100 Treatises

Why the Goldman Sachs Fraud Case Doesn’t Matter

It was bound to happen. Goldman Sachs was far too successful and prominent to avoid an investigation by regulators in the aftermath of massive financial crisis. And since nobody considers that the economic system itself might be to blame for the crisis, what better scapegoat is there? Surely, there’s nothing systemically flawed with the economy, and so the only rational explanation is some wrongdoing at the highest echelons of Corporate America, right?

Americans, from the average joe to the political power brokers to the corporate honchos, were and are far too attached to the economic status quo to even entertain the notion that significant reform of the economic and financial system is warranted. In place of a reasonable analysis by an informed understanding of economics, Americans have chosen to find scapegoats everywhere imaginable: irresponsible debtors taking on more loans than they could afford, idealistic politicians pushing home ownership in spite of financial unsoundness, the big banks, financial speculators, Democrats, Republicans, Alan Greenspan, Ben Bernanke, Barney Frank, Tim Geithner, and more. Surely, all of these parties bear a fraction of the blame, some more than others.

But to blame any of these individuals or entities misses the larger issue. Most of these actors were–and, more importantly, still are–in hock to the critically flawed economic regime of neoliberalism/ market fundamentalism/ neo-laissez faire and the simplistic assumptions and models underlying it. This includes countless “leaders” in the government, some of the most important businesspeople and, most importantly, the large majority of Americans. Thankfully, there are some prominent individuals who have chosen to take a second look at the old conventional wisdom, but they are few and far between, and have yet to formulate a new intellectual regime that can replace the existing one, decrepit though the latter may be.

It’s very possible that Goldman did something unethical or illegal. But if the SEC or other regulators think that litigating powerful people and firms will even begin to solve anything important, they’re dreaming. They could cripple every major successful firm in the country, and it still wouldn’t get to the underlying problems. We can’t know whether the investment bank will beat the allegations, but we can be confident that it doesn’t mean much. Whatever anybody’s opinion of Goldman Sachs, the SEC’s time and energy would be put to better use rolling up their sleeves and helping to restructure the economic system.

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