Monday, February 15, 2010

Johnson: Goldman Likely to Be Blacklisted from Dealing with EuroZone Governments

On news that Goldman Sachs helped Greece hide sizeable amounts of its debt, Simon Johnson expects the European Commission to begin an investigation:

Goldman will dismiss this as “business as usual” and, to be sure, a few phone calls around Washington will help ensure that Goldman’s primary supervisor – now the Fed – looks the other way.

But the affair is now out of Ben Bernanke’s hands, and quite far from people who are easily swayed by the White House. It goes immediately to the European Commission, which has jurisdiction over eurozone budget issues. Faced with enormous pressure from those eurozone countries now on the hook for saving Greece, the Commission will surely launch a special audit of Goldman and all its European clients.
With a European investigation, Johnson thinks the political stars are so aligned that Bernanke will be forced to cooperate and provide any information the Europeans may ask for:

The Federal Reserve must cooperate fully with this investigation. Ordinarily, the Fed might be tempted to sit on useful information, but they can now feel themselves in Senator Bob Corker’s crosshairs. Republican Senator Corker is willing to cooperate with Senator Dodd on financial sector reform, opening up the possibility of legislation that will pass the Senate, but he wants the Fed to lose its supervisory powers. If the Fed refuses to help – willingly and fully - the European Commission with bringing Goldman to account, that will just strengthen the hand of Senator Corker and his allies.
And here's the real zinger from Johnson:
Goldman will probably be blacklisted from working with eurozone governments for the foreseeable future; as was the case with Salomon Brothers 20 years ago, Goldman may be on its way to be banned from some government securities markets altogether.
Johnson is a wired in guy, given his former position as chief economist at the IMF, he may very well know about what he speaks. First NYT, now Johnson, it sure sounds to me that the signal has been given that it is okay to take a bite out of Goldman.

1 comment:

  1. Surely Mario Draghi, member of European Central Bank Council and chair of the Financial Stability Board, can do something to help his old employer.