Live Chat: Robert Scheer on the Goldman Hearings

BLANKWill the Goldman Sachs hearings really accomplish anything? Are the Democrats just showboating? What are the prospects for real financial reform? Robert Scheer answers these reader questions and more.

The following is a full transcript of a live chat held Thursday, April 29th at 11:30 AM PT.

11:34 Truthdig
Thu, 29 Apr 2010 19:34:02 GMT
Comment:

Welcome readers, feel free to chat amongst yourselves while we wait for Robert Scheer.

11:34 Comment From Tony B

Thu, 29 Apr 2010 19:34:59 GMT
Comment: Hi room.

11:35 Comment From Guinevere
Thu, 29 Apr 2010 19:35:01 GMT
Comment: Hi everyone.

11:38 Comment From Lynne
Thu, 29 Apr 2010 19:38:08 GMT
Comment: Hi

11:39 Truthdig
Thu, 29 Apr 2010 19:39:38 GMT
Comment:

Robert Scheer just walked in, sorry for the delay — let’s get started!

11:40 Truthdig

Thu, 29 Apr 2010 19:40:32 GMT
Comment:

Let’s start with a reader question: Lawrence – San Francisco, CA Isn’t the focus on Goldman Sachs going to look like they are just a bad apple amongst the Wall Street gang instead of being poster boys for the way all those businesses work? I didn’t watch the whole thing. Did any senator ask of any of the Goldman boys if what they did was standard Wall Street practices? It was maddening to watch.

11:41 Robert Scheer

Thu, 29 Apr 2010 19:41:03 GMT
Comment:

Good point.

11:41 Robert Scheer

Thu, 29 Apr 2010 19:41:43 GMT
Comment:

The fact is that, as a couple of senators pointed out, and Goldman was happy to agree, that chicanery is the norm. And there wasn’t anything Goldman did that was qualitatively different than what the other Wall Street hustlers have been doing, except they were more brazen and therefore more profitable.

11:41 Robert Scheer

Thu, 29 Apr 2010 19:41:58 GMT
Comment:

And the SEC has said that it is going after all of the other firms for very similar practices.

11:42 Comment From Guinevere

Thu, 29 Apr 2010 19:42:15 GMT
Comment: Republicans and others are pointing to the timing of the Goldman Sachs hearings as suspicious — in light of Obama’s impending push for financial reform. What do you say to that, Robert?

11:42 Robert Scheer
Thu, 29 Apr 2010 19:42:37 GMT
Comment:

I say nonsense.

11:43 Robert Scheer

Thu, 29 Apr 2010 19:43:21 GMT
Comment:

The SEC in fact was very slow to take up this issue, did nothing under George W. Bush; finally has a few principal Democrats on board, and has moved ahead to do their job.

11:43 Truthdig

Thu, 29 Apr 2010 19:43:25 GMT
Comment:

Another question from a reader: ArchivesDave – Washington Your take please on Glenn Beck’s latest expose of the Chicago Climate Exchange and G.S. backing along with several other Lightning Rods.

11:43 Robert Scheer

Thu, 29 Apr 2010 19:43:33 GMT
Comment:

Too slowly, I’d say.

11:44 Comment From Stephen

Thu, 29 Apr 2010 19:44:22 GMT
Comment: My question is about the other side of the trades that make Goldman, and the other trading firms, so much money. In an expanding economy, you could say that since Microsoft went from $20/share to $30/share, Goldman made the money from growth. But in a stable or shrinking economy, there has to be a counterparty who lost the same amount of money. With $10B profit, who is the counterparty? Who lost $10B?

11:44 Robert Scheer
Thu, 29 Apr 2010 19:44:23 GMT
Comment:

(To ArchivesDave) I’m not familiar with the details.

