All the Devils Are Here [222]
Finally, there was Goldman Sachs. As part of the AIG bailout, the New York Fed made the decision to pay AIG’s counterparties in its multisector CDO business 100 cents on the dollar. In mid-March, a day after the AIG bonus news broke, AIG disclosed that Goldman Sachs had received $12.9 billion, more than any other firm. Goldman had claimed all along that its exposure to AIG was hedged.25 Didn’t this show that Goldman was lying? “This needless cover-up is one reason Americans are getting angrier as they wonder if Washington is lying to them about these bailouts,” opined the Wall Street Journal editorial page. Wasn’t this proof that Hank Paulson had protected his old firm by steering billions in cash Goldman’s way? And what about all those ex-Goldman guys in positions of power everywhere?
By the middle of the summer, Goldman Sachs was producing blowout profits, had repaid its $10 billion in TARP funds, and had already set aside $11.4 billion—a record sum—with which to pay bonuses to employees. And Goldman executives began to say that maybe they’d never needed any help anyway. Although Lloyd Blankfein in particular was careful to express gratitude to taxpayers, the bonuses sent a signal that Goldman considered itself somehow divorced from the actions that had led to the crisis, when, in fact, Goldman had been right there in the thick of it. It was maddening. They may have been smarter than everyone else, but they weren’t better. Not anymore.
By the following spring, Goldman’s arrogance had landed it a solo hearing in front of the Senate Permanent Subcommittee on Investigations, in which the firm was lambasted for the way it had duped clients and furthered the crisis. Thus it was that Goldman Sachs, a firm whose Manhattan headquarters bears no name, which has no storefronts anywhere in the country, and which has never sold its financial products directly to run-of-the-mill consumers, became the public’s favorite villain.
At the heart of the anger was a powerful sense that something terribly unfair had taken place. The government had bailed out companies—companies whose loans and capital raising are supposed to help the country grow—that had turned out to be making gargantuan side bets that served no purpose other than lining their own pockets. Homeowners, whose mortgages had served as the raw material for those side bets, got no such help. “I’m not even against a bailout,” says Prentiss Cox. “We had to do it. But regulators are always concerned that we don’t send a message to future homeowners that they can get away with this. They should have made it clear to lenders that there are consequences. Instead, it’s all the money to the lenders and all the shame to the homeowners.”
People also felt that a great crime had been committed, yet there was not going to be a great punishment. Ralph Cioffi and Matt Tannin, the only two people so far to have been indicted as a result of the financial crisis, were acquitted. The government decided not to bring charges against Joe Cassano. The SEC has charged Countrywide’s Angelo Mozilo, David Sambol, and Eric Sieracki civilly; that case is set to go to trial in the fall of 2010. And the SEC got a $550 million settlement with Goldman Sachs that many people felt let the firm off easy. But as the case involving Cioffi and Tannin shows, it is very hard to find the line between delusion, venality, and outright corruption. Much of what took place during the crisis was immoral, unjust, craven, delusional behavior—but it wasn’t criminal. The most clear-cut cases of corruption—the brokers who tricked people into bad mortgages, the Wall Street bankers who knowingly packaged bad mortgages—are in the shadows, cogs inside the wheels of firms like Ameriquest, New Century, Merrill Lynch, and