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Senators damn financial sector 'snake pit'

Thursday 14 April 2011 - by Will Henley

A new bipartisan report by US senators has laid bare the lax regulation, investment bank profiteering, and inflated credit ratings they say were at the heart of the financial crisis.

The Levin-Coburn report, which has poured over 5,800 pages of new evidence and was published late yesterday, alleges that Goldman Sachs directly profited from the economic fallout.

It condemns poor supervision and points the finger at apparent failings at Deutsche Bank and rating agencies such as Moody's and Standard and Poor's. It also blames collapsed Washington Mutual, which pursued high-risk lending despite internal warnings that the practice would "come back to haunt us".

"Our investigation found a financial snake pit rife with greed, conflicts of interest, and wrongdoing," said senator Carl Levin, Democrat chairman of the permanent subcommittee on investigations, on the publication of the report.

"High risk lending, regulatory failures, inflated credit ratings, and Wall Street firms engaging in massive conflicts of interest, contaminated the US financial system with toxic mortgages and undermined public trust in US markets."

Among its nineteen recommendations, the 635-page final report calls for "strong implementation" of new restrictions on proprietary trading and conflicts of interest.

It demands the Securities and Exchange Commission rank credit rating agencies according to accuracy and calls for measures to strengthen capital, liquidity and loss reserves.

The document, co-authored by Republican senator Tom Coburn, claims that investment banks reviewed by the committee flooded the market with high-risk mortgage backed assets.

The report highlights documents, reviewed by the committee, which it says show that Goldman Sachs in particular profited from net short positions in mortgage related securities.

It says the evidence details how the bank recommended four CDOs to clients "without fully disclosing key information about those products, Goldman's own market views, or its adverse economic interests."

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