11:46 Robert Scheer

Thu, 29 Apr 2010 19:46:24 GMT
Comment:

Well, the counterparties are the people; a number of them are suing Goldman Sachs, alleging that they sold fraudulent products, including pension funds that represent the future of many ordinary people, and what is significant to understand in the SEC charge, amplified in the Senate investigation by other instances, is that these packages, these synthetic CDOs, were designed to fail. That’s the significance of the Paulson connection that was not revealed. They weren’t taking a good-faith bet on the market, they were being sold a bill of goods.

11:46 Truthdig

Thu, 29 Apr 2010 19:46:35 GMT
Comment:

Ralph Kramden – Santa Rosa Sort of two questions in one: If Tony B. represents the right in “LR&C,” who would be a similar representative on the left, given his job at the Washington Times and his work with Gingrich? Furthermore, how can you take someone who works for the Washington Times seriously?

11:48 Robert Scheer

Thu, 29 Apr 2010 19:48:20 GMT
Comment:

Sometimes it is difficult for me to take anyone on the hard right seriously, because they come on as false populists, claiming to be concerned about the well-being of the average taxpayer, while as we saw in both the Reagan and Bush administrations quite willing to spend the taxpayers’ money with wild abandon on unnecessary defense expenditures, and on tax breaks for hedge funds, and other gifts to people who don’t need it. Welfare for the rich has been their MO at the very same time that they claim they are committed to cutting taxes.

11:48 Robert Scheer

Thu, 29 Apr 2010 19:48:36 GMT
Comment:

However, in that crowd, I find that Tony at least has a sense of humor, and is bright enough.

11:48 Comment From Lynne

Thu, 29 Apr 2010 19:48:39 GMT
Comment: I think the hearings are important and it is clear that everything GS did was unethical but was it actually illegal? Is there really any chance anyone can be effectively prosecuted?

11:49 Robert Scheer
Thu, 29 Apr 2010 19:49:10 GMT
Comment:

That’s the $64 billion question.

11:50 Robert Scheer

Thu, 29 Apr 2010 19:50:52 GMT
Comment:

The problem is that Goldman Sachs was well represented in the government during the last 20 years when radical deregulation of the derivative market became the law. And you’re quite right given the Commodity Futures Modernization Act, pushed through when ex-Goldman Vice Chair Robert Rubin was treasury secretary in the Clinton administration, and expanded in scope under George W. Bush when ex-Goldman Chairman Henry Paulson was also secretary of treasury. There is very little in the way of legal protection for the unsuspecting customer of stocks, and I expect that they will skate on this with a fine that they can easily absorb.

11:50 Comment From P. T.

Thu, 29 Apr 2010 19:50:54 GMT
Comment: I have not followed all the ins and outs, but it sounded kind of like one of the bundles of subprime mortgages was created just so the hedge fund could short it? Is that your sense of things?

11:52 Robert Scheer
Thu, 29 Apr 2010 19:52:42 GMT
Comment:

Worse than that, we now know of five such packages, but they aren’t even real packages, in the sense that somebody put money up to actually help a human being get a house. These were synthetic bets on what would happen to packages of real mortgages. And the problem is that the games that were played, resulting in a bubble in the market with tremendous run-up of prices, were bound to crash, and Goldman, while it was selling those suspect products, was betting on the crash, and came out very rich as a result.

11:52 Comment From Guinevere

Thu, 29 Apr 2010 19:52:46 GMT
Comment: Do you think anything will be done to change the way bonuses are doled out on Wall Street — e.g., linking them to something other than the bottom line — given how that motivates execs to turn a blind eye to how exactly those profits are made?

11:52 Truthdig Pete
Thu, 29 Apr 2010 19:52:55 GMT
Comment:

Feel free to submit more questions while Bob answers the latest. We’ll try to get to all of them. Lynne is up next.

11:53 Robert Scheer

Thu, 29 Apr 2010 19:53:07 GMT
Comment:

The chairman of Goldman Sachs, Blankfein, got $68 million in 2007 when these nightmare products were being marketed.

11:53 Comment From Lynne

Thu, 29 Apr 2010 19:53:11 GMT
Comment: Do you think then that the Dems are merely grandstanding?

