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Carl Levin, the US senator who led an inquiry into the actions of Wall Street banks in the financial crisis, has hit back against the US Department of Justice’s decision not to prosecute Goldman Sachs for its role in subprime deals.
Mr Levin had requested that the department investigate Goldman after his Senate subcommittee found the bank misled investors in a number of complex subprime mortgage-backed deals it sold before the crisis.
But the justice department issued an unusual statement late Thursday saying it did not plan to press any criminal charges against Goldman, or its employees.
“Whether the decision by the Department of Justice is the product of weak laws or weak enforcement, Goldman Sachs’ actions were deceptive and immoral,” Mr Levin said on Friday. Goldman’s “actions did immense harm to its clients and helped create the financial crisis that nearly plunged us into a second Great Depression.”
The decision by the DoJ, which declined to respond to Mr Levin’s remarks, is likely to reignite the debate over holding individuals on Wall Street accountable for the sale of mortgage-backed securities ahead of the crisis. DoJ officials have said bad business practices may have occurred but that does not make them criminal offences.
The issue could come to a head before the November presidential election. In January, President Barack Obama announced the creation of a taskforce to investigate mortgage abuses – and it is under pressure to deliver.
The US Securities and Exchange Commission this week decided to drop a separate investigation into a Goldman-sponsored deal put together at the height of the mortgage boom, providing another boost to the bank.
Goldman shares have risen about 1 per cent this week. The bank did not respond to request for comment on Mr Levin’s remarks.
The justice department’s move “is actually a huge win” for Goldman, said Dick Bove, analyst at Rochdale Securities. “You have to gauge it against what would have happened had they lost.”
He estimates the bank would have spent more than $1bn on litigation-related expenses in a year and suffered negative publicity that would eventually have overwhelmed Lloyd Blankfein, the bank’s chief executive for the past six years.
“Lloyd Blankfein probably would have been forced out of his position, finally,” said Mr Bove. “The low point in his career was the day that he testified in front of the Levin committee. Now he can come back and say, ‘See I told you we were doing only what the market allowed us to do’.”