We woke up to this headline today in our CFA Institute Financial NewsBrief: “Prosecution for financial crisis unlikely after Goldman dodges bullet.” Apparently the U.S. Justice Department has determined it will drop any further criminal investigation of Goldman Sachs and its CEO, Lloyd Blankfein. Moreover, the SEC said it would likewise abandon any civil fraud case against Goldman pertaining to its subprime mortgage deal making. Consequently, it appears that we’ll see few criminal trials stemming from “possible wrongdoing that contributed to the financial crisis in 2008,” the New York Times DealBook article states.
We wonder what this says about a number of issues our financial services industry faces, and Goldman is but one player. If the deeper message here is that the entire financial services system will get a pass on any crisis wrongdoing, we should all take notice. It raises some disquieting questions:
- Will this restore investor trust? Perhaps the financial crisis was all just a big misunderstanding. No legal wrongdoing as such — just an industry that found its way through and around any legal requirements?
- Is this a reflection of regulators and enforcement officials not having adequate resources and skills to investigate possible wrongdoing?
- Should we simply accept the kinds of behaviors revealed by the crisis? Great harm but still no foul.
- Or, should such actions and behaviors be more closely regulated?
- If so, does Dodd-Frank, if and when fully implemented, serve as an adequate revamp of the regulations to avoid future catastrophic meltdowns and financial firm bailouts?
With all due respect, this is just a headline. We are sure the story and behind-the-scenes regulatory activity go much deeper. Yet it is, after all, nearly four years post-crisis. For better or worse, we could have expected that the system by now would have identified, regulated, and enforced its way through the biggest financial catastrophe to hit in several generations. Maybe I should change that to a spirited “should have expected.”
Your feedback and comments are welcome.