Wall Street Whistle Blower, the Big Banks and Deeper Realities

Greg Smith, Goldman Sachs Whistle blower.

By Henry S. Cole, Ph.D.

WALL STREET ESSAY:  Thank goodness for folks like Greg Smith. He’s the guy who shocked Wall Street yesterday by resigning from Goldman Sachs. Smith’s reason — his conscience would no longer allow him to work there due to the firm’s treatment of its clients (investors who pay a brokerage fee to Goldman).  According to Smith, Goldman tried to sell troubled stocks to its clients, in order to maximize profits. Smith’s disclosure in a New York Times Op-Ed hit like a tsunami. Immediately, Goldman saw its market value shrink by $2.15 billion.

The revelations raise important questions; here are some of mine.  We ask readers to add their own questions and views. 

 1. Why have the federal enforcement agencies been asleep at the wheel? Or worse, maybe texting while driving to their financial backers on Wall Street. Let’s face it despite pledges by many in Congress and the White House to fix the problem. Goldman is not exactly an insignificant tiny company.  It is a company that according to Simon Johnson and James Kwak is one of the 6 biggest financial firms that has collective assets equal to about 60% of the U.S. Gross Domestic Product (GDP) – one of the Wall Street firms that played a major role in the financial and economic meltdown of 2008—with continued recession. Why so lax? What ever happened to the anti-trust laws?

 

2. Supposed that Goldman goes belly up (no bailout allowed) – would it change the overall situation? Not in my view. There are several bigger problems that need to be addressed. First is the enormous concentration of wealth in a sector that is not doing much for local economies. In fact profits made by local businesses (increasingly owned by big corporations) get sucked into the Wall Street sector. Equally important is the fragility of the global financial market – highly interconnected to what’s going on in the Euro-zone. Yesterday Robert Rubin (formerly of Citi Group and Secretary of the Treasury under Clinton) gave a rather sobering forecast – unless the EU acts soon to address its problems, the consequences will range “from severe to extreme’” within a year or less. (Robert Rubin was interviewed at an Atlantic summit on economic recovery in the United States and globally. I’m not a big Rubin fan, but he should have the inside scoop. (See the program here.)

 Are the other big players so different? What about Bank of America’s illegal practices that forced hundreds of thousands of folks out of their homes? And why was did the state’s attorney generals and justice department enter into a rather generous settlement (for the banks, but not for most of families that were scalped) on the  mortgage fraud case rather than proceed with criminal prosecutions and jail time that would set an example. Forcing people out of their homes is akin to arson. An arsonist would probably get life imprisonment for burning down a single home. What about these guys. For a good and lengthy overview of the big bank mortgage ripoff check out this NY Times post.