Does Goldman Sachs Really Rule the World?

When Fuld testified Monday in front of California Rep. Henry Waxman's Committee on Oversight—ostensibly to explain the chain of events that led up to Lehman's historic Chapter 11 bankruptcy filing on September 15—Rep. Peter Welch, D-Vermont, asked Fuld about the email from McDade and about the idea that Goldman Sachs had a role in bringing down Lehman and its Wall Street brethren. "I have no proof of that at all," Fuld responded.

Welch dropped the line of questioning. But Rep. Dennis Kucinich, D-Ohio, continued to pursue the thread. Before Fuld appeared at the hearing, Kucinich, who abandoned his quest for the Democratic presidential nomination earlier this year, asked Luigi Zingales, a professor of finance at the University of Chicago, why he thought Paulson had decided to rescue insurer AIG and not Lehman. "Gretchen Morgenson of the New York Times wrote a column about the decision to rescue AIG," Kucinich said to Zingales. "She said that Secretary Paulson, a former CEO of Goldman Sachs, made this decision after consulting with Lloyd Blankfein, the current CEO of Goldman Sachs. She also wrote that Goldman Sachs could have been imperiled by the collapse of AIG because Goldman was AIG's largest trading partner. She said Goldman had a $20 billion exposure to AIG. Professor Zingales, when you hear that a decision was made to let Lehman go down and Goldman Sachs is still standing, are you concerned, given these facts, that there is an apparent conflict of interest by the Treasury Secretary in permitting a principal of a firm that he was the CEO with to be involved in these discussions about the survival of Lehman?"

Zingales responded that he was "certainly concerned by that" and also by the role all of AIG, Goldman Sachs and JPMorgan played in the credit default swaps market, perhaps necessitating the rescue of AIG but not Lehman. Not fully placated yet, Kucinich asked Zingales, "If you throw Lehman Brothers overboard, does that help what competitive position may have remained with respect to Goldman Sachs?" To which the professor replied, "I think it's clear that Goldman Sachs benefits from Lehman going under, yes."

By the time Fuld appeared, Kucinich was loaded for bear on the topic. "Does any part of you feel that you were double-crossed by the Secretary [of the Treasury] and he was playing you off against, let's say, Goldman Sachs?" he asked Fuld. Fuld replied, diplomatically. "I would sincerely hope that was not the case," he said. That answer closed the matter for Kucinich for a few minutes.

But when he emerged from the hearing room, he went right up to the assembled bank of cameras. "There are serious questions that were raised by the testimony today about the role of Secretary of the Treasury in the demise of Lehman Brothers," he said, without citing any.

"Today, a former Goldman Sachs employee who works at Treasury was named to oversee the fixes that will come as a result of the $700 billion bailout," he continued. "Goldman Sachs' fingerprints are all over this. My concern, and what I want to get at is, did the Treasury Secretary use his position as a former head of Goldman Sachs to push Lehman Brothers off the cliff? That's what I'm interested in and people have to know how this thing was perpetrated. Today is just the beginning. Mr. Paulson now has effective control over $700 billion. We've got to get deeper into this. There is something rotten going on and we've got to stay on it."

Some myths refuse to die.