Scathing Senate Committee Report About the Banksters of Wall Street

Posted by AzBlueMeanie:

In case you missed this story last week, the Senate Permanent Subcommittee on Investigations released a scathing 640-page report regarding market manipulation by the banksters of Wall Street, based upon a review of tens of millions of documents over two years.

Carl Levin, chairman of the Senate Permanent Subcommittee on Investigations, accused Goldman Sachs of misleading clients and Congress about the firm’s bets on securities tied to the housing market (the unregulated "shadow market" of derivatives trading). Goldman Sachs misled clients, lawmakers on CDOs, Senate panel says – The Washington Post:

Senator Carl Levin, releasing the findings of the two-year inquiry [Wednesday], said he wants the Justice Department and the Securities and Exchange Commission to examine whether Goldman Sachs violated the law by misleading clients who bought the complex securities known as collateralized debt obligations without knowing the firm would benefit if they fell in value.

The Michigan Democrat also said federal prosecutors should review whether to bring perjury charges against Goldman Sachs Chief Executive Officer Lloyd Blankfein and other current and former employees who testified in Congress last year. Levin said they denied under oath that Goldman Sachs took a financial position against the mortgage market solely for its own profit, statements the senator said were untrue.

“In my judgment, Goldman clearly misled their clients and they misled the Congress,” Levin said at a press briefing yesterday where he and Senator Tom Coburn, an Oklahoma Republican, discussed the 640-page report from the Permanent Subcommittee on Investigations.

Much of the blame for the 2008 market collapse belongs to banks that earned billions of dollars in profits creating and selling financial products that imploded along with the housing market, according to the report. The Levin-Coburn panel levied its harshest criticism at investment banks, in particular accusing Goldman Sachs and Deutsche Bank AG of peddling collateralized debt obligations backed by risky loans that the banks’ own traders believed were likely to lose value.

* * *

The panel’s report also examined the role of credit-rating firms in the meltdown, lax oversight by Washington regulators and the drop in lending standards that fueled the mortgage bubble and ultimately caused hundreds of bank failures.

The subcommittee’s findings show “without a doubt the lack of ethics in some of our financial institutions who embraced known conflicts of interest to accomplish wealth for themselves, not caring about the outcome for their customers,” said Coburn. “When that happens, no country can survive and neither can their financial institutions.”

The report is likely Washington’s final official assessment of the turmoil beginning in 2007 that froze credit markets, took down investment banks Bear Stearns Cos. and Lehman Brothers Holdings Inc., sent housing finance giants Fannie Mae and Freddie Mac into government conservatorship and caused the worst economic collapse in the U.S. since the Great Depression.

* * *

The Senate report comes less than a year after Goldman Sachs paid $550 million to resolve SEC claims that it failed to disclose that hedge fund Paulson & Co was betting against, and influenced the selection of, CDOs the company was packaging and selling.

Goldman Sachs, in its settlement with the SEC, acknowledged that marketing materials for the 2007 CDO deal contained “incomplete information.”

* * *

The Senate subcommittee’s bipartisan report, buttressed by 2,800 footnotes and thousands of internal documents from Goldman Sachs and other firms, may have more impact than previous investigations into the crisis.

It’s an open question whether the Justice Department and the SEC will review its findings. Levin does not have the power to refer the allegations to federal authorities on his own.

* * *

The Levin report will be examined by policy makers including the SEC and Commodity Futures Trading Commission, which are writing hundreds of Dodd-Frank rules governing derivatives, mortgage securities and proprietary trading.

* * *

The panel said Goldman Sachs relied on “abusive” sales practices and was rife with conflicts of interest that encouraged putting profits ahead of clients.

* * *

At [Wednesday’s] press briefing Levin called credit rating firms Moody’s Investors Service and Standard & Poor’s “a key cause to the crisis.”

* * *

The raters, which the report says stamped the highest Triple-A grades on securities they knew were souring, were hamstrung by a system that has a built-in conflict of interest, Levin said. The Wall Street banks pay the firms for their ratings, leading to competitive pressure between the firms that may have pushed them to more readily place a high rating on a product.

The panel released nine “findings of fact” on the failures of the credit raters, including inadequate resources, inaccurate rating models and a failure to reevaluate old ratings when they recognized they might be inaccurate.

The raters also “shocked the financial markets” with mass downgrades of thousands of residential mortgage-backed securities and CDO ratings, according to the report.

“Perhaps more than any other single event, the sudden mass downgrades of RMBS and CDO ratings were the immediate trigger for the financial crisis,” the report said.

Repeal every law with former Sen. Phil Gramm's name attached to it and bring back a modern version of the Glass-Steagall Act. Liquidate the exotic speculative casino capitalism shadow markets of derivatives, credit default swaps, etc. And as I've said many times, "somebody's going to emergency, somebody's going to jail." Put a few CEOs and derivatives traders in jail and this theft by the banksters of Wall Street will be brought under control.

Instead, the Tea-Publican Congress wants to kill the modest Dodd-Frank regulatory reforms, and to kill the Consumer Financial Protection Bureau to allow the banksters of Wall Street to return to the unimpaired theft of the nation's wealth. Now that is criminal behavior.