Gordon Brown and Alistair Darling both ruled out barring Goldman Sachs from lucrative government work – “for the moment” –- pending investigations on both sides of the Atlantic into whether it defrauded investors.
This did not prevent Mr. Brown – who has said he admires the “hard work” and “enterprise” of individual Goldman Sachs bankers – from calling the Wall Street giant “morally bankrupt” and calling on the Financial Services Authority to investigate its British dealings with RBS-owned ABN-Amro.
Goldman worked with a prominent hedge fund, Paulson & Co Inc, which handles largely unregulated investments for the wealthy to create a package of risky sub-prime mortgages – Abacus – that was designed to fail.
The bank labelled it a good investment for its customers and sold it to them on the basis that Paulson had invested. But it did not tell them the hedge fund had handpicked the worst mortgages and was shorting the package or betting against it in the hope it would fail.
Paulson made $1 billion (£650 million) profit betting on the package to fail. Among the sucker investors was RBS, through ABN-Amro, which lost £550 million.
The Securities and Exchange Commission accused it of “defrauding investors by misstating and omitting key facts about a financial product tied to sub-prime mortgages as the US housing market was beginning to falter”.
In a cursory nod to public outrage Goldman Sachs suspended the FSA-approved license of a 31-year old, London-based vice-president Fabrice Toure said to be part of the transactions. He is on leave, on full pay and got his share of the bonus pot.
The bank says the charges are wrong “in fact and in law” and has been lobbying behind the scenes to say they are politically motivated. But the bank showed no hesitation in announcing $5 billion in bonuses for its bankers – for just three months work. It last paid bonuses in January when it awarded itself a pot of $16 billion in bonuses and financial compensation for 2009.
The bank and its bosses have appeared genuinely uncomprehending that they have not been feted for awarding themselves lower bonuses than they could otherwise have done.
While Liberal Democrats demanded that the bank be barred from highly lucrative government work at least until the case is resolved – a demand also made by German Chancellor Angela Merkel’s junior coalition partners – Alistair Darling said on the campaign trail: “I do not think you can stop doing business with a firm because an individual is accused of doing something”.
He admitted the charges “beggar belief”.