11:56 Comment From walldizo
Thu, 29 Apr 2010 19:56:04 GMT
Comment: What you think of Fareed Zakaria’s defence of Goldman Sachs?

11:56 Robert Scheer
Thu, 29 Apr 2010 19:56:07 GMT
Comment:

I think both the Democrats and the Republicans are now under enormous public pressure to at least appear to be doing something. That’s why the Republicans had to call off their stalling on the debate. But if your question is do I trust the Dems to do the right thing, no. In particular, we have to watch for the survival of two key elements to reform. One is a truly vigorous consumer protection agency that can deal with outrageous loan packages, credit card usurious interest rates, and deception. The other key element is to restore the wall between commercial banking, which is backed by the good faith of the U.S. government, and say that anyone that is such a bank cannot engage in the sale and packaging of unregulated derivatives. And that for Goldman Sachs, for example, which was allowed to become a bank holding company, they would have to make a decision to give up their current ability to go to the Fed window and other important perks, and decide whether they are an investment bank dealing with private investors, which would mean they do not have the backing of the U.S. government.

11:56 Robert Scheer

Thu, 29 Apr 2010 19:56:30 GMT
Comment:

Derivative trading has to be done on regulated exchanges with complete transparency.

11:56 Comment From Lynne

Thu, 29 Apr 2010 19:56:42 GMT
Comment: If finance is such a huge part of our economy (I’ve seen estimates from 40-60%), then is it really likely that any significant legal reform can take place?

11:58 Robert Scheer
Thu, 29 Apr 2010 19:58:18 GMT
Comment:

(To Lynne) The financial sector accounts for one-third of all profit. And that is unnatural for any modern economy, and if that greedy appetite of Wall Street cannot be contained, we will not have sound investment in the investments that the American economy really needs, instead of wild gambling.

11:58 Comment From P. T.

Thu, 29 Apr 2010 19:58:23 GMT
Comment: Sounds like Goldman Sachs was killing two birds with one stone. They were getting rid of their lousy subprime mortgages at the same time their cohorts were shorting them. They made out both ways.

11:59 Robert Scheer
Thu, 29 Apr 2010 19:59:30 GMT
Comment:

(to P.T.) Of course, but the problem is, were they deceiving their customers in the process? And that is the issue involved with the Abacus deal, which clearly was designed to fail, but which they sold as a winner.

11:59 Comment From Bob

Thu, 29 Apr 2010 19:59:31 GMT
Comment: I know it sounds naive, but is there anyway we can make lobbying illegal?

12:00 Robert Scheer
Thu, 29 Apr 2010 20:00:41 GMT
Comment:

(To Bob) Well, to begin with, we should demand that this government stick true to its own announced principle of slowing the revolving door between big business and government. For God’s sake, the chief of staff in the Treasury Dept. to Geithner was the top Goldman Sachs lobbyist before he was given this incredibly important job in the administration.

12:00 Comment From Philby

Thu, 29 Apr 2010 20:00:52 GMT
Comment: What is the likelihood that criminal prosecutions can be made against Goldman execs?

12:02 Comment From Bucko
Thu, 29 Apr 2010 20:02:10 GMT
Comment: What about increased required reserve ratios as pseudo consumer exchange protections rather than increased bureaucracy. Canada doesn’t have anything like what is trying to be pushed through and they managed to keep the most stable banking system in the world.

12:02 Robert Scheer
Thu, 29 Apr 2010 20:02:33 GMT
Comment:

(In reply to Philby) I think if there are any, they will be against small fry. The big guys know how to wall themselves off from responsibility as Blankfein indicated in his testimony when he kept saying “I don’t know the details,” or “I wasn’t in the loop on that.” What happened with Goldman Sachs is that underlings were encouraged to make a lot of money by any means, but just don’t tell us the details of how are you doing it.

