One of the highlights of today’s hearing on Goldman Sachs (aside from my Senator saying “shitty deal” over and over, was Claire McCaskill’s insistence on referring to Goldman Sachs’s Synthetic CDOs as gambling. (She did this earlier with another of the Goldman execs, after which John Ensign defended his state’s biggest industry, pointing out that everyone knows the odds are gamed to make sure casinos win, whereas with finance, the House keeps changing the odds after bets have been placed.)

But don’t worry. Lloyd Blankfein tells us none of this is immoral.

Alright, this is a hot button issue and folks seem to want a place to chat on the proceedings in the Financial Crisis Inquiry Commission with the Masters Of The Universe.

It is live on CSPAN and here is a web link to streaming CSPAN coverage.

Discuss away!!

Barack Obama, doing his best to make Dick Cheney’s questions about leadership look rational, has assigned John Brennan to conduct the Administration’s ballyhooed investigation into the claimed failure of the terrorist watchlist program in the Christmas Fruit Of The Loom Bomber incident.

What’s wrong with this picture? Throw a dart in any direction and you will find something.Politico gives the unsettling details:

President Barack Obama promised a “thorough review” of the government’s terrorist watch-list system after a Nigerian man reported to US government officials by his father to have radicalized and gone missing last month was allowed to board a Northwest Airlines flight to Detroit that he later tried to blow up without any additional security screening.

Yet the individual Obama has chosen to lead the review, White House counter-terrorism adviser John Brennan, served for 25 years in the CIA, helped design the current watch-list system and served as interim director of the National Counterterrorism Center, whose role is under review.

In the three years before joining the Obama administration, Brennan was president and CEO of The Analysis Corporation, an intelligence contracting firm that worked closely with the National Counterterrorism Center and other US government intelligence, law enforcement and homeland security agencies on developing terrorism watch-lists.

“Each and every day, TAC makes important contributions in the counterterrorism (CT) and national security realm by supporting national watchlisting activities as well as other CT requirements,” the company’s Web site states.

According to financial disclosures forms released by the White House, Brennan served as president and CEO of TAC from November 2005 until January 2009, when Obama named him to the White House terrorism and homeland security job. The disclosures show that Brennan reported earning a $783,000 annual salary from the Analysis Corporation in 2008. ….

One former senior intelligence official told POLITICO it is “unsavory to see Obama put Brennan in charge of a review of this matter since it is possible that NCTC or TAC could have failed in their responsibilities.”

Oy. “Unsavory”? Ya think? This is akin to a law school final exam where you try to identify all the conflicts of interest in the given situation. But there is not enough time to hit them all. Do not fret, the crack White House ethics team has looked at Brennan and determined there are no conflicts at all. Which is pretty strong evidence that the White House ethical team might ought to be checked out for its own conflicts, if not sanity.

By virtue of his experience, John brings a unique mixture of know-how and understanding to this assignment,” said Denis McDonough, National Security Council chief of staff. “The applicable ethics rules recognize that when the public interest outweighs other issues, an official should be authorized to proceed with an assignment, particularly in the national security arena.

Well, that is reassuring. Or, you know, not so much. I can’t wait for the New Year’s Eve 4 pm news dump out of the White House. My prediction is Hank Paulson will be named Obama’s point man to lead the investigation of the racketeering, fraud and conspiracy at Goldman Sachs McClatchy has been meticulously detailing.

You have to hand it to the Obama White House, they have the last administration beat hands down. Even Bush and Cheney didn’t think to have Paul Wolfowitz lead an investigation into their Iraq war and occupation strategy.

(graphic courtesy of NC Jeff at SodaHead)

Update: this post originally attributed this Politico article to Josh Gerstein. Carol Lee and Laura Rozen were the lead reporters on the piece.

The Wall Street Journal has a fascinating and free ranging interview of New York City District Attorney Robert Morgenthau in today’s edition. Morgenthau, as you may know, is the real live template for the original DA on NBC’s Law & Order, Adam Schiff. Still young at age 90, Morgenthau will retire next Thursday after over 35 years as the chief District Attorney for New York.

The entire piece is well worth the read, but of particular interest, in light of the financial meltdown we have just lived through, and may yet again the way the Wall Street Banksters are cranking their same old casino back up, is the broadside Morgenthau lands on the Federal oversight and investigation of financial fraud.

These big criminal forfeitures support his $80 million budget, but they are also the product of Mr. Morgenthau’s unique legacy among district attorneys: his national and global reach. Such resources have allowed him to prosecute complex international business cases. Combined with his jurisdiction in the world’s financial capital, he has become in a sense the world’s district attorney.

Thomas Jefferson would have liked this bastion of local power as part of a federal system, but it is not always celebrated by federal officials. “I’m sure it [annoys] the hell out of them,” Mr. Morgenthau observes.

The feeling is mutual. The D.A. says that while he’s had to deal with the federal bureaucracy for decades, “it has just gotten worse” and “they ought to burn it down and start all over again. It’s extremely worrisome.”

For example, he says, “We had a lot of trouble with the Treasury Department” in his recent case against Credit Suisse, in which the bank coughed up $536 million and admitted to aiding Iran and other rogue nations in violating economic sanctions. The feds, as they did in a similar settlement with the British bank Lloyds, wanted only civil penalties.

