operating procedure on Wall Street and done with at least the tacit approval of so-called regulators.
"The scandal is not what's illegal, it's what's legal," Cohan laments.