Charges of fraud brought against banking titan Goldman Sachs by the Securities and Exchange Commission rocked financial markets Friday, but experts say the allegations are merely the first of many to come, Reuters reported.
After the SEC went public with the allegations, the Dow Jones dropped 125 points and Goldman Sachs stocks dropped 13 percent — the largest one-day drop in company history.
“This is just the tip of the iceberg,” said James Hackney, a professor at Northeastern University School of Law. “There are a lot of folks out there in different deals who played similar roles, and once it starts building steam, plaintiffs’ lawyers will figure out this is where the money is and there should be a lot of action.”
Reuters Global editor at large Chrystia Freeland said the significance of the charges is “huge.”
Goldman Sachs’ members like to think of themselves as “the smartest, the richest,” but Freeland said they also like to think of themselves as the “most virtuous.”
“Someone once said, ‘I don’t want to be just another rich guy in New York,’” she recalled. “They want o be part of civil service, part of government, doing good, giving back.”
The charges against Goldman relate to a complex investment tied to the performance of pools of risky mortgages. In a complaint filed Friday, the Securities and Exchange Commission alleged that Goldman marketed the package to investors without disclosing a major conflict of interest: The pools were picked by another client, a prominent hedge fund that was betting the housing bubble would burst.
Goldman said the charges are “unfounded in law and fact,” the Associated Press reported. In a written response to the charges, the bank said it had provided “extensive disclosure” to investors and that the largest investor had selected the portfolio – not the hedge fund client. Goldman said it lost $90 million on the deal, but the fact that Goldman lost money has no impact on the fraud charges.
Goldman Sachs was not the only bank to pursue the practices that brought on the SEC charges. It wasn’t uncommon in 2006 and 2007. At the tail end of the real estate bubble, smart investors searched for bigger and better ways to profit from the approaching disaster of using derivatives.
The SEC’s charges against Goldman Sachs are already stirring up investors who lost big, according to plaintiffs lawyer Jake Zamansky.
“I’ve been contacted by Goldman customers to bring lawsuits to recover their losses,” Zamansky said.
For President Obama’s push to reform Wall Street financial practices, the allegations couldn’t have come at a better time. As the Los Angeles Times put it:
The accusations against the iconic Wall Street institution offer a chance to revitalize a simple political narrative that he has all but lost in recent months: that he and his party are protecting ordinary Americans victimized by the economic meltdown.
All 41 Senate Republicans declared their unanimous opposition to financial reform in a Friday letter to Majority Leader Harry Reid.
But Reuters editor Freeland said Republicans are going to have a much tougher time convincing Americans that immediate financial reform isn’t necessary after the SEC’s charges.
“I think now that there has been a lot of momentum behind the financial reform bill, and I think that that momentum is only going to increase,” Freeland said. “The charges on Friday will give the Democrats who wanted a tougher bill a lot more energy.”
The Associated Press contributed to this report.
‘Out-of-the-box’ CIA think tank proposes concerns over women’s rights, fear of terrorism as ways to boost support for Afghan war
Evidently spooked by the collapse of the Dutch governmentover the country’s involvement in Afghanistan, the CIA has put together a strategy proposal to prevent what it fears could be a “precipitous” collapse of support for the war in Afghanistan among European allies.
A document marked “confidential / not for foreign eyes,” posted to the Wikileaks Web site, suggests strategies to manipulate European public opinion on the war, particularly in France and Germany.
The document doesn’t propose any direct methods by which the CIA could achieve this — there are no references to planting propaganda in the press, for example — but it does lay out what it sees as the key talking points to changing hearts and minds on the war. Among its proposals, the policy paper suggests playing up the plight of Afghan women to French audiences, as the French public has shown concern for women’s rights in Afghanistan.
For the German audience, the document suggests a measure of fear-mongering about the possible fallout of NATO failure in Afghanistan. “Germanyâ€™s exposure to terrorism, opium, and refugees might help to make the war more salient to skeptics,” the document asserts.
Read the report here, courtesy of Wikileaks.
The policy paper was prepared by a group called the “CIA Red Cell,” which describes itself as having been tasked “with taking a pronounced ‘out-of-the-box’ approach that will provoke thought and offer an alternative viewpoint on the full range of analytic issues.”
“The fall of the Dutch Government over its troop commitment to Afghanistan demonstrates the fragility of European support for the NATO-led ISAF mission,” the document states. “Some NATO states, notably France and Germany, have counted on public apathy about Afghanistan to increase their contributions to the mission, but indifference might turn into active hostility if spring and summer fighting results in an upsurge in military or Afghan civilian casualties.”
The CIA report notes that 80 percent of the French and German public are opposed to the war, but offers a loophole: Public apathy, which has allowed European leaders to extend and broaden their involvement in Afghanistan despite deep opposition.
But “if some forecasts of a bloody summer in Afghanistan come to pass, passive French and German dislike of their troop presence could turn into active and politically potent hostility,” the report states.
GET OBAMA INVOLVED
The CIA Red Cell points out that President Obama continues to enjoy popular support in Europe at levels he has not seen in the US in months. The report suggests getting the president involved in selling the Afghanistan war to Europeans.
“The confidence of the French and German publics in President Obamaâ€™s ability to handle foreign affairs in general and Afghanistan in particular suggest that they would be receptive to his direct affirmation of their importance to the ISAF missionâ€”and sensitive to direct expressions of disappointment in allies who do not help,” the report states.
The report notes that “when [opinion poll] respondents were reminded that President Obama himself had asked for increased deployments to Afghanistan, their support for granting this request increased dramatically, from 4 to 15 percent among French respondents and from 7 to 13 percent among Germans.”
To change French minds, the CIA Red Cell proposes linking the Afghanistan war to the effort to improve women’s rights in Afghanistan. It also proposes pointing out that the Afghanistan mission is more popular in Afghanistan than it is in Europe, at least according to the statistics cited in the report.
“Afghan women could serve as ideal messengers in humanizing the ISAF role in combating the Taliban because of womenâ€™s ability to speak personally and credibly about their experiences under the Taliban, their aspirations for the future, and their fears of a Taliban victory,” the report asserts.
“Highlighting Afghansâ€™ broad support for ISAF could underscore the missionâ€™s positive impact on civilians. About two-thirds of Afghans support the presence of ISAF forces in Afghanistan, according to a reliable … poll conducted in December 2009,” the report states.
For the German public, the message should be somewhat different, the report states. “Messages that dramatize the consequences of a NATO defeat for specific German interests could counter the widely held perception that Afghanistan is not Germanyâ€™s problem. For example, messages that illustrate how a defeat in Afghanistan could heighten Germanyâ€™s exposure to terrorism, opium, and refugees might help to make the war more salient to skeptics.”
Numerous news reports in recent years have suggested that the CIA is more deeply involved in the Afghanistan war than it has been in previous wars. For instance, when news broke that seven CIA agents had been killed in a suicide bombing at a forward operating base, it highlighted the fact that the CIA has been operating essentially as a branch of the military in Afghanistan, running the unmanned aerial drone strikes against the Taliban.
That suicide bombing also highlighted the difficulties the agency faces in getting a grasp on the situation in the Central Asian country. CIA operatives had believed Humam Khalil Abu-Mulal al-Balawi, the suicide bomber, was willing to work as an informant for them. They were apparently so completely unaware of his status as a double agent that they had prepared a birthday party for himin advance of his arrival, when he proceeded to blow himself up.