What’s really going on with Goldman Sachs and its law suit? The bank has been shaken to its core, and yet, were its practices really illegal? – that seems dubious. Maybe what we are really seeing is something quite different and much more far reaching. Maybe what we are really seeing is the build up of an economic arsenal of weapons pointed at the banks, like cruise missiles carrying H-bombs, saying, you dance to my tune, or pay the consequences.

Is Gordon in trouble for calling someone a bigot when he thought his comments were private, or is he wrong to have said it, regardless of whether he was being recorded? If having wicked thoughts is a sin, then maybe we are all bound for hell. But in the US, the latest furore is over another word.

From bigot in the UK, to shitty in the US

Is it wrong to sell products you think are ‘shitty’? Or is it merely wrong to say so in an email? Yesterday, Goldman Sachs’ chief financial officer appeared to say it was the latter. He was being grilled by US senators, and for a hilarious few moments seemed to be saying it is fine to sell products the banks think are ‘shitty’, just wrong to say so in an email. Well, Gerald Ratner can you tell you it’s dangerous to admit in public that your products are akin to faeces, but for Goldman Sachs the issue is even more important.

This is not just any old bank, it is the world’s most influential bank that pulls the strings of many senators, and may even influence US foreign policy. Its boss Lloyd Blankfein once said he was “doing God’s work”. Well, if you believe God created everything, then presumably vampire squids are doing God’s work too, which is appropriate, because Rolling Stone magazine once described Goldman Sachs in these terms: “The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”

But whether the bank is God’s own bank or the vampire squid, what we can say is the public were none too impressed to hear it was selling CSDOs, that’s collateralised shitty debt obligations, with such verve. It may or may not be illegal to do so, the bank may or may not have lost more money than it gained out of the securities its rogue trader/misunderstood trader, Fabulous Fab, was selling on its behalf, but the damage to its reputation is enormous.

The SEC, one assumes under direct orders from Obama, seems determined to get it. Whether it’s the current charges or others yet to be found, it won’t rest. Meanwhile, the bank’s reputation dives faster than a squid trying to escape from a predator.

In the US, the public are incredulous. How can the banks get away with it? They may say they had to pay out massive bonuses to keep staff, but in the light of the crisis, to say bonus payments were tactless is an understatement akin to saying mortgage securitisation was a disappointment.

And yet, the Obama financial reform bill has stalled at the first hurdle. Republicans weren’t even willing to debate it. For three days they voted against holding a debate. US banks are furious over the Obama plans. They are putting everything they can, and that by the way is an awful lot, into trying to derail the plan.

In the 1970s, and again in the 1980s, the big question in the UK was – who ruled Britain, the government or the unions? In the US today, another question is being asked. Who rules the US, the president or the banks?

Mrs Thatcher won by declaring war on the unions. Obama is being forced to do the same, only in his case, the guns of legislation and legal suits are pointing at the banks.

The Goldman Sachs law suit is a shot across the bank’s bows. Obama is saying, you want more of this, you want to be toasted by Senate in the full glare of the cameras, then carry on resisting my reform bill. If, instead, you are happy to see your salaries slashed from, say, $10 million a year to nearer $8 million; if instead you accept that it is no longer acceptable to sell products you don’t believe in; if you accept that banks have got to be smaller, so that they can fail without causing global crises; then and only then, will I call off the SEC Rottweilers.

© Investment & Business News 2013