So-called sophisticated investors. Purchase of favorable ratings on investments. Cayman Islands for escape from federal regulation. Bets on a housing collapse. Trolling for suckers. If anyone thinks our financial industry doesn't need tougher regulation, just check out the McClatchy newspaper series on the Goldman Sachs Group, a bank holding company, that began Sunday and concludes today.
Here was an iconic Wall Street investment house, a heavyweight player with a history of Washington connections, misleading investors here and abroad, leaving ruin in its wake and tarnishing its own name.
Goldman Sachs used its name to buy, bundle and sell some of the worst investments in the history of trading. It jumped into the subprime game with dubious mortgage lenders. And it played it ruthlessly, selling off toxic assets that carried bogus quality ratings and the assurance of its venerable name.
By the time the nature of the game became clear, Wall Street was in meltdown and there was talk of a depression. Families were losing their homes.
Goldman Sachs wasn't alone and it didn't escape damage. The group is facing lawsuits by pension funds and other institutional investors -- those "sophisticated" operators who got taken to the cleaners. Goldman has settled some claims but still faces legal action and the question of how much it should have disclosed to the buyers it left with spoiled goods.
Yet, thanks to U.S. taxpayers' bailout and its dumping of bad debts, Goldman Sachs is more than back on its feet and planning to pay billions in bonuses.
Was Goldman too big to fail? Maybe.
But the lasting lesson of the Goldman Sachs story may be that it's too big to go rogue, too big to run wild without real government regulation.
Free-market true believers say the market corrects itself. That's fine in the abstract world of chin strokers with the leisure to take the "long view." But most of us live day by day, and in that real world, the free market unregulated is a jungle.
To paraphrase James Madison, if Wall Street traders were angels, no regulation would be necessary.
Wall Street traders are not angels.
BOTTOM LINE: Goldman Sachs story illustrates the need for honest trading -- and rules to enforce it.