Goldman Sachs in the dock – now bankers really might receive their come-uppance

There are bankers and bankers, writes City & Wall Street, but somehow or other Goldman Sachs always seems to escape the worst and cash in mightily on the best in that particular industry.

For it was Goldman that appeared to evade the worst of the sub-prime housing market disaster in the US, despite playing a major role in cranking up the sale of such so-called ‘assets’ in the first place. Then it even managed to get paid billions of dollars in full by broke insurance giant AIG when that went bust to the tune of $80bn, thanks in no small part to the helpful ministrations of Republican treasury secretary Hank Paulson, a former boss of Goldman.

Since then Goldman has profited mightily from the lack of competition in the global equity and debt (arrangers of loans) market thanks to the absence of competition from the likes of deceased Lehman Brothers (Goldman’s hated Wall Street adversary), Bear Sterns (now part of JP Morgan, one of the other big winners from the crash) and Merrill Lynch, which is recovering slowly in the intensive care ward provided by Bank of America.

But now Goldman is in the dock, charged with fraud by the new US administration for stitching up a deal with hedge fund Paulson & Co (no relation) to sell investors US property packages even when it had reason to believe these were over-priced and about to plummet.

These ‘investments’ were chosen by Paulson, which subsequently made billions by betting on the US housing market collapse. Why Paulson isn’t in the dock with Goldman eludes your correspondent, unless the hedgies blew the whistle to the US authorities.

But fraud in the US is a big deal and you can find yourself behind bars for a long, long time as a number of Enron executives can testify.

And, periodically, the US government does cut tall capitalist poppies down to size; the most notable occasion still being Theodore Roosevelt’s dismantling of the Standard Oil monopoly around the time of the 1914-18 war.

Shares on Wall Street and in the City ran for cover today when the news of the prosecution broke.

One to gain though was Britain’s RBS bank. The BBC’s banking wizard Robert Peston reckons RBS could be in for $841m in damages from Goldman as RBN Amro, the Dutch bank it bought disastrously a couple of years ago, was one of those fleeced by Goldman and Paulson.

You suspect that Goldman may be facing the same fate on Capitol Hill as John D Rockefeller’s Standard Oil did in the first decades of the last century. The ‘Seven Sisters’, who grew out of the break-up of Standard, prospered mightily of course.

But the politicians are after a big banking scalp. And they don’t come bigger than Goldman.

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About Stephen Foster

Stephen is a former editor of Marketing Week and London Evening Standard advertising columnist. He wrote City Republic for Brand Republic and is a partner in communications consultancy The Editorial Partnership.