Peter Fulham, Columnist
Ideology: Democrat | Writing from: College of the Holy Cross

Thanks to diligent reporting in The New York Times, we learned last week that the investment bank Goldman Sachs helped bankroll the ballooning and unsustainable debt of Greece’s government with off-the-books “currency exchange” and derivatives deals, undermining the euro and adding to instability in the global credit markets.  This revelation arrived, of course, on the heels of an equally discouraging story in the Times detailing Goldman’s alarmingly intense negotiations with A.I.G. in the months leading up to the financial crisis.

There have been several prominent figures — Ben Bernanke, Alan Greenspan, and Henry Paulson, to name a few — who insisted that the devastating financial downturn that began in 2008 was an unforeseen tidal wave, a freak accident of capitalism.  But Goldman’s actions before the crisis paint a starkly different picture.  Indeed, it seems as though the firm had been preparing for the present crisis far before the idea of a housing bubble had crossed most people’s minds.  As far back as December 2007, Goldman had begun shorting about the same number of mortgage-backed securities than it was selling to other financial institutions, a strong indication that the firm had an early inkling about the grim future of the American housing market.

This kind of “hedging” is, perhaps, smart business.  But coupled with the recent revelations regarding Greece, it comes across as extraordinarily unethical.  Goldman, in other words, knew that it was financing Greece’s skyrocketing debt with derivatives (conceived largely from an array of mortgage assets) that it was betting privately would one day become essentially worthless. Adding insult to injury, a former Goldman executive recently criticized Greece for breaking Eurozone rules – transgressions he and his company perhaps helped the country to commit.

Of course, no sane person takes his ethical pointers from Wall Street investment banks.  We are speaking here of the same people who, after accepting billions of dollars in taxpayer money to keep their firms afloat, blamed the government for scapegoating them.  ”The expectation in Washington is that ‘We can kick you around, and you are still going to give us money,’ ” said a top official at a major Wall Street firm to the Times last week. “We are not going to play that game anymore.”

It no doubt struck more than a few Americans as remarkable that Goldman C.E.O. Lloyd Blankfein’s $9 million dollar payout was cited by more than a few media outlets last week as an exercise in “restraint.”  This is a man, who, save for unprecedented taxpayer assistance, would have been out of business last year.  Yet he still is earning more than most American taxpayers will make in their entire lives.

The circumstances surrounding Goldman’s negotiations with A.I.G. before the downturn are still somewhat unclear.  But the S.E.C. is now looking into whether Goldman’s stubborn demands for repayment of their bets against housing securities — placed with A.I.G. — were unreasonably high, adding to excessive stress on the mortgage markets.

One thing, however, is certain.  If Goldman thinks that it can continue engaging in extralegal financial maneuvering — such as baiting debt-hungry nations with off-the-books pseudo-loans — it is living in the same fantasy land it accuses President Obama of inhabiting.  Halfway honest financial deal-making should no longer be allowed to occur, anywhere in the world.