
Why the S.E.C. didn't hit Goldman Sachs harder - JMiao
http://www.newyorker.com/business/currency/why-the-s-e-c-didnt-hit-goldman-sachs-harder
======
inthewoods
Abacus is a more complicated case. The more shocking one to me is why Dick
Flud isn't in jail. His use of the Repo 105 to move assets off the books to
make Lehman look less leveraged and in better condition is a clearer case of
fraud. He essentially did the same thing that Enron did - and Sarbanes Oxley
requires that CEO sign off on the truthfulness of financial statements. Here's
a guy that seems to have deliberately misled in those financial statements,
yet he walks free. To me, that case is a more clear case of how the SEC is a
toothless agency.

~~~
retube
Is it fraud though? Repo 105 (and 108) were perfectly legitimate financing
transactions and their reporting adhered to the relevant accounting standards.

Yes they were done to lower the firm's reported leverage, but again this
computation conformed to regulator standards.

So not so clear cut it's "fraud" as nothing was mis-reported.

Edit: incidently this is nothing like what Enron did, which was to move assets
off balance sheet by moving them to SPVs and swapping the risk back
(incidently also completely legal and fairly common in structured finance).
These were simple repo transactions.

~~~
inthewoods
This is very similar to what Enron did, although the vehicle was different -
they moved liabilities off the books to make themselves look less leveraged.
Enron did this through shell companies owned by Fastow - Fuld/Lehman did this
through abusing a standard rule and then getting E&Y to hold their nose and
say that these transactions were not material and did not involve reporting
the information to shareholders. To me, that's fraud.

I'm not alone in this analysis: "The segment, which marks the first time
Vakulas has been interviewed since filing his nine-volume, 2,200-page report
two years ago, claims there is sufficient evidence to prosecute officials at
Lehman. According to Vakulas, Lehman Brothers was intentionally
misrepresenting their financial health."

[http://www.huffingtonpost.com/2012/04/23/lehman-brothers-
inv...](http://www.huffingtonpost.com/2012/04/23/lehman-brothers-
investigator-60-minutes-fudged-numbers_n_1445421.html)

The key question, to me, is whether they knowingly misrepresented the health
of the company in reporting to shareholders. If it ever went to trial I think
the answer would be "yes" \- but of course we'll never know because no one in
the US government wants to go after them.

At least the NY Attorney General went after E&Y and extracted a minor
settlement (albeit one with no admission of wrongdoing):

[http://www.nytimes.com/2015/04/16/business/dealbook/ernst-
yo...](http://www.nytimes.com/2015/04/16/business/dealbook/ernst-young-in-
settlement-over-lehman-brothers.html?_r=0)

------
Annatar
When I was growing up, my father used to tell me "bankers cause wars; they are
the biggest criminals in the history of mankind." The article, and my own
personal experience, which I'd rather not divulge in public, illustrate this
perfectly. I know all the managers knew about the scam; they perpetrated it;
and yet, they walk free and flush with cash from such deals, while ordinary
people lost their homes and jobs. The S.E.C. is in cahoots with them.
Essentially, the managers and lawyers inside of the S.E.C. and the banks found
a way to commit criminal acts without going to prison.

"Liberty and justice for all."

------
Synaesthesia
Goldman Sachs has many well-documented connections to the US government &
White house. [https://prof77.wordpress.com/politics/an-updated-list-of-
gol...](https://prof77.wordpress.com/politics/an-updated-list-of-goldman-
sachs-ties-to-the-obama-government-including-elena-kagan/)

[http://www.whiteoutpress.com/articles/q42012/list-of-
goldman...](http://www.whiteoutpress.com/articles/q42012/list-of-goldman-
sachs-employees-in-the-white-house/)

~~~
alanwatts
Goldman was Obama's 2nd biggest campaign contributor in 2008

~~~
rayiner
Goldman, the company, is not allowed to contribute to candidates. What
OpenSecrets means when it says that is Goldman _employees_ contributed. Which
is unsurprising. Goldman has tens of thousands of well-payed employees in a
heavily Democratic state. Who would they contribute to?

~~~
mcv
Why do we know where contributions come from? Why are they not anonymous? I
think it'd be better if candidates had no idea where all that money came from.