Mr. Morgenthau would have none of it. He says Credit Suisse had been “stonewalling us” and only struck a deal after he threatened to bring criminal charges to a grand jury. “We would have gotten an indictment,” he says. (emphasis added)

It is a great snapshot of a one of a kind force of legal nature, Robert Morgenthau, and there are several other interesting topics; I recommend reading the entire article.

As to the portion of Morgenthau I quoted though, “Feds only wanted civil penalties and not interested in using criminal charges” to crack open the case and bring accountability for the Wall Street Banksters; sound familiar? It should, it is the exact same conclusion that blew the mind of SDNY Judge Jed Rakoff in the BofA stockholder fraud matter. In that case, Rakoff blistered the Federal enforcement of potential financial crimes and said in his decision:

It is not fair, first and foremost, because it does not comport with the most elementary notion of justice and morality, in that it proposes that the shareholders who were the victims of the Bank’s alleged misconduct now pay the penalty for that misconduct.
…..
Overall, indeed, the parties submissions, when carefully read, leave the distinct impression that the proposed Consent Judgment was a contrivance designed to provide the S.E.C. with the façade of enforcement and the management of the Bank with a quick resolution to an embarrassing inquiry…

Rakoff went on subsequently to question the competence and good faith of the SEC for refusing to make referrals to DOJ for criminal investigations, on top of the sweetheart mere civil penalty deal they were trying to slide through for the Bankster BofA.

And here is where Mogenthau’s pointed criticisms, Judge Rakoff’s dismay and anger, and the complicit coddling of Master of The Universe Banksters (MOTUs) by the SEC all come to a focal point in current news. In an in-depth article detailing malevolent practices and schemes by Goldman Sachs bringing huge profits to the firm at the expense of their clients, Gretchen Morgenson and Louise Story report in the December 24 edition of the New York Times:

Pension funds and insurance companies lost billions of dollars on securities that they believed were solid investments, according to former Goldman employees with direct knowledge of the deals who asked not to be identified because they have confidentiality agreements with the firm.

Goldman was not the only firm that peddled these complex securities — known as synthetic collateralized debt obligations, or C.D.O.’s — and then made financial bets against them, called selling short in Wall Street parlance. Others that created similar securities and then bet they would fail, according to Wall Street traders, include Deutsche Bank and Morgan Stanley, as well as smaller firms like Tricadia Inc., an investment company whose parent firm was overseen by Lewis A. Sachs, who this year became a special counselor to Treasury Secretary Timothy F. Geithner.

How these disastrously performing securities were devised is now the subject of scrutiny by investigators in Congress, at the Securities and Exchange Commission and at the Financial Industry Regulatory Authority, Wall Street’s self-regulatory organization, according to people briefed on the investigations. Those involved with the inquiries declined to comment.

While the investigations are in the early phases, authorities appear to be looking at whether securities laws or rules of fair dealing were violated by firms that created and sold these mortgage-linked debt instruments and then bet against the clients who purchased them, people briefed on the matter say.

One focus of the inquiry is whether the firms creating the securities purposely helped to select especially risky mortgage-linked assets that would be most likely to crater, setting their clients up to lose billions of dollars if the housing market imploded.

Some securities packaged by Goldman and Tricadia ended up being so vulnerable that they soured within months of being created.
…..
But Goldman and other firms eventually used the C.D.O.’s to place unusually large negative bets that were not mainly for hedging purposes, and investors and industry experts say that put the firms at odds with their own clients’ interests.

“The simultaneous selling of securities to customers and shorting them because they believed they were going to default is the most cynical use of credit information that I have ever seen,” said Sylvain R. Raynes, an expert in structured finance at R & R Consulting in New York. “When you buy protection against an event that you have a hand in causing, you are buying fire insurance on someone else’s house and then committing arson.”

Again, the full tale in Morgenson and Story’s article is stunning and worth the full read. And who will investigate this malevolent behavior that has the clear appearance of potentially criminal conduct? The SEC of course; the same bunch that Jed Rakoff excoriated as incompetent and complicit. This is incredibly significant, especially in light of Morgenthau’s criticisms as well, because the SEC is the gatekeeper on the submission for a competent criminal investigation by the DOJ.

The “normal” chain of events is for SEC to investigate, if there is any wrongdoing of a civil or administrative nature found, then SEC takes care of it itself. If the SEC finds either something criminal, or something civil but exacerbated beyond their in house capability, they then refer the case over to the DOJ via submission to the US Attorney’s Office for that jurisdiction (for Wall Street crimes, that would be SDNY). Even when a US Attorney’s Office receives a tip directly and opens its own case from the start, the protocol is for it to still go to SEC for a “referral” in order to proceed. So the questionable Securities and Exchange Commission is right in the middle, as Robert Morgenthau adroitly complained of, even on the type of galaxy scale conduct such as Goldman Sachs is reported to have committed.

“Does not comport with the most elementary notion of justice and morality” were the words of the eminent Judge Jed Rakoff as to the complicity of the SEC with BofA. What are the odds it happens again with Goldman Sachs?

UPDATE: Much of the New York Times piece cited in the post is either based on, or parallel to, an ongoing investigative series by McClatchy that has been ongoing since November. The McClatchy series deserves praise and credit, not to mention a look. I had not seen the McCaltchy work at the time I originally wrote the post.

(photo h/t investorsally.net)