SEC-Goldman: enough with the conspiracy talk

The SEC’s filing of a civil lawsuit against Goldman Sachs is clearly convenient for the Obama administration and the Democrats, considering that this is a critical period for financial reform legislation. But some critics have gone further and suggested that the timing indicates a conspiracy between the SEC and the administration.

The SEC is an independent agency, and therefore should not be in collusion with the administration. The White House has denied it had any role in the SEC’s decision to file the lawsuit. But some observers, from both the conservative and liberal sides, believe the timing is no coincidence. Rush Limbaugh highlighted that the Democratic Party was running a Google Adwords campaign using the keyword “Goldman Sachs SEC”, including a link to President Obama’s website, around the time that the news of the lawsuit broke. Eliot Spitzer, former Democratic Governor of New York who resigned after a prostitution scandal, said “This is not a coincidence. There are no coincidences in this world. None.”  David Boies, Democrat-supporting lawyer who represented Al Gore in the 2000 election-result dispute, told Charlie Rose: “I happen to think it's no coincidence that it happens to come out just at the time that the administration is going after the financial regulatory reform in Congress.”

But there is no evidence that the SEC and the administration schemed together on the timing. On this issue – and too many others – conspiracy talk emerges, and lowers the level of argument to motives and secret dealings. And, in the Goldman fraud case, it’s really not necessary to utilize a conspiracy theory if you want to identify political opportunism. It is easy enough to point out how the Democrats are visibly and fully utilizing the SEC’s announcement to score political points, without having to resort to arguments about conspiracies. (And as I noted here, the broader political point is not about timing, but about an emerging narrative that explains the financial crisis as the fault of investment bankers' malfeasance, and thus exonerates government officials.) 

As it happens, the action against Goldman undermines a fairly widespread conspiracy theory that floated around before the SEC lawsuit – that Goldman had infiltrated the government. Citing the number of former Goldman employees who had moved over to work for the government, cynics referred to “Government Sachs”. Others referred to Goldman as the “fourth branch of government”. At its worst, talk of the Goldman conspiracy was of a secret cabal, introducing allusions that have historically been associated with anti-Semitism.

But who can argue that Goldman runs the government now? It seems that all the millions the company and its employees donated to the Democratic Party (about $20 million, making it the largest donor to the party) – which appeared to be Exhibit A of collusion – was for naught. Limbaugh still holds that Goldman is in cahoots with Obama, including a plot to have the SEC bring a weak case: “Goldman would be happy to pay whatever civil fine here, if there even is one, they'll be happy to pay a little civil fine here and take the PR hit in exchange for being in bed with the Obama administration for the next ten years or eight years or however long it's going to be, six years is what they're planning on.”             

Yet, even as the notion of “Government Sachs” is seriously sunk, the talk of Goldman as a conspirator continues – in fact, it’s at the heart of the SEC’s case, in that Goldman is supposed to have colluded with John Paulson to pick the Abacus assets and hide that fact from the buyers. But this myopic, conspiratorial focus on Goldman overlooks the buyers, and treats them like simple, passive victims. Indeed, who is asking questions about, and investigating into, the buyers - IKB and ACA? I’ve seen very little written about them and their motives for investing. An exception is John Plender, who has an interesting piece in today’s Financial Times. He notes that IKB had “expertise in lending to small and medium-sized businesses in Germany”. What on earth, then, were they doing investing in complex synthetic CDOs in the US? Plender writes that the German banking market suffered from excess capacity, and IKB was searching for new ways to raise profitability. Similarly, ACA’s insurance business had become a commodity product in an overcrowded market, so it too sought higher returns.

In identifying problems with the financial system, it would be make sense to examine all the players, including those, like IKB and ACA, that took long positions on subprime mortgage investments. But if you’re just looking to confirm a Goldman conspiracy, you won’t bother.