Again, I do not at this point assume criminal behavior on the part of Goldman or anyone else.  But what I saw at yesterday's hearing was an eye-opener about how both the financial industry and Congress operate. 

The short of it is that each side turned out to be the other side's best exhibit.

What I saw from Congress, and in particular from Chairman Levin, was a largely ignorant, rude, overbearing, politically-driven and occasionally thuggish quasi-statist looking to drum up a campaign issue for his party, which is currently quite in need of one.

What I saw from the Goldman executives was a slick (but needed to be slicker) PR presentation rife with obfuscation, evasion, amazingly bad memories, double-talk and "everybody else was doing it."  It's the kind of performance that, if you got it from your teenager, would get him grounded for two weeks.  It was also reminiscent of what you get from  a witness who's been up to no good and would prefer a trip to the South Pole over giving a straight answer.

It will take a more extensive analysis than I can put in this entry to explain what went wrong with the banking industry and what should be done about it.  Below I excerpt one paragraph from John Hineraker at Powerline, http://www.powerlineblog.com/archives/2010/04/026171.php,  to explain the government's substantial role in the meltdown.

Here is what really happened: there was a bubble in housing prices. The bubble was mostly the result of government policy--loose money, combined with pressure on banks to make bad loans to unqualified home buyers. It all worked for a while because Fannie Mae and Freddie Mac, under the leadership of Congressman Barney Frank and others, created a secondary market for shaky mortgages. Goldman Sachs participated in this market, downstream, along with many other players. But the whole thing wasn't an accident or a conspiracy, it was government policy. The home price bubble could have only one possible result. All bubbles burst--there is nothing else they can do--and the bursting of a bubble is always painful. The whole disaster that began in 2008 was the inevitable result of government policy, which is why Senators are so anxious to pass the buck to Goldman Sachs.

That seems correct as far as it goes.  But there was more to it.

At the bottom of it all was something neither sophisticated nor new:  Greed abetted by deceit.  People wanted houses they could not afford (greed).  Consequently, and feeling enabled in the degraded culture we have built for ourselves, see http://www.crimeandconsequences.com/crimblog/2010/02/a-preview-skilling-and-enron-a.html,  they lied on their mortgage applications about their income, assets and debt (deceit).  Banks saw there was money to be made from writing these "sup-prime" mortgages (greed), as long as their shaky undergirding could be concealed in the secondary market in which they would be bundled and re-sold (deceit).  All this worked while housing prices were going up, because the rising market provided cover to the deadbeat (oh, excuse me, "marginalized") mortgagees, their faciltators, brokers and banks, and to the lies they were telling all the way up the chain.

When the housing bubble burst, banks (and particularly their stockholders) were left holding the bag.  Inside the bag were the zillions of sub-prime mortgages  --  mortgages that had been openly known for years as "liar loans."   They could not be, and were not, re-paid.  Thus the value of banks collapsed.  Dozens were shuttered.  Depositors were rescued by the DPIC, but empolyees were laid off and stockholders lost billions.  The people our economy needs most right now, savers and investors, were the most hurt.  All because of other people's greed and deceit.

We don't need more legislation from the same folks who, as John points out, helped build the path to this disaster.  What we need is to remember that jails are built for thieves.