Carl Levin: Another ‘Big Shoe to Drop' on Goldman

Washington is suddenly looking very unkind to the firm that used to be known as "Government Sachs." Now the Senate's Permanent Subcommittee on Investigations, led by Carl Levin, Democrat of Michigan, is planning to focus hearings scheduled for next week at least in part on Goldman Sachs's role in the financial disaster. Levin's staff has uncovered new documents "that link certain actions to specific people" at Goldman, according to a senior legislative official who spoke on condition of anonymity. The official would not divulge the nature of the allegation but said that Levin believes it amounts to "another big shoe to drop on Goldman." Spokespeople for Levin said they were not prepared to discuss the nature of the probe, but his committee has been conducting several weeks of hearings and one is planned for April 27 on "the role of the investment banks." "We expect to have some information tomorrow," spokesman Bryan Thomas said Monday.

Levin has been one of the most aggressive Democrats in the Senate in pushing for more dramatic financial reform, and the first week of his subcommittee's hearings focused on the role of high-risk home loans in the disaster, using Washington Mutual Bank (WaMu) as a case history. Further hearings are expected to show how banks like WaMu obtained their know-how and securitization techniques from Wall Street. Last week the Securities and Exchange Commission filed civil fraud charges against Goldman related to the late stages of the subprime mortgage scandal, when some Wall Street firms were creating complex products like "synthetic CDOs" for the sole reason of shorting them and making money on their almost certain failure. SEC Director of Enforcement Robert Khuzami said the firm mislead investors by failing to tell them that a client that was betting against the mortgage market had helped to design a Goldman investment portfolio, "while telling other investors that the securities were selected by an independent, objective third party." Goldman has denied the charges, saying it withheld no material information from investors.

A year ago Levin was critical of what he called the reluctance of the Obama administration to take on Wall Street, saying: "Some of the people around the president needed to be given a push." Levin has also sought to rescind many of the laws that led to deregulation. Chief among them: the 2000 Commodity Futures Modernization Act, which exempted the credit-default swaps that brought AIG—and much of the financial system—to the brink of meltdown. Goldman's role in AIG's near-meltdown also has been a subject of various government inquiries.