~~~
alanwatts
>Why are they not anonymous?

The concept of a nation-state depends upon closed-source sovereignty.
Anonymous money could be coming from anyone or any foreign nation-state, thus
usurping and subverting the sovereignty nation state.

However, this is a problem that already exists because it is easy enough for a
foreign entity to use a third party shell to do this (i.e. AIPAC).

~~~
mcv
What I mean is that it should be anonymous to the candidate. One way to
accomplish that is to have all donations pass through a central fund that
passes it on to the candidates. Some government organization could check
whether the donation meets the rules and do something else with it when it
doesn't.

That would make it an unaccountable black box, though. That would not be good
in the interest of transparency. On the other hand, there are plenty of
unaccountable black boxes already.

------
nickpsecurity
It's pretty simple: the Treasury head and many others in regulators are ex-
Goldman. The word is subversion. The biggest violators have people embedded
into the regulators to make sure they're not a problem.

~~~
maxerickson
Jack Lew did a brief stint at Citigroup but is reasonably described as having
a career in public service:

[https://en.wikipedia.org/wiki/Jack_Lew](https://en.wikipedia.org/wiki/Jack_Lew)

Tim Geithner is also reasonably described as having a career in public
service:

[https://en.wikipedia.org/wiki/Timothy_Geithner](https://en.wikipedia.org/wiki/Timothy_Geithner)

Don't despair! He has shadowy connections to the Kissinger Group (a brief
stint early in his career).

Henry Paulson did in fact lead Goldman Sachs:

[https://en.wikipedia.org/wiki/Henry_Paulson](https://en.wikipedia.org/wiki/Henry_Paulson)

John Snow was a railroad tycoon:

[https://en.wikipedia.org/wiki/John_W._Snow](https://en.wikipedia.org/wiki/John_W._Snow)

Paul O'Neill was an industrial magnate that did a stint leading the mysterious
RAND Corporation:

[https://en.wikipedia.org/wiki/Paul_H._O'Neill](https://en.wikipedia.org/wiki/Paul_H._O'Neill)

~~~
nickpsecurity
The majority of that list fits my pattern with two claimed to be public
service. Lew was COO for one of the guilty parties as the stuff happens.
Geithner came in after the bailouts started. Paulson is the main guilty party
there. Lew and Geithner, whatever their beliefs, haven't tried to make a
prosecution happen or significantly countered the funding. The crooks are
doing A OK with some of their gains paid back in fines. Cost of doing
business.

List isn't looking good. That's without considering Kissinger or RAND
connections. No speculation needed with results like this. ;)

------
chollida1
For those of you who haven't spent the past 10 years of your lives following
this and want a quick TL/RD, the below link has a good recap of what Abacus
is.

[http://www.reuters.com/article/us-goldmansachs-abacus-
factbo...](http://www.reuters.com/article/us-goldmansachs-abacus-factbox-
idUSTRE63F5CZ20100416)

------
Von_Jones
I am not an American and I wonder why the most likely presidential candidate
is the one taking somewhat opaque "speaker's fees" from an organisation that a
lot of Americans realise operates in ways akin to a mafia. From the outside it
like turkeys voting for Xmas.

