Don't Expect Scrutiny Of Wall St. High Jinks

Here's something to keep an eye on: If Congress and the Justice Department don't thoroughly investigate how Goldman Sachs has managed to turn chicken stuff into chicken salad in the midst of the credit meltdown that savaged some of its competitors, well, we'll know the fix is in. If I were a betting man (and I am), I'd give you long odds on that happening and be very confident of winning the wager.

Last month in The New York Times, William D. Cohan laid out the suspicious circumstances surrounding the rapid recovery of what some wags call "Government Sachs" from the ravages of the subprime collapse to an "unexpected" first-quarter profit of $1.8 billion. Mr. Cohan, author of House of Cards: A Tale of Hubris and Wretched Excess on Wall Street, details how Goldman alumni expertly maneuver the government into doing things beneficial to the venerable firm.

It's not a secret. We all know the general shape this self serving took. Robert Rubin, who joined the Clinton administration in 1993 and became Treasury secretary, was a former chairman of the company and was followed in both jobs by Henry Paulson. Mr. Paulson, in turn, was instrumental in the momentous decisions last fall that led to the collapse of Bear Stearns and the bankruptcy of Lehmann Brothers, plus the forced acquisition of troubled Merrill Lynch by Bank of America at an inflated price. Paulson wouldn't save Lehman Brothers but poured $170 billion into keeping insurance giant A.I.G. afloat, and then installed a former Goldman Sachs director as A.I.G.'s CEO.

Cozy enough for you?

Wall Street hubris hit perhaps a historic high when Goldman's chief financial officer acknowledged in a conference call with analysts last month that the downfall of competitors played a role in the return of profits to the firm, while denying that $13 billion of taxpayer money collected from A.I.G. played any role whatsoever in boosting those reported earnings.

Goldman Sachs is left standing alone in the Wall Street ruins, announcing it will pay back the $10 billion it received from the government under the Troubled Asset Relief Program so it will be able to recruit whomever it wants and pay them whatever it wants without any government scrutiny.

So, why is it unlikely that there will be a serious investigation into the financial corruption that caused the current mess? After all, the federal government conducted a famous probe into such things during the Great Depression. It was called the Pecora Commission, after the man the Senate Banking Committee hired as its counsel, Ferdinand Pecora, a former New York assistant district attorney. That commission grilled bankers mercilessly and paved the way for serious federal financial regulations such as the Glass-Steagall Act, repealed in 1999 by politicians grateful for massive Wall Street contributions to their campaign chests. Ah, there's a clue as to why there is unlikely to be any but the most perfunctory investigation into this chicanery.

As Thomas Frank put it in a recent Wall Street Journal opinion piece, "The crisis today is not solely one of bank misbehavior. This is also about the failure of the regulators - the Wall Street policemen who dozed peacefully as the crime of the century went off beneath the window." Financial markets in recent years became akin to casinos where the players could bet on anything at all, including, and this is key, whether firms like Bear Stearns or Lehman would fail - and if betting that way, could help their wager along by short-selling the firms' stock or denying them credit.

It was fixed, and the fixers have saddled all of us with the losses while raking in the profits for themselves. They couldn't have done this had their investment in politicians not been so successful. The lawmakers will not shine any light on their own culpability. And that is the safest bet I can think of.

Ron Smith can be heard weekdays, 3 p.m. to 6 p.m., on 1090 WBAL-AM and WBAL.com. His column appears Fridays in The Baltimore Sun. His e-mail is [e-mail].