A huge bank lawsuit to keep your eye on
T HERE was a major development in a lawsuit last week that every investor should know about — and worry about. But nobody is paying attention. A New York federal judge appointed three law firms to serve as lead counsels in multitrillion-dollar litigation accusing Goldman Sachs, Barclays Capital and 18 other financial institutions of rigging the market for US government securities.
This is a civil case, but there is also a federal criminal investigation into this matter that will probably go nowhere because there are so many Goldman Sachs alumni in the Trump administration.
So the civil case, which is a class action, is the one to watch. And by appointing the law firms of Quinn Emanuel Urquhart & Sullivan and Cohen Milstein Sellers & Toll as well as Labaton Sucharow to handle the case, this litigation takes a tiny step forward even if the criminal probe is stagnant.
“Tiny” isn’t important here. The fact that this case will hang over the financial markets for years is what should be remembered. What’s at stake? A lot of money, to be sure. But even more important is the integrity of the US financial markets.
Back in May, The Post explained how the Justice Department was looking into whether Goldman Sachs, run by longtime Chief Executive Lloyd Blankfein, was getting preferential treatment during US government bond auctions. Goldman, according to a source, had astonishing success in winning auctions between 2007 and 2011.
I suspect there was collusion between Washington and Goldman, perhaps for noble reasons but largely to keep bond prices high and interest rates low, since the two move in opposite directions. Low rates help borrowers like the federal government and hurt savers.
As I’ve been saying for years, the government’s and Federal Reserve’s rigging of the bond market — especially during the quantitative easing period — has resulted in a secret tax on savers.
The law firms that were given jurisdiction over the civil suit are probably smart enough to realize that Washington doesn’t want any of this to come out. So the class-action litigants will have tremendous leverage as this case moves forward.
So keep an eye on this lawsuit. Small steps could mean death by a thousand cuts if the lawyers decide to make things difficult for the banks and the government.
There’s one other thing you should keep in mind.
As I said, the Trump administration — despite the president’s pledge to clean up Washington — is riddled with Goldman Sachs alums. That’s no different than most other recent administrations. One of those Goldman grads is
Gary Cohn, chief economic adviser to Trump. Cohn revealed last week that he was thinking about quitting the administration because he didn’t like the president’s response to the incidents in Charlottesville, Va. Really? I dare him. I agree that
President Trump — again — botched a chance to be presidential while also proving that he was human enough to decry prejudice and hate.
But would Cohn really leave his high-powered White House job on mere principle? I don’t think so, especially since Cohn is also said to be the front-runner to replace
Janet Yellen as head of the Fed in January. And that job carries even more clout.
Yellen pretty much took herself out of the running for being re-upped as Fed chair when last week she backed financial market reform that is opposed by Trump.
There’s too much at stake for Cohn to quit.
The Trump administration is doing the right thing in considering a plan to allow corporations to bring back — “repatriate,” it is called — some $2.6 trillion in corporate profits that were earned overseas and left there because the companies didn’t want to pay US taxes.
I advocated this repatriation a long, long time before it became fashionable.
But Trump is only planning to give these corporations a tax break. So he’s missing out on a way to make an impact on the whole economy.
The way Trump is proposing it, that extra money coming back to the US will probably be used by the companies that benefit to buy back stock (which enriches corporate executives and other shareholders) and increase dividends (which benefits the same group).
And maybe — just maybe — some companies will decide to spend a few bucks to expand their businesses and create jobs.
That’s the part the Trump administration is getting wrong. Any company that is allowed to repatriate money at a low tax rate should be required — no ifs, ands or buts — to use a certain portion of the money for expansion and job creation. If they don’t, then the tax rate should jump back up to what it would have been.
This is a great chance to improve economic growth, but it’s a chance the White House is about to miss.