From “too big to fail” to “too big to prosecute,” Wall Street investment banking firm Goldman Sachs— whose deceptive behavior to its own investors was found by a bipartisan Senate investigation to have contributed to the 2008 financial meltdown that precipitated the Great Recession — will get away scot-free. The Department of Justice announced Thursday that its investigators had “concluded that the burden of proof to bring a criminal case could not be met based on the law and facts as they exist at this time.”

 

On August 3, a Goldman spokesman not surprisingly, said, “We are pleased that this matter is behind us.” Only three days earlier, Goldman had reported quarterly profits of “only” $927 million, an annual rate of “merely” $3.7 billion. Since 2008, Goldman partners and employees have made campaign contributions totaling $13.8 million, almost evenly divided between Democratic and Republican recipients, though in the current cycle 70% has gone to Republican candidates, according to watchdog Web site OpenSecrets.

 

Senate investigators, who pored over thousands of internal memos and emails and interviewed numerous Goldman employees and regulators, concluded that Goldman profited both before and during the 2008 crisis by betting billions against investments it was simultaneously promoting to its clients, misleading them and lawmakers along the way. Internal emails revealed Goldman employees referring to investments they were selling to clients as “junk,” “dogs,” “big old lemons,” “monstrosities,” “crap,” and “shitty deals.” These actions “created conflicts of interest with the firm’s clients and at times led to the bank’s profiting from the same products that caused substantial losses for its clients,” according to the Senate report.

 

Sen. Carl Levin (D-Michigan), the subcommittee’s chairman, stood by the report’s conclusions. “Whether the decision by the Department of Justice is the product of weak laws or weak enforcement, Goldman Sachs’ actions were deceptive and immoral,” Levin said. In the one case DOJ has prosecuted, a federal jury in 2009 acquitted two Bear Stearns employees of lying to investors about the soundness of the securities they were selling.

 

The DOJ announcement followed a Goldman regulatory filing Thursday stating that the Securities and Exchange Commission (SEC) had decided not to file charges against the firm over a $1.3-billion subprime mortgage portfolio that was offered to investors in 2006. In 2010, Goldman agreed to pay $550 million to settle other SEC allegations that the bank misled investors who bought some mortgage-related securities.

 

Neil Barofsky, the former special inspector general for the Troubled Asset Relief Program who has often criticized the Obama administration’s handling of the crisis, wrote that the DOJ and SEC decisions are “a stark reminder that no individual or institution has been held meaningfully accountable for their role in the financial crisis. Without such accountability, the unending parade of megabank scandals will inevitably continue,” Barofsky concluded.

- Matt Bewig

 

To Learn More:

Goldman Sachs Won't Face U.S. Charges for Mortgage Securities (by Jim Puzzanghera, Los Angeles Times) 

What Goldman Sachs Did and the Justice Department Didn’t (by Jonathan Weil, Bloomberg)

Federal Investigators Punt on Goldman Sachs Prosecutions (by Ben Hallman, Huffington Post)

Wall Street and the Financial Crisis: Anatomy of a Financial Collapse (Senate Permanent Subcommittee on Investigations) (pdf)