Best of the Week
Most Popular
1.UK General Election BBC Exit Polls Forecast Accuracy - Nadeem_Walayat
2.UK General Election 2017 Seats Final Forecast, Labour, Conservative Lib-Dem, SNP - Nadeem_Walayat
3.UK General Election 2017 Forecast: Conservative 358, Labour 212 Seats - Nadeem_Walayat
4.Theresa May to Resign, Fatal Error Was to Believe Worthless Opinion Polls! - Nadeem_Walayat
5.UK House Prices Forecast General Election 2017 Conservative Seats Result - Nadeem_Walayat
6.The Stock Market Crash of 2017 That Never Was But Could it Still Come to Pass? - Sol_Palha
7.[TRADE ALERT] Write This Gold Stock Ticker Down Now - WallStreetNation
8.UK General Election Results Map 2017 vs 2015 vs Opinion Polls - Nadeem_Walayat
9.Orphaned Poisoned Waters,Severe Chronic Water Shortage Imminent - Richard_Mills
10.How The Smart Money Is Playing The Lithium Boom - OilPrice_Com
Last 7 days
Mainstream Media Feeding Frenzy in the Echo Chamber - 28th Jun 17
The Fed Has Undermined the US Economy’s Ability to Grow - 28th Jun 17
“Secular Stagnation” Is Nonsense… Here’s the Real Reason Behind the US Downturn - 28th Jun 17
Sheffield Broomhall Hanover Flats Tower Block Cladding Could Take Months to Remove! - 28th Jun 17
Shrinkflation In UK – Real Inflation Much Higher Than Reported - 28th Jun 17
Are the UK Elections a Forgone Conclusion? - 28th Jun 17
Is the Tech Stock Market Bloodbath is Finally Here? - 28th Jun 17
Crude Oil Sinks 20%: Why "Oversupply" Isn't the Half of It - 28th Jun 17
Important Money Management Tips For Teenagers - 28th Jun 17
The Coming Battery Bonanza - 28th Jun 17
Overlooked Stock Investments To Keep An Eye On in 2017 - 27th Jun 17
The Federal Reserve And Drug Addiction – A Prediction - 27th Jun 17
Charts Show Why Emerging Markets Will Be an Essential Part of Your Portfolio Going Forward - 27th Jun 17
Former Lehman Brothers Trader: I Bet My Reputation That Stocks Bubble Will Pop In A Year - 27th Jun 17
US Bonds and Related Market Indicators - 27th Jun 17
Stocks At Record Highs: Market Sentiment Still Bullish - 27th Jun 17
Stock Market Running Out of Steam - 27th Jun 17
Gold Back With A Vengeance As Bitcoin Bubble Bursts - 26th Jun 17
Crude Oil Trade & Nasdaq QQQ Update - 26th Jun 17
Gold and Silver Ongoing Consolidation May End Soon - 25th Jun 17
Dollar May Become “Local Currency of the U.S.” Only - 25th Jun 17
Sheffield Great Flood of 2007, 10 Years On - Unique Timeline of What Happened - 24th Jun 17
US Stock Market Correction Could be Underway - 24th Jun 17
Proof That This Economic Recovery Narrative is False - 24th Jun 17
Best Cash ISA for Soaring Inflation, Kent Reliance Illustrates the Great ISA Rip Off - 24th Jun 17
Gold Summer Doldrums - 23rd Jun 17
Hedgers Net Short the Euro, US Market Rotates; 2 Horsemen Set to Ride? - 23rd Jun 17
Nether Edge By Election Result: Labour Win Sheffield City Council Seat by 132 Votes - 23rd Jun 17
Grenfell Fire: 600 of 4000 Tower Blocks Ticking Time Bomb Death Traps! - 22nd Jun 17
Car Sales About To Go Over The Cliff - 22nd Jun 17
LOG 0.786 support in CRUDE OIL and COCOA - 22nd Jun 17
More Stock Market Fluctuations Along New Record Highs - 22nd Jun 17
Understanding true money, Pound Sterling must make another historic low, Euro and Gold outlook! - 22nd Jun 17
Green Party Could Control Sheffield City Council Balance of Power Local Election 2018 - 22nd Jun 17
Ratio Combo Charts : Hidden Clues to the Gold Market Puzzle - 22nd Jun 17
Steem Hard Forks & Now People Are Making Even More Money On Blockchain Steemit - 22nd Jun 17
4 Steps for Comparing Binary Options Providers - 22nd Jun 17
Nether Edge & Sharrow By-Election, Will Labour Lose Safe Council Seat, Sheffield? - 21st Jun 17
Stock Market SPX Making New Lows - 21st Jun 17
Your Future Wealth Depends on what You Decide to Keep and Invest in Now - 21st Jun 17
Either Bitcoin Will Fail OR Bitcoin Is A Government Invention Meant To Enslave... - 21st Jun 17
Strength in Gold and Silver Mining Stocks and Its Implications - 21st Jun 17
Inflation is No Longer in Stealth Mode - 21st Jun 17
CRUDE OIL UPDATE- “0.30 risk is cheap for changing implication!” - 20th Jun 17
Crude Oil Verifies Price Breakdown – Or Is It Something More? - 20th Jun 17
Trump Backs ISIS As He Pushes US Onto Brink of World War III With Russia - 20th Jun 17
Most Popular Auto Trading Tools for trading with Stock Markets - 20th Jun 17
GDXJ Gold Stocks Massacre: The Aftermath - 20th Jun 17
Why Walkers Crisps Pay Packet Promotion is RUBBISH! - 20th Jun 17

