Securities and Exchange Commission (SEC)

To protect investors and taxpayers, go outside the club

Here’s who would be better than President Obama’s pick to head the Securities and Exchange Commission: Almost anybody.

Couldn’t this administration find somebody who has not been spending her time defending too-big-to-fail banks, acting as an apologist for them, and whose law firm was paid to advise the government on the bailout?

That’s a description of Mary Jo White, most recently of the elite Debevoise & Plimpton law firm, one-time U.S. attorney for the Eastern District of New York…. and now the President’s choice to head the SEC.

There’s a long list of qualified people Obama might have chosen if he wanted to go outside the government-financial complex whose members have dominated economic policy, people with credible experience who have honed a critical perspective on the financial industry.

That list would start with Neil Barofsky, the former prosecutor who served as a tough special inspector general of the Troubled Asset Relief Program, better known as the taxpayer-funded bailout. It would also include Bill Black,who helped expose congressional corruption as a fearless federal regulator during the savings and loan scandal of the 1980s, now a University of Kansas City-Missouri law professor and white-collar crime expert – and consistent critic of the Obama administration’s failure to hold bankers accountable. High on the list would be Eliot Spitzer, the one-time attorney general of New York and television commentator and a sharp thorn in the side of bankers and the politicians who protect them. Christy Romero who also be on the list. Like White, she worked as a lawyer at an elite firm, but as the current special inspector general for the bailout she has been a fierce advocate for taxpayers.

Mary Jo White, according to the president, is “tough as nails.” At one time White was a hell of a prosecutor. When she was U.S. Attorney for the Eastern District of New York, though she prosecuted no major bank executives, she won convictions of the New York Mob boss known as Dapper Dan, John Gotti, and the World Trade Center bombers.

That was before she followed the well-worn path from public prosecutor to elite lawyer, joining the white-shoe law firm of Debevoise & Plimpton, where the average partner makes $2.1 million a year.

That was before she got cozy with J.P. Dimon and J.P Morgan, representing them in the widely criticized settlement of foreclosure fraud charges in a case involving 49 state attorneys general, the Feds and the too big to fail banks.

That was before representing Bank of America’s Ken Lewis on fraud charges and Morgan Stanley’s John Mack in an SEC insider-trading investigation.

Once she got through the revolving door, she worked the system on behalf of her clients, becoming a consummate well-paid insider in the Wall Street-Washington power nexus. In the process of strenuously protecting Mack from an interview at the SEC, White got herself into the middle of a full-fledged scandal, using her clout to help get a whistleblower at the federal agency canned, according to Rolling Stone’s Matt Taibbi. In addition, White’s husband is another veteran of the revolving-door, working as a top SEC official as well under previous do-nothing SEC commissioner Christopher Cox, in between stints as a bankers’ lawyer.

One fact that tells you al you need to know about what’s wrong with White as a banking enforcer is that her former client, Jamie Dimon told Fox Business News that White was “perfect” for the SEC job.

White might have made a better candidate to protect investors at the SEC if, since the bailout, she had expressed one iota concern about bankers’ excess, fraud or recklessness that led to the financial collapse.

Instead, White has expressed concern about prosecutors unfairly targeting bankers to get scalps to feed the angry public’s thirst for justice. In a legal brief on Lewis’ behalf, White wrote: “Some have looked to assign blame for every aspect of the financial crisis...This case is a product of that dynamic and does not withstand legal or factual scrutiny.”

In remarks at a New York University Law School event last year, White said: “You should be aggressive where there is a crime,” but prosecutors shouldn’t “fail to distinguish what is actually criminal and what is just mistaken behavior, what is even reckless risk-taking, and not bow to the frenzy.”

Her law firm meanwhile was itself cashing in on the bailout, receiving a contract worth $159,175 as one of 16 law firms Treasury hired to work on the bailout, American Lawyer reported.

White obviously lives in a far different world from most Americans, who are still rankled that so few bankers have been held accountable for the financial collapse.

Maybe it’s understandable that in her role as defender of too-big-to-fail bankers, she didn’t express much empathy for investors who lost savings, for cities and towns ravaged by foreclosure or workers laid off in the worst economic downturn since the Great Depression.

And it probably wouldn’t have endeared her to her clients if she had expressed outrage at the bankers’ epic greed and recklessness that led them to wreck our economy.

In her new job, she will face many tough challenges; overseeing implementation of many of the Dodd-Frank financial reform’s unfinished regulations, and convincing a deficit-obsessed Congress and president to beef up staffing and salaries at her chronically underfunded agency so that it can compete with her former colleagues at the fancy law firms. It’s hard to imagine White rising to this challenge, especially since after her SEC tenure she’ll probably head back to a big Wall Street firm.

Don’t get me wrong, I don’t believe there’s anything wrong with representing bankers – or mob bosses. Our legal system works best when both sides have strong, aggressive advocates. White made her choice to leave the relatively poorly paid public sector to join a private firm and provide bankers a “tough as nails” defense lawyer. But does that really qualify her as the best person to lead the SEC, an agency already reeling from a lack of credibility for not pursuing fraud in the financial sector aggressively enough? Don’t investors and taxpayers deserve protection from somebody whose primary concerns since the bailout haven't been profiting from it and keeping bankers comfortable?

Strong message for weak leaders

A New York jury didn’t just acquit a midlevel Citibank executive, they sent a strong, clear message to Washington.

The only question is, how do we get Washington to start listening?

The message came along with a not guilty verdict in the case of a Citibank executive, accused by the SEC of negligence for failing to provide disclosures to clients that his own bank was betting against the complex financial packages that the bank was selling.

Brian Stoker’s lawyer argued that he was just one of many who were doing the same thing in Citibank’s employ.

The attorney argued that it was others, higher up the chain of command at Citibank, who had committed the misconduct.

Evoking the child’s book, “Where’s Waldo?” the lawyer, John Keker, invited jurors find those hidden characters who were really to blame.

Not only did the jurors acquit Stoker, they wrote an unusual letter to the SEC: “This verdict should not deter the SEC from continuing to investigate the financial industry, review current regulations and modify existing regulations as necessary,” the jurors wrote.

Twenty-three year old juror Travis Dawson told the New York Times: “I’m not saying that Stoker was 100 percent innocent, but given the crazy environment back then it was hard to pin the blame on one person. Stoker structured a deal that his bosses told him to structure, so why didn’t they go after the higher-ups rather than a fall guy?”

And the jury foreman, Beau Brendler, told American Lawyer magazine: ”I would like to see the CEOs of some of these banks in jail or given enormous fines,” he said, “not a lower level employee.”

In a separate case, Citibank has already agreed to pay a fine on the collateralized debt obligations at the heart of the case against Stoker.

While the Justice Department is touting that civil fines for fraud have skyrocketed, the Times reported that prosecutions against individuals, especially those at the top, are rare to nonexistent.

“A lot of people on the street, they’re wondering how a company can commit serious violations of securities laws and yet no individuals seem to be involved and no individual responsibility was assessed,” Sen. Jack Reed, Democrat of Rhode Island and chairman of a subcommittee that oversees securities regulation, said at a recent hearing.

The SEC has been hobbled by 20 years of inadequate funding and a revolving door that delivers SEC lawyers right into jobs with the firms that they’re supposed to be regulating, or with the law firms that represent those firms.

And that’s not the worst of it.

Prosecutors take their cues from the top. The Obama administration, from the president to his treasury secretary, Tim Geithner and his attorney general, Eric Holder, has consistently blamed the 2008 financial collapse on stupidity and greed but said that most of the worst banker conduct was not illegal. President Obama has paid only lip service to holding bankers accountable while doing nothing.

The most recent example is a mortgage fraud task force the president announced in January. It took months to get staff and office and the task force has done little more than issue a couple of subpoenas and some press releases.

So it’s no wonder that the SEC continues to avoid pursuing the financial elite.

Meanwhile, both presidential candidates and the big media continue to ignore the issue of banker accountability.

As Mike Lux has pointed out, in the 2010 exit polls, 37 percent of voters blamed Wall Street for the on-going weak condition of the U.S. economy. Those voters, who are angry at Wall Street and skeptical of government, had voted 2 to 1 for Obama in 2008, but in the midterms, broke 56 to 42 percent Republican. They now view the president as a “Wall Street liberal.” These voters have no illusions about Romney, but given the choice, they will favor the candidate who promises to lower their taxes and reduce the deficit, according to Lux.

Can our political leaders hear the message that the New York jury is sending? Or has the money that rules our political system completely drowned it out?

Contact your representative and let them know we haven’t forgotten all the promises to hold Wall Street accountable for its misdeeds.

Citibank / Martin Column / Securities and Exchange Commission (SEC) - 08/10/2012

Task Force Deja Vu

MoveOn.org and other groups are declaring President Obama’s announcement of a new task force to investigate foreclosure fraud a significant victory.

These groups deserve credit and thanks for mobilizing people to call the White House and state attorneys general and organizing protests to push back against a weak proposed settlement of foreclosure fraud charges against big banks, without having first fully investigated the allegations.

But before we get too carried away with the celebrations, I think it’s worth examining the president’s announcement with a healthy dose of skepticism.

Because we’ve heard it all before.

In 2009, the Obama administration convened, with great fanfare, the “”Financial Fraud Enforcement Task Force,” which included officials from the Justice Department, Treasury, Housing and Urban Development, and the Securities and Exchange Commission.

Announcing the task force, U.S. Attorney General Eric H. Holder said it mission was to the mission was to prosecute the financial fraud that led to the 2008 economic collapse.

“Mortgages, securities and corporate fraud schemes have eroded the public's confidence in the nation's financial markets and have led to a growing sentiment that Wall Street does not play by the same rules as Main Street,” Holder said.

State attorneys general then formed their own mortgage fraud working group to work with federal authorities.

These previous efforts haven’t produced noteworthy results – no criminal charges have been brought against major bank executives, and no major policy changes have been put in place to force banks to help homeowners.

The 2009 task force was not exactly targeting the titans of Wall Street. As these high-profile task forces like to do, this one gave its “operations” hokey names like Operation Stolen Dreams and Operation Broken Trust that make everybody but the prosecutors cringe.

Touting Operation Broken Dreams in 2010, prosecutors bragged that it had netted 330 convictions related to mortgage fraud – but it focused on borrower, not bank fraud. While Operation Broken Trust focused on investment fraud, among its 343 criminal cases, it focused on lower-level fraudsters.

There was not a single case against a Wall Street banker.

While prosecutors often build cases against higher-ups using those lower in the food chain, that doesn’t seem to be the case with the 2009 task force.

In other words, the 2009 task force hasn’t done anything that would interfere with the flow of political contributions from Wall Street.

Evaluating the task force’s work, the Columbia Journalism Review found it more publicity stunt that real prosecution effort.

Meanwhile, the state AG’s efforts stirred MoveOn.org and other organizations to action. A handful of state AGs are balking at the inadequate proposed settlement, and California’s attorney general, Kamala Harris has joined with Nevada’s attorney general in walking away from the proposed settlement and pledging a real investigation into the foreclosure mess.

There are plenty of other reasons to be skeptical of the President’s newly- anointed task force, rounded up here by Dave Dayen on Firedoglake. While one of its co-chairs, New York Attorney General Eric Schneiderman, appears to be the genuine deal in his intention to crack down on financial crime, he’s being babysat (co-chaired) by two administration lawyers with dubious backgrounds when it comes to getting tough on bankers.

Robert Khuzami, head of enforcement at the SEC, used to be general counsel at Deutsche Bank, overseeing its huge risky investments in mortgages. Shouldn’t Deutsch Bank be a prime target of the task force?

At the SEC, he’s presided over several settlements that appeared to be overly generous to banks. Another other co-chair is the head of Justice’s criminal division, Lanny Breuer, who has been apologist in chief for the agency’s lack of aggressiveness in going after too big to fail bankers.

As a private lawyer, Breuer worked at the Washington D.C. law firm Covington & Burling, which represented too big to fail banks Bank of America, Well Fargo, Citgroup and JPMorgan Chase as well as MERS, the Mortgage Electronic Registration Service, a concoction of the real estate finance industry that runs a vast computerized registry of mortgages that has been at the center of complaints about false and fraudulent documents in the foreclosure process.

Breuer and Khuzami both played prominent roles in the president’s previous financial fraud task force, as members of its securities and commodities fraud working group.

The bottom line is that the new task force is only needed because of the abject failure of the administration’s previous efforts to prosecute the fraud at the heart of the financial meltdown.

According to statistics gathered by Syracuse University’s Transactional Records Access Clearinghouse, despite all the prosecutors’ puffery about their inanely named operations, financial fraud prosecutions fell to a 20-year low in 2011, continuing a decade-long downward trend.

If this new task force is not going to be a fraud itself, Khuzami and Breuer have to go. They should be replaced by real prosecutors without close ties to the big bankers.

Though you wouldn’t know it from the Obama administration, people like that do exist.

Blogger Abigail Field nominates two crackerjacks – Neil Barofsky, the tough former inspector general of the bailout, and Patrick Fitzgerald, U.S. attorney for the northern district of Illinois, who has successfully pursued several high-profile cases, including the perjury conviction of Scooter Libby, former VP Dick Cheney’s chief of staff.

So after you finish that glass of champagne celebrating the new task force, it’s time to get back on the phone. Here’s the president’s number.

Tell the president we don’t need another task force. We need prosecutors who aren’t compromised and who aren’t afraid to do their jobs.

California Attorney General Kamala Harris / Foreclosures / Martin Column / President Barack Obama / Securities and Exchange Commission (SEC) - 01/27/2012

Financial Regulator Makes Itself the Target

You might think that after missing the Bernard Madoff scandal despite repeated warnings, going soft on the big banks and other questionable decisions, the Securities and Exchange Commission couldn’t get any more embarrassed.

You would be wrong.

By now you know just how lax federal authorities have been in holding any of the too big to fail bankers accountable for our economic meltdown.

The chief culprits in looking the other way on financial fraud are the Justice Department and the Securities and Exchange Commission.

But never fear, the Justice Department has leaped into action – to investigate the SEC itself for possible fraud!

Even if it doesn’t turn out to be actual criminal fraud, the mess the SEC got itself into is likely to undermine whatever remaining shred of confidence you’ve got in the troubled financial regulator and undermine its credibility.

The SEC’s latest debacle stems not from one of its investigations but from some internal agency business. It seems that agency officials signed a $557 million lease for office space it didn’t need and couldn’t afford in downtown Washington D.C. – without competitive bidding.

Among the gory details: the agency’s chief, Mary Schapiro, apparently approved the lease in a 10-minute meeting without asking any questions. Also, the agency’s inspector general found that a key document justifying the lease was dated a couple of days after the lease was made, but was actually created a month later.

When the SEC realized the Congress wasn’t going to fund it at the optimistic levels the agency had projected, SEC officials tried to back out of the lease and the owner of the office space demanded $94 million in damages.

Of course, congressional Republicans couldn’t be happier to find such ineptitude on the part of top Obama administration officials.

For Schapiro, the leasing fiasco is only the latest to raise serious questions about her leadership and judgment. Earlier, when the SEC finally did get on then Madoff case, she allowed the SEC general counsel to make crucial recommendations to increase how much Madoff’s victims would be compensated – even though the general counsel’s mother was among the victims. Schapiro told a congressional hearing that she knew of the general counsel’s personal Madoff link but allowed him to stay on the case.

When he appointed Schapiro in December 2008, President Obama praised her as “smart and tough.” She may well be. But in her performance at the SEC, she hasn't demonstrated it.

If President Obama wants to continue to signal that he’s in bed with the big banks, that he’s clueless when it comes to the notions of accountability and government ethics, and that government actually is just a cesspool of waste and incompetence, he should hang on tight to Schapiro.

But if he doesn’t, he should sack her immediately and find somebody who can do the job.

Martin Column / Securities and Exchange Commission (SEC) - 07/09/2011

Real Fraud, Faux Enforcement

The number one question people ask me when they find out I write about the financial crisis is: “How come nobody has gone to jail?”

I think I have found an explanation. His name is Robert Khuzami and he works as chief of the Securities and Exchange Commission’s enforcement division.

He is not the literal reason. SEC enforcement is civil, not criminal. So he’s not responsible for putting people in prison.

But focusing on Khuzami puts into sharp focus the conflicts at the heart of the government’s efforts to regulate and hold accountable the big banks.

Khuzami is a former federal prosecutor. But he came to the SEC from a high-profile position he took after his stint as a lawman: he served as general counsel to Deutsch Bank, one of the world’s largest investment banks, which had a massive business in the securitized mortgage loans, and was the recipient of nearly $12 billion in “backdoor bailout” federal funds funneled through AIG.

The Wall Street Journal reported that Khuzami was the first SEC enforcement chief to come directly from a big bank. He is one in a long line of Obama economic appointments with strong ties to the financial industry, who either worked for the banks directly or in their interests by favoring deregulation that was one of the major causes of the economic collapse.

Now Khuzami’s former employer, Deutsch Bank, is in hot water with the feds, who sued the bank earlier this month alleging that the “bank committed fraud and padded its pockets with undeserved income as it repeatedly lied so it could benefit from a government program that insured mortgages,” Business Week reported.

For the SEC, it’s all kosher because its stringent recusal policy assures that Khuzami won’t work on any Deutsche Bank cases.

Remember that Khuzami was not just a guy punching a clock. He was the bank’s general counsel, so he supervised legal issues for the firm.

So here was a former federal prosecutor who, in the midst of the go-go real estate boom, apparently thought it was OK for his bank to commit mortgage fraud. Zero Hedge dug up his financial disclosure statement, which reveals he was compensated nearly $4 million in salary and bonuses between 2006 and 2009, and may lose money if Deutsche Bank suffers as a result of the government’s lawsuit.

The president and the SEC, knowing what kind of mischief the too big to fail banks were engaged in during the boom, and how Khuzami had profited from it, thought it was a terrific idea to appoint somebody like him to go after his former cronies.

Khuzami’s tenure at SEC has been marred by accusations that he gave two Citibank executives preferential treatment in agreeing to drop charges against them after he met secretly with their lawyer. In January, the SEC’s inspector general said it was investigating the matter.

Is there no one but former bankers available to work in the financial sector? The president, with $1 billion to raise to fund his reelection effort, has been unwilling to dig into the fraud at the heart of the financial collapse. Until he does, the economic recovery will be built on quicksand.

AIG / Martin Column / President Barack Obama / Securities and Exchange Commission (SEC) / Too Big To Fail - 05/11/2011

Culture of Greed 1, Crackdown 0

When President Obama appointed his new chief of the Securities and Exchange Commission, he promised she would “crack down on the culture of greed and scheming.”

But that culture seems to be getting the better of Mary Schapiro after the resignation of her agency’s top counsel, amid allegations of questionable ethics.

That former top counsel, David Becker, is among those whose family actually made money from the massive frauds of Bernard Madoff.

As SEC general counsel, Becker recently argued for a change in policy that would have allowed his family to keep more of the fortune they made from Madoff, rather than turning it over to pay those who lost money.

Becker might have been considered a curious choice for a new tougher SEC, considering that during an earlier stint as a top SEC lawyer earlier in the decade, Becker was among those who failed to crack down on Madoff, despite highly publicized warnings.

Now Becker has decamped back to the corporate firm from where he came, leaving Schaprio, his former boss, sputtering about what she can and can’t say about what she knew about Becker’s Madoff investments and when she knew it.

This is, of course, catnip to the Republicans looking for any opportunity to embarrass the Obama administration. Never mind that they oppose any kind of regulation of the financial industry at all.

What a great gift Schapiro and Becker have handed Republicans: proof that the Obama administration’s promises to protect us from the “culture of greed and scheming” were nothing more than a sham. Meanwhile, Becker slams the swinging door in our faces and goes back to his real job – representing the interests of big banks and financial interests.

Around the Web / Martin Column / Securities and Exchange Commission (SEC) - 03/09/2011

SEC TO Mozilo: Fraud Pays

The SEC is at it again. They’re bragging that the agency nailed the largest penalty of its kind in history against the king of the subprime lenders for defrauding his shareholders.

And no doubt, $65 million dollars sounds like a lot of money.

But when you remember how much money Angelo Mozilo raked in during his reign, and when you break down the details of the SEC fine, it doesn’t add up.

It certainly doesn’t add up to much in the way of punishing Mozilo.

As usual when the SEC settles the civil charges it files, Mozilo and his two former colleagues admitted no wrongdoing as part of their settlement.

The SEC accused Mozilo, the butcher’s son who rose to be the president of Countrywide, of keeping from shareholders his fears that his collection of subprime loans was trash while reassuring his stockholders that everything was hunky-dory.

Federal prosecutors are still poking around in the ashes of Countrywide, and maybe they will come up with something.

But so far here’s the scorecard on Mozilo: the SEC said he received $141.7 million as a result of fraud and insider trading. They fined him $22.5 million.

As the Center for Public Integrity points out, that means he has give back just 16 cents of every ill-gotten dollar he got.

In addition, the SEC touts the $45 million that Mozilo will have to turn over to Bank of America shareholders, though that money won’t come out of Mozilo’s very deep pockets. That will come from his insurer and the company that bought Countrywide, Bank of America.

The fines seem even slighter when you contemplate what Mozilo was paid in his days as master of the universe.

In his time as executive chairman of Countrywide between 1999 and 2008, he was paid a total of $410 million in salary, bonuses and stock options.

In 2007, when the company’s stock tanked, dropping from $40 to under $10, Mozilo had an off-year too. He was only paid $10.8 million.

In perspective, this doesn’t seem like much for the SEC to brag about. Sixteen cents on the dollar certainly isn’t going to strike fear into the heart of any business titan.

Martin Column / Securities and Exchange Commission (SEC) - 10/19/2010

Around The Web: Nothing Natural About Financial Disaster

Maybe this is the one that will finally cause people to take to the streets.

The crack investigative journalists at Pro Publica and NPR’s Planet Money have uncovered the latest evidence of how the big bankers schemed to keep their bonuses and fees coming by creating a phony market for their mortgage-backed securities, which were tumbling in value as the housing market tanked in 2006.

The Pro Publica/NPR investigation shows how the bankers from Merrill-Lynch, Citigroup and other “too big to fail” financial institutions undermined a system of independent managers who were supposed to be evaluating the value of the securities. The banks simply browbeat the managers into buying their products rather than face losing the banks’ business.

Meanwhile, the bankers continued to make money off every deal, even though the rest of us paid a high price for their continued trafficking in complicated financial trash.

Then when the entire business unraveled in the financial collapsed, these bankers got a federal rescue and a return to profitability.

Pro Publica acknowledges it’s complex material, so they’ve accompanied their investigation with a cartoon and graphs to make it easier to understand.

My WheresOurMoney colleague Harvey Rosenfield wrote recently about the falseness of the claim that either Hurricane Katrina or the financial collapse were primarily natural disasters. The NPR/ProPublica investigation is yet more evidence that the bankers’ irresponsible self-dealing turned a downturn in the housing market into full-blown catastrophes.

Writing on his blog Rortybomb, Mike Konczai hones in on the stark contrast in the fate of the bankers and many of the rest of us: “Remember that by keeping the demand artificially high for the housing market in the post-2005, these banks created its own supply of crap mortgages. These mortgages inflated and then crashed local housing prices. Meanwhile the biggest banks got tossed a lifeline and homeowners can’t even short sale their home much less have a bankruptcy judge that can set their mortgage to the market price with a large penalty. And everyone lines up to tell those people what ‘losers’ they are, how `irresponsible’ they’ve been for being pulled into becoming the artificial supply for artificially created demand of housing debt. What sad times we are living in.”

Meanwhile the SEC is supposedly investigating the self-dealing. We’re still waiting for the tougher new SEC that the Obama administration promised. In the latest indication that we may have to wait a while longer, a federal judge has rejected the agency’s proposed $75 million settlement with Citibank over charges that the bank misled its own shareholders about the shrinking value of its mortgage-backed securities. The SEC said the bank misled investors in conference calls by saying its subprime exposure was $13 billion, when it was actually more than $50 billion. Among the pointed questions the judge asked: Why should the shareholders have to pay for the misdeeds of the bank executives, and why didn’t the SEC go after more of the executives?

