Wall Street’s Excesses Exposed

The Goldman Sachs scandal shows how the investment bank, at the time of the “subprime” crisis, placed its own interests above those of its clients. This Tuesday, Senator Levin will ask Lloyd Blankfein, its CEO, for explanations.

Are they guilty? Justice has not yet rendered its verdict. Did they sin? Yes, obviously.

Since 16 April, the date of a fraud charge lodged by the U.S. Securities and Exchange Commission against Goldman Sachs, the evidence has mounted. Through damning e-mails that have been made public, one realizes the extent to which the directors of the most profitable bank in the history of Wall Street have violated the ethics of its founding fathers: to always put the clients’ interests above its own. How far we are from the idea that financial innovation aims to facilitate access to property for those excluded from the mortgage market!

An investigation, led by Senator Levin, into the responsibility of investment banks in the financial crisis will allow the achievement of something that remains a dream for many: summoning the directors to explain themselves.

The hearings this Tuesday will not only make them confront their abuses, but will also serve as a tribunal against excessive enrichment at any cost. The market has already punished Goldman Sachs: in ten days its stock lost nearly 20% of its value.

The scandal thus spreads beyond the establishment over which CEO and Chairman Lloyd Blankfein resides. In reality, it sounds like a warning issued to all the other Wall Street banks whose practices have certainly been similar. Impossible, almost, to separate this case from the financial reform that President Obama is calling for.

However, the match is far from being won. Technically, on one hand, because the envisaged solutions, such as banning certain activities, are complex. Politically, on the other hand, because the banks hold both Democrats and Republicans by the purse strings. Wall Street was among the largest donors during the last presidential campaign. Will those elected have the courage to saw off a huge branch on which they have rested?

The fact remains that without a change in the heart of the largest marketplace, New York, it is useless to hope that the rest of the financial planet will budge. This is the case in Switzerland where, last week again, the commission charged by the Federal Council to resolve the case of businesses too big to fail — in short, UBS and Credit Suisse — presented minimal solutions.