Market Oracle FREE Newsletter

The MRI 3D Report

Goldman Sachs and the Mega Banks: Too Big To Obey The Law

Politics / Credit Crisis 2010 Apr 20, 2010 - 05:07 AM GMT

By: Global_Research

Politics

Best Financial Markets Analysis ArticleSimon Johnson writes: On a short-term tactical basis, Goldman Sachs clearly has little to fear.  It has relatively deep pockets and will fight the securities “Fab” allegations tooth and nail; resolving that case, through all the appeals stages, will take many years.  Friday’s announcement had a significant negative impact on the market perception of Goldman’s franchise value – partly because what they are accused of doing to unsuspecting customers is so disgusting.  But, as a Bank of America analyst (Guy Mozkowski) points out this morning, the dollar amount of this specific allegation is small relative to Goldman’s overall business and – frankly – Goldman’s market position is so strong that most customers feel a lack of plausible alternatives.


The main action, obviously, is in the potential widening of the investigation. This is likely to include more Goldman deals as well as other major banks, most of which are generally presumed to have engaged in at least roughly parallel activities – although the precise degree of nondisclosure for adverse material information presumably varied.  Two congressmen have reasonably already drawn the link to the AIG bailout (how much of that was made necessary by fundamentally fraudulent transactions?), Gordon Brown is piling on (a regulatory sheep trying to squeeze into wolf’s clothing for election day on May 6), and the German government would dearly love to blame the governance problems in its own banks (e.g., IKB) on someone else.

But as the White House surveys the battlefield this morning and considers how best to press home the advantage, one major fact dominates.  Any pursuit of Goldman and others through our legal system increases uncertainty and could even cause a political run on the bank – through politicians and class action lawsuits piling on.

And, as no doubt Jamie Dimon (the articulate and very well connected head of JP Morgan Chase) already told Treasury Secretary Tim Geithner over the weekend, if we “demonize” our big banks in this fashion, it will undermine our economic recovery and could weaken financial stability around the world.

Dimon’s points are valid, given our financial structure – this is exactly what makes him so very dangerous. Our biggest banks, in effect, have become too big to be held accountable before the law.

On a more positive note, the administration continues to wake from its deep slumber on banking matters, at least at some level.  As Michael Barr said recently to the New York Times,

“The intensity, ferocity and the ugliness of the lobbying in the financial sector — it’s gotten worse. It’s more intense.”

This is exactly in line with what we say in 13 Bankers – just take a look at the introduction (free), and you’ll see why our concerns about “The Wall Street Takeover and the Next Financial Meltdown” have grabbed attention in Mr. Barr’s part of official Washington.

But at the very top of the White House there is still a remaining illusion – or there was in the middle of last week – that big banks are not overly powerful politically.  “Savvy businessmen” is President Obama’s most unfortunate recent phrase – he was talking about Dimon and Lloyd Blankfein (head of Goldman).  After all, some reason, auto dealers are at least as powerful as auto makers – so if we break up our largest banks, the resulting financial lobby could be even stronger.

But this misses the key point, which Senator Kaufman will no doubt be hammering home this week: There is fraud at the heart of Wall Street.

And we can only hold firms accountable, in both political and legal terms, if they are not too big.

It is much harder to sue a big bank and win; ask your favorite lawyer about this.  Big banks can more easily hold onto their customers despite so obviously treating them as cannon fodder (take this up with the people who manage your retirement funds).  Big banks spend crazy amounts on political lobbying – even right after being saved by the government (chapter and verse on this in 13 Bankers.)

When you really do want to take on megabanks through the courts – and have found the right legal theory and compelling lines of enquiry – they will threaten to collapse or just contract credit.

No auto dealer has this power.  No Savings and Loan could ultimately stand against the force of law – roughly 2,000 S&Ls went out of business and around 1,000 people ended up in jail after the rampant financial fraud of the 1980s.

We should not exaggerate the extent to which we really have equality before the law in the United States.  Still, the behavior and de facto immunity of the biggest banks is out of control.

These huge banks will behave better only when and if their executives face credible criminal penalties.  This simply cannot happen while these banks are anywhere near their current size.

Fortunately there is precisely zero evidence that we need banks anywhere near their current size – we document this at length in 13 Bankers (in fact, this was a major motivation for writing the book).

Break up the big banks before they do even more damage.

Simon Johnson, co-author of 13 Bankers.


 Global Research Articles by Simon Johnson

© Copyright Simon Johnson , Global Research, 2010

Disclaimer: The views expressed in this article are the sole responsibility of the author and do not necessarily reflect those of the Centre for Research on Globalization. The contents of this article are of sole responsibility of the author(s). The Centre for Research on Globalization will not be responsible or liable for any inaccurate or incorrect statements contained in this article.


© 2005-2017 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife