Wow, I never thought this day would come. It has long been an open secret that Goldman Sachs had a role in defrauding subprime mortgage investors, but due to their specific government connections and the general state of the financial sector it was assumed nothing would come of it. However the SEC has filed civil (for now?) charges against Goldman to recoup their ill-begotten gains.
This could have far wider implications: for instance more details are emerging about a hedge fund named Magnetar that helped fuel massive demand for subprime mortgages in order to short them. Yves Smith claims that Magnetar alone accounted for 35-60% of subprime mortgage demand in 2006. She also details their financial contributions to Rahm Emanuel.
Bill Black, the lead regulator in cleaning up the Savings and Loan crisis, has long stated that fraud is endemic in our financial system, particularly in the mortgage arena. In this five part interview he explains how he believes hundreds of billions of dollars of fraud occurs and charges the megabanks with facilitating this at the highest levels. Congressional hearings on Washington Mutual support this view. In his expert opinion, the financial crisis is not as much about misguidance and ignorance as it is about willful criminality.
It is obviously too early to tell where this case will go, let alone whether it is a precursor to more suits, but hopefully it is the beginning of accountability and a necessary step for true economic recovery.
Yves Smith has a good post on details here.
Link for comments here.