The Goldman Rule

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The man who takes Sachs of gold is the man who makes the rules. President Obama is that man, and Republicans in Congress should demand an independent special prosecutor to investigate the relationship between gold and rulemaking in the executive branch. With nearly a million dollars of Goldman Sachs money in his hip pocket (rendering that institution his most generous ’08 corporate campaign contributor), Obama appears to be ignoring some serious rule-breaking.

Last Friday, news broke that the Securities and Exchange Commission was suing the Wall Street bank of Goldman Sachs. Conspicuously absent was a corresponding announcement from the Department of Justice that indictments were soon to be handed down. Which is curious, and also a major departure from the norm.

President Obama has relentlessly attacked “Big Business” and Wall Street “greed,” and in the process has exhausted every available metaphor from the leftist’s lexicon used to bash, undermine, and delegitimize capitalism. According to The Washington Post, the SEC is accusing Goldman Sachs of some pretty nasty stuff:

The suit asserts that Goldman defrauded investors when it sold them a subprime-mortgage investment in 2007 that was secretly designed to lose value. The agency alleges that Goldman created and marketed the investment without telling its clients that Paulson & Co., a prominent hedge fund, had helped the bank assemble the investment while at the same time was placing bets that it would lose value. The bank received $15 million from Paulson & Co. for its services.

What a compelling test case this could prove for a devout (when the proverbial pews are full) populist like Obama; Goldman could serve as the stump-speech whipping boy at every rally, especially now, as the administration seeks to “rein in” Wall Street. But Obama has made clear that he wants no part of a criminal investigation that targets his most snuggly bedfellow of the 2008 election. And Sachs of gold are not the only cause of this hesitance. Treasury Secretary Timothy Geithner, one of the most influential, powerful members of Obama’s Cabinet, is notoriously close to many top Goldman officials. In fact, prior to his confirmation, Geithner’s critics were vocal about his many perceived conflicts of interest.

In January 2009, financial risk analyst Chris Whalen gave voice to many of those critics when he told Yahoo Finance, “Geithner is the wrong man for the job because of his decision-making as President of the New York Fed. ‘I believe Tim Geithner only represents part of Wall Street – Goldman Sachs.’”

Indeed, Geithner was one of the primary architects of the Troubled Asset Relief Program (TARP). During the closed-door, never-to-be-revealed machinations that spawned that unprecedented taxpayer gift to a select few, Geithner engaged in an unusual number of contacts with Robert Rubin, the former co-chairman of Goldman Sachs. It was also Geithner’s decision to bail out American Insurance Group (AIG), a controversial move that rendered Goldman whole at a time when other banks were left struggling or allowed to fail, Bear Stearns and Lehman Brothers being the two most famous examples.

President Obama does face potential peril if the SEC lawsuit naturally matures into a criminal prosecution, but he remains ever confident that he has little to fear from his less than independent attorney general. And so, he displays his usual hubris by politicizing the affair to his own benefit, using it to declare that this is why congress should pass his Wall Street reform bill. This is the bill, according to sources, that would permit him to take over any public company that he deems unstable. Ah, “free markets”, indeed!

President Obama is using the Goldman Sachs case to set a trap for Republicans, hoping that Republicans will revert to form, and do what they always do (and are already doing): defend Goldman. His bet is that it will distract from the real narrative, that Goldman is a consistent, heavyweight contributor to the Democrats in general, and to his own political fortunes in particular.

Republicans can defend capitalism and repel another Big Government takeover, and still champion justice by demanding a special prosecutor discover the truth that lies at the bottom of this deal that the SEC calls fraud. And in doing so, Republicans should take it a step further, demanding the investigation include political donations and influence peddling. This is critical, considering the amount of taxpayer money used to bail out these politically connected firms.

The political fallout for Obama here could be devastating; after publicly chastising our country’s Supreme Court for a decision that he claims will allow “Big Business” to exert undue influence over elections, he would be forced to defend himself for taking nearly $1 million from a huge banking institution that faces probable indictment. All the while Republicans could take the high road and lecture Democrats about the evils of big banks, Wall Street and tainted campaign donations. What a novel turn of events that would be.

Scott Wheeler is a former investigative journalist and Director of the National Republican Trust PAC. Buckley Carlson is a Washington-based political strategist.