Goldman Lawsuit Eerily Like Drexel Burnham Scandal: Gary Weiss

Lately I've been having a recurrent hallucination. It happens whenever I get swept up in the orgy of Goldman Sachs (GS) Mania. I had this vision as I was reading about super-hedgie Ken Griffin calling the Securities and Exchange Commission's fraud charges against Goldman "childish." It hit me like a sledgehammer as I watched Goldman executives enjoyably turn a Senate subcommittee hearing into a kind of Abbott & Costello "who's on first" routine..

On such occasions, I go dizzy. Flashes of lights appear before my eyes, I go into a trance, and I see junk bond legend Michael Milken, smiling energetically, or the silver-maned Fred Joseph, CEO of Drexel Burnham Lambert, manfully defending his firm (after Milken took the Fifth) on Capitol Hill many years ago. Goldman CEO Lloyd Blankfein has less hair than Joseph, but otherwise he is Joseph come alive -- the same vacant courtesy, the same evasions, the same solemn balance between restrained hubris and patient condescension.

Whenever I look at Goldman Sachs, I see Drexel Burnham Lambert, that great junk bond powerhouse that collapsed under a federal juggernaut reasonably reminiscent of today's get-Goldman campaign. There are a number of glaring dissimilarities between Drexel Burnham Lambert and Goldman Sachs, to be sure. But the historical parallels between these scandals are amazing.

It's the sort of thing that happens every couple of decades. In the blink of an eye, a true pillar of society, friend of the New York Congressional delegation and revered campaign contributor suddenly becomes an enemy of every man, woman and child in America.

In order to have a Drexel-Goldman moment, a rare alignment of the Wall Street celestial objects must take place. Ordinary regulatory standards totally break down. A permanent condition of American commerce known as "regulatory capture" goes into reverse, sort of the way a cat coughs up a hairball. Regulators who might ordinarily be indulgent are hostile and unfeeling. Benefits of the doubt are no longer given, and there are breaches of customary civility -- such as the filing of SEC fraud lawsuits without attempts to notify, cajole, settle and ameliorate.

With regulators suddenly functioning in a regulatory capacity, the target is in the uncomfortable position of having to treat its regulators as regulators, and not as drinking buddies.