The judge’s questions about accountability mirror the uneasy questions a lot of us have about this administration’s reluctance to take on the bankers whose behavior led to ruin for the country while they profited.

Around the Web / Derivatives / Executive Pay / Martin Column / Outrage / Securities and Exchange Commission (SEC) / Too Big To Fail / Uncategorized - 08/31/2010

Around the Web: SEC Takes a Bite of Squid

So is it just coincidence that the SEC brings it first major fraud case against “a too big to fail” Wall Street bank just as the president and the Democrats gear up for battle over financial reform in the Senate?

I don’t think so. Not any more than it’s an accident that a Senate committee was holding a continuing series of tough hearings on the Washington Mutual collapse putting WAMU’s lame leadership and regulators under the harsh glare of the spotlight. Story here, documents here.

Last year, journalist Matt Taibbi immortalized Goldman in Rolling Stone as the “world’s most powerful investment bank…a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”

That may have sounded like colorful hyperbole at the time. But now with what we know about how Goldman functioned in Greece, California and other places, it turns out to be a factual statement.

The SEC has charged Goldman with deceiving investors who bought collateralized debt obligations tied to the performance of residential mortgage-back securities. The press release is here; complaint here. The investment bank failed to tell the investors that a hedge fund that had played a major role in selecting the collection of mortgages that went into the CDO was also taking a short position against the CDO, according to the SEC complaint. Meaning Goldman and the hedge fund knew the mortgages stunk but peddled it to investors anyway. Nice.

“Goldman wrongly permitted a client that was betting against the mortgage market to heavily influence which mortgage securities to include in an investment portfolio, while telling other investors that the securities were selected by an independent, objective third party,” said Robert Khuzami, the director of the SEC's Division of Enforcement.

Also charged is a 31-year old Goldman senior VP, Fabrice Tourre, the author of the following 2007 email to a friend, quoted in the SEC complaint, which should become an especially potent weapon in the fight to bolster financial reform as it moves through the Senate in the coming weeks.

“More and more leverage in the system, The whole building is about to collapse anytime now...Only potential survivor, the fabulous Fab[rice Tourre]...standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstruosities!!!”

Goldman-Sachs / Martin Column / Securities and Exchange Commission (SEC) - 04/16/2010

Around the Web: How a Big Bank Shows Its Gratitude

While the mainstream press has focused on the dubious notion that the Citibank bailout will turn out to be a good deal for taxpayers, the Center for Media and Democracy tallies up the real cost of the entire bailout so far: $4.6 trillion, with $2 trillion outstanding.

Most of that money comes from the Federal Reserve, not the Troubled Asset Relief Program, which amounts to a measly $700 million. The Fed bank dole is handled in complete secrecy, which is why Bloomberg News is suing to get the Fed to open its books, which got the WheresOurMoney treatment here.

As for Citibank and the supposed bonanza for taxpayers, Dean Baker takes it apart in this Beat the Press column. In any case, Citibank is eternally gratefully to taxpayers. Here’s how they’re showing it.

Get out the popcorn. Phil Angelides’ Financial Crisis Inquiry Commission is gearing up for another round of hearings April 7 through 9, this one on subprime loans and scheduled to feature former Fed chair Alan Greenspan, who before the bubble burst, used to take pride in being able to obfuscate any economic issue. If Angelides thought Goldman’s CEO was like a salesman peddling faulty cars, I wonder what he makes of Greenspan, who worshipped the financial deregulation that made the wreck not only possible, but probable.

Angelides meanwhile, appears to be playing down expectations for the FCIC, kvetching to the Wall Street Journal’s editorial board about the small size of the panel’s budget ($8 million) and short time frame (final report due in December).

While everybody was bowing down to Greenspan, they should have been listening to Harry Markopolos, the man who was tried to blow the whistle on Bernie Madoff but was repeatedly ignored by the SEC. Now he’s written a book. He doesn’t think the SEC has improved much. Russell Mokhiber has a good interview with Markopolos in his Corporate Crime Reporter.

Around the Web / Federal Reserve / Financial Crisis Inquiry Commission / Securities and Exchange Commission (SEC) - 04/01/2010