Goldman Sachs' "big short" has created big trouble for the world's most reviled, and followed, investment bank with reports that the Manhattan district attorney has sent it a subpoena to see what role it had in the financial crisis. This doesn't mean there will be criminal charges, we're still some way off from that. But it suggests US government authorities are now trying to build a case against Goldman Sachs which, according to a Senate report, offloaded much of its subprime mortgage exposure to unsuspecting clients when the market for such securities was starting to tank, and then made billions betting against those clients.
Matt Taibbi summed up the scam beautifully in Rolling Stone: "In other words, the bank needed to find suckers to buy as much of its risky inventory as possible. Goldman was like a car dealership that realized it had a whole lot full of cars with faulty brakes. Instead of announcing a recall, it surged ahead with a two-fold plan to make a fortune: first, by dumping the dangerous products on other people, and second, by taking out life insurance against the fools who bought the deadly cars."
But Wall Street isn't worried. No one expects Goldman Sachs will be prosecuted. Bloomberg reports that Brad Hintz, an analyst at Sanford C. Bernstein & Company has put out a note saying that America's fifth biggest bank is too big to fail. "If an alleged violation is identified during a Goldman investigation, we expect a reasoned response from the Justice Department," Hintz wrote. "In a worst case environment, we would expect a 'too big to fail' bank such as Goldman to be offered a deferred-prosecution agreement, pay a significant fine and submit to a federal monitor in lieu of a criminal charge."
So there you have it. Goldman Sachs and the other big banks will not be prosecuted because they have convinced Wall Street, the regulators and the cops that if they're taken down, the whole system will fall apart. They are thieves par excellence.