[TinyRedLeaf]

It's time to stop the looters in loafers

By Paul Krugman

LAST October, I saw a cartoon by Mike Peters in which a teacher asks a student to create a sentence that uses the verb "sacks", as in looting and pillaging. The student replies: "Goldman Sachs."

Sure enough, last week the Securities and Exchange Commission (SEC) accused the Gucci-loafer guys at Goldman of engaging in what amounts to white-collar looting.

I'm using the term looting in the sense defined by the economists George Akerlof and Paul Romer in a 1993 paper titled Looting: The Economic Underworld of Bankruptcy for Profit. That paper, written in the aftermath of the savings-and-loan crisis of the Reagan years, argued that many of the losses in that crisis were the result of deliberate fraud.

We've known for some time that Goldman Sachs and other firms marketed mortgage-backed securities even as they sought to make profits by betting that such securities would plunge in value.

This practice, however, while arguably reprehensible, wasn't illegal. But now the SEC is charging that Goldman created and marketed securities that were deliberately designed to fail, so that an important client could make money off that failure.

That's what I would call looting.

> FULL STORY ON NYT