~~~
paulddraper
Better that than Thanksgiving.

~~~
elangoc
If the parent is Canadian, then you're talking about the same thing,
effectively.

------
arca_vorago
I boil this down to a few categories of people in positions of government.
There is a certain word, don't say it too loud or they might run or grab
pitchforks, but the word is... cough... accountability.

 _Looks around carefully_. I spent some time contracting in DC, and the
conclusion I came to is that there are three main types of people around the
government and financial centers of power.

1) Those who are aware of the coming shitstorm and the complete corruption and
subversion, and are just trying to "get theirs". This usually ends up in a "I
got mine, fuck you" attitude. They don't push back because they know they
would get punished for it, so they instead use their knowledge to further
their career at the expense of their duty, and principles. They know, but
don't care (enough to risk anything) about the status quo.

2) Those who know about the situation, and agree with it. These are usually
indoctrinated extremists on either side of the spectrum, neocon, ultra-lib,
the kind of people who now think capatalism in it's current form is the best
gift from god and they speak of peace while selling massive amounts of weapons
to dictators they setup all around the world. They know, and they care (for
the wrong things), and actually perpetrate many of the abuses of the system.

3) Those who are too ignorant or stupid to know, or the slightly modified,
those who have an idea about how bad it is but would rather stick their head
in the sand and pretend reality doesn't exist. They don't know and don't care.

Don't tell me where all the true patriots went. I have told my friends, that
"I know not one brave soul, not one." (keep in mind I'm not talking about
media figures, like Snowden, Manning, Drake, Binney, Tice, Edmonds, all of
whom I do consider brave souls) To me, that is the real problem I faced when I
had my Descartes reset, in that I started to realize that while I still
believe in the power of an oath, and the duties that come with them, the
majority of the people around me and in positions of real power pay _tons_ of
lip service to principles, but never actually do them. Personally, I think
this is causing a kind of mass cognitive dissonance and compartmentalization
that we have yet to realize the full impact of.

When I think about the leadership traits I learned in the Corps, and how
little of them I see in our leaders, I fear for the future of my country.

(in case anyone is wondering, they are: Justice, Judgement, Dependability,
Initiative, Decisiveness, Tact, Integrity, Enthusiasm, Bearing, Unselfishness,
Courage, Knowledge, Loyalty, and Endurance.)

~~~
marincounty
I've seen a steady erosion of ethics in all professions.

I don't know what's causing it. Actually, I have a few hypothesis, but I'll
get hammered for even mentioning them.

I used to look at people's actions in society, with the expectation that the
average guy would be one of the 65% who delivered the legal 450v sting in the
Milgram experiment. That left 35% who would do The Right Thing.

As, I've aged, I see a number much greater than >65%. I'm seeing way too many
people doing immoral legal acts. Acts that are highly immoral, but legal.

I used to just take ethics for granted.

I am now Shocked when I run across a person with ethics.

I've gotten so jaded when someone is being honest/genuinely helpful--I look
for the catch I missed. So, basically I look at most people, especially the
financially successfully with extreme caution.

In Ireland, I was told they look at successful people differently than we so I
the United States. They look at that person, and wonder, "Who did they screw
over, or step on in order to get there." I overheard this. It might be wrong.
I haven't got there, but it's getting close.

I'm not even talking about blatant criminals. I'm talking about the guys in
ties. The guys with licenses. The guys with power. The guys who bend the rules
in order to get ahead. The guys who exploit poor and uninformed just because
they are easy marks.

~~~
sbardle
The Polish philosopher Leszek Kolakowski once said "Original sin remains a
profound and insightful view of the human condition". He didn't last long at
Berkeley, as it happens.

~~~
ZenoArrow
That comment on original sin is misguided at best. Original sin sets up guilt
before any wrongdoing, it's a means of control, there's nothing insightful
about it.

------
whatok
For people complaining about revolving doors, how do you get regulators with
current industry expertise without.... industry experts?

~~~
mrgreenfur
Why can't people excel and be experts while being a regulator? That's like
saying police have to be criminals before they can be police or they won't be
experts.

If the financial industry is doing things so complicated that they cannot be
policed, then they should be made to define their actions so that they CAN be
policed, or their actions should be illegal.

~~~
rayiner
Should government bureaucrats who have never coded something be in charge of
micromanaging internet companies?

~~~
kelseydh
I do know former coders managing government tech policy now. Don't assume they
all lack technical knowledge. That's increasingly not the case from my
experience.

~~~
rayiner
I'm making an analogy to tech policy. Of course we had people with coding
experience managing tech policy. Similarly, we want people with banking
experience managing banking policy.

------
qaq
Mainstream Banks laundered close to 400 billions in drug money and got slapped
with fines in 10 mil. range. Everyone is up in arms about GS. GS
counterparties are supposed to be sophisticated Fund managers they are payed
millions in fees for managing money. It's their job to do due diligence on the
deals they do with GS or otherwise.