12:03 Truthdig Pete

Thu, 29 Apr 2010 20:03:44 GMT
Comment:

(For people just joining us, questions are on a delay to give Bob a chance to answer them, but we’re trying to get to everyone.)

12:04 Comment From P. T.

Thu, 29 Apr 2010 20:04:15 GMT
Comment: I go with the theory that when there is a lack of profitable investment opportunities in the real economy, surplus capital drifts toward financial speculation.

12:04 Robert Scheer
Thu, 29 Apr 2010 20:04:17 GMT
Comment:

I’m all in favor of bigger capital requirements. But if what you’re taking issue with is the need for consumer protection, then I think you’re wrong, and I disagree that Canada does not have consumer protection built into their whole government. The loans that were made on subprime and others were outrageous, as are the interest obligations tacked on to credit cards that represent loan sharking, clearly usurious when they rise into the 30th percentiles, as they do on credit cards granted to students. So yes, I believe in a strong agency to protect consumer interests.

12:04 Comment From P. T.

Thu, 29 Apr 2010 20:04:20 GMT
Comment: Unless some people go to jail, the firms will pay the fines and go right back to their scams.

12:04 Comment From PeterKWF
Thu, 29 Apr 2010 20:04:24 GMT
Comment: How, in fact, was Goldman “betting” that the securities would fail — how does that work?

12:04 Comment From PeterKWF
Thu, 29 Apr 2010 20:04:31 GMT
Comment: Thanks

12:06 Robert Scheer
Thu, 29 Apr 2010 20:06:04 GMT
Comment:

When they put together the ABACUS package, it is now quite clear from the information that has emerged that they were guided by Paulson to pick the items in the package that would be bet on. And they were warned by the first group that they went to, which turned them down, that the mortgages in the package were so lousy that they could not in good conscience sell them. The issue here is that Goldman seems to have concealed the role of Paulson, which wanted a package that would go south, and sold it to others as a good deal. If that doesn’t break the law, then the law needs to be changed.

12:06 Comment From PeterKWF

Thu, 29 Apr 2010 20:06:09 GMT
Comment: Is it too late to close the barn door? Given the level of lobbying and campaign contributions going to both sides, what are the chances that meaningful changes will be put into place?

12:06 Robert Scheer
Thu, 29 Apr 2010 20:06:31 GMT
Comment:

OK! That’s why we are doing this chat!

12:08 Comment From P. T.

Thu, 29 Apr 2010 20:08:20 GMT
Comment: One other factor is that bond rating firms were being paid by Goldman Sachs to rate its bonds — a conflict of interest.

12:09 Robert Scheer
Thu, 29 Apr 2010 20:09:11 GMT
Comment:

And hopefully not just Truthdig, but HuffPo, the Nation, and tens of thousands of other sites on the Internet getting people to be vigilant about the swindles that have occurred and will occur if they are not vigilant. People’s eyes glaze over. The stuff is designed by brilliant people to be boring, confusing, obtuse so that we won’t see what’s going on. But we have to learn how to cut through that deception and I think, increasingly, the public is getting wise because they’re feeling the pain. And let me add, I loved the Senate hearing yesterday. I watched every minute, taking notes, I though Carl Levin did an incredible job. and the others were very good.

12:10 Truthdig Pete

Thu, 29 Apr 2010 20:10:08 GMT
Comment:

Times up

12:10 Truthdig Pete

Thu, 29 Apr 2010 20:10:19 GMT
Comment:

Thanks everyone!

12:10 Robert Scheer

Thu, 29 Apr 2010 20:10:21 GMT
Comment:

Thanks, everyone. See you next week

12:10 Comment From Guinevere

Thu, 29 Apr 2010 20:10:25 GMT
Comment: Thanks, Robert!

12:10 Comment From Guest
Thu, 29 Apr 2010 20:10:47 GMT
Comment: Thank you!

12:11 Comment From Bucko
Thu, 29 Apr 2010 20:11:16 GMT
Comment: Thanks, very informative!