------
cloudjacker
Sometimes I like to imagine that there are esoteric business relations like
this in places like Palestine with an Israeli regulator.

But I can never get a discussion deep enough going on about how the rule of
law is implemented there.

------
known
It's due to
[https://en.wikipedia.org/wiki/Stockholm_syndrome](https://en.wikipedia.org/wiki/Stockholm_syndrome)

------
jbob2000
Here's the TL;DR:

"In our conversations, Kidney reflected on why that might be. The oft-cited
explanations—campaign contributions and the allure of private-sector jobs to
low-paid government lawyers—have certainly played a role. But to Kidney, the
driving force was something subtler. Over the course of three decades, the
concept of the government as an active player had been tarnished in the minds
of the public and the civil servants working inside the agency. In his view,
regulatory capture is a psychological process in which officials become
increasingly gun shy in the face of criticism from their bosses, Congress, and
the industry the agency is supposed to oversee. Leads aren’t pursued. Cases
are never opened. Wall Street executives are not forced to explain their
actions."

Basically, regulators don't have the balls to go after the big guys.

~~~
kqr2
Matt Taibbi wrote about this in his book _The Divide: American Injustice in
the Age of the Wealth Gap_ [1].

Enron was probably the last big corporate take-down by the government.

From an interview
[http://www.democracynow.org/2014/4/15/who_goes_to_jail_matt_...](http://www.democracynow.org/2014/4/15/who_goes_to_jail_matt_taibbi)

    
    
      But at the bottom of it, there was this thing that he [Eric Holder]
      laid out called the "collateral consequences doctrine." 
      And what "collateral consequences" meant was that if 
      you’re a prosecutor and you’re targeting one of these big 
      corporate offenders and you’re worried that you may 
      affect innocent victims, that shareholders or innocent 
      executives may lose their jobs, you may consider other 
      alternatives, other remedies besides criminal 
      prosecutions—in other words, fines, nonprosecution 
      agreements, deferred prosecution agreements.
      And again, at the time, it was a completely sensible 
      thing to lay out. Of course it makes sense to not always 
      destroy a company if you can avoid it. But what they’ve 
      done is they’ve conflated that sometimes-sensible policy 
      with a policy of not going after any individuals for any 
      crimes. And that’s just totally unacceptable.
    

1\. [http://smile.amazon.com/Divide-American-Injustice-Age-
Wealth...](http://smile.amazon.com/Divide-American-Injustice-Age-
Wealth/dp/0812983637)

~~~
maxerickson
Shareholders don't deserve protection like that. I understand that giant
corporations are not particularly run by shareholders, but if someone dumps
their money into something and doesn't pay attention to it, it's fine to make
them feel the consequences of not paying attention.

~~~
arcticfox
I'm confused by this. Shareholders are some of the primary victims being
defrauded in these cases.

Enron's accounting gymnastics were precisely to defraud their shareholders.
How is that negligence on the part of the shareholder? It's not - it's
criminal on the part of the executives.

~~~
maxerickson
I didn't say it was negligence on the part of the shareholder. They are
putting their money under the control of someone else, they should be thinking
about risk when they do so. Is it so clear that a series of closer looks at
Enron's books would have missed the fraud?

It's also the case that I was thinking more about the companies that are fined
and keep operating with all the same officers in place than I was thinking
about companies that implode. For example, shareholders of JP Morgan
apparently aren't real sad with Jamie Dimon.

~~~
dnautics
The reason why the government has to take action on this is because as a
matter of policy, the government coerces people to invest in corporate
America. If people were freer to not participate in the stock market casino,
then there would be no need to regulate it.

------
jheriko
TL;DR;

they are inept and impotent.

------
ErikAugust
The lyrics of this song contain the answer:
[https://www.youtube.com/watch?v=s2VG53RIJ50](https://www.youtube.com/watch?v=s2VG53RIJ50)

~~~
josho
Thanks for baiting me into listening to 30 seconds of crappy music to merely
here "It's the money".

