Goldman Sachs is implicated in history’s largest financial con – but will it be held accountable?

Even by Wall Street standards of gouging customers this was one hell of a skim.

In 2012 and 2013, the Malaysian government was raising $ 6.5bn (£ 5bn) from investors to establish a sovereign wealth fund and finance various domestic infrastructure investment projects. And the cut for Goldman Sachs - the most prestigious investment bank in the world - for arranging the fundraising from the global capital markets? Ten per cent, or $ 600m.

Now we can have a guess as to why the Malaysian authorities were so insouciant about those extortionate fundraising costs: because they themselves were, apparently, going to loot the pot in one of the biggest frauds in history.

Around half of the fund has gone missing. According to the US Justice Department a fair amount has been pumped into luxury American real estate and shady art auction bids. Appropriately, some went into investing in Martin Scorsese's The Wolf of Wall Street. At one stage $ 680m mysteriously appeared in the bank account of the former Malaysian prime minister, Najib Razak, who chaired the 1MDB advisory board, and who is now charged in his own country with corruption.

Malaysian politicians, officials and financiers had effectively bought Goldman Sachs' blue chip reputation to pull in naive investors to the "1MDB" state investment fund. Ten per cent probably seemed a reasonable cut in the circumstances.

The question is: what did Goldman know about the theft? The bank claims today that it was completely oblivious. But the senior Goldman banker on the ground in Malaysia, Tim Leissner, certainly knew. He pleaded guilty in New York to financial crimes related to 1MDB last week, including bribery of officials to ensure Goldman was the sole fundraiser.

What's even more problematic for the bank is that Leissner told the court there was a "culture" at Goldman Sachs of bypassing internal compliance. That's backed up by US prosecutors, who say Goldman's business culture in the region was "highly focused on consummating deals, at times prioritising this goal ahead of the proper operation of its compliance functions".

Goldman has been a Teflon bank over the past decade. Scandals have slithered off it and nothing has really stuck. We found out in 2010 that Goldman Sachs financiers constructed derivatives to help the Greek government deceive the outside world about the true state of its finances prior to the country joining the single currency.

It was revealed in 2013 that, before the financial crisis, the bank had been deliberately designing mortgage backed investment products to fail and then selling them to unwitting clients. There have been some large fines from regulators for malfeasance over the years but no senior resignations. The top brass have at every stage deplored the bad behaviour of underlings, but insisted they personally had no idea what was going on.

Lloyd Blankfein was one of the few Wall Street chief executives, along with Jamie Dimon at JP Morgan, to survive right through the financial crisis, collecting bonuses all the way. In 2007 Blankfein's total remuneration was $ 100m. His compensation in 2017: $ 22m. Clearly austerity in action.

But now Blankfein is implicated in 1MDB scandal. Reports say he personally met the Malaysian prime minister and Jho Low, the Malaysian financier accused of masterminding the theft, in New York in 2009.

Low was notorious in New York for his copious and ostentatious nightclub partying and outrageous spending. At the time, the New York Post quoted one person as saying: "Nobody spends their own money like that. It's just weird."

Is it really credible to say that this was all just a local problem, perpetrated by local rogue operatives? Did it really never occur to senior Goldman Sachs managers to wonder why the fees on the fundraising deal were so enormous? Even if it is unproven that top Goldman executives knew what was going on, what does it say about the culture of the bank that individuals like Leissner were employed there? Who is accountable for that culture? The incoming Malaysian prime minister, Anwar Ibrahim, accuses Goldman Sachs the bank, not just corrupt individuals who worked for it, of being "complicit" in the looting. And he says Goldman Sachs should return those $ 600m in fees.

We are about to discover whether the world's most politically-connected investment bank - the former employer of dozens of senior civil servants, from US treasury secretaries to the governors of the Bank of England and the European Central Bank - can brush off being close to the heart of the world's largest financial con.

The answer will tell us something - one way or another - about how much reform there has been in finance in the decade since the crash.

You can have Wall Street and Donald Trump after all

Last week another banker had his collar felt. Goldman Sachs employee Woojae Jung was arrested and charged in the US with insider trading. Jung is accused of using confidential information on planned corporate merger activity, gathered from within Goldman's investment banking department, to make secret trades in the companies involved. Jung, allegedly, knew which way the market was going to move when the information became public and personally positioned himself to profit from that.

Just another unremarkable tale of alleged corruption on Wall Street? Perhaps the significance is greater than that. For, by coincidence, last week also saw the Federal Reserve, America's lead financial sector regulator, propose to water down the "Volcker Rule", a centrepiece of the legislation enacted by the US in the wake of the global financial crisis a decade ago. The Fed, led by recent Trump appointee Jerome Powell, is giving the banking lobby what it has been hollering for ever since the rule was devised by the Barack Obama administration back in 2010.

What does the Volcker Rule, named after the former Federal Reserve chair Paul Volcker who designed it, do? It prevents Wall Street banks, such as Goldman, from "proprietary trading", that is to say directly making bets on the movement of financial markets using their own money. This might sound a bit odd to many people. Because isn't this precisely what these financial institutions do to generate their profits and bonuses? The answer is no, at least in theory. These banks' traders are supposed to facilitate foreign exchange and bond buying orders etc on behalf of their corporate clients.

While they can legitimately make a profit from such market making - pocketing the difference between what they buy the various assets for and what they sell them for - they are not supposed to nakedly speculate for their own institution's profit. There's inevitably a grey area here: one traders' speculation is another's simple pre-emptive buying of assets to facilitate an expected future client transaction. Yet what Volcker did was to shrink the grey area considerably and make the speculation element considerably more onerous and expensive.

And rightly so given the catastrophic hidden risks banks turned out to have been running in the years before the financial crisis. Rightly, too, given the fact that these banks still benefit from a de facto taxpayer guarantee. There's no case for publicly subsidised gambling - certainly not for underwriting gamblers with trillion dollar balance sheets.

The Jung allegations remind us why this functional separation is not only appropriate for banks but ethically necessary too. Wall Street banks have a hugely privileged position in the flow of financial information. Their investment banking divisions find out early about possible market moving mergers.

Their share dealing and asset management divisions register big buy or sell order from clients which are likely to move markets simply due to their size. The opportunities for banks to profit from such information are vast. It's a testament to the degree to which banks like Goldman effectively wrote their own rules before the global financial crisis that regulators sat back and allowed them to gamble in such patently conflicted ways, even to the extent of having in-house highly-leveraged hedge funds.

This is not just a tale of American folly. Where Wall Street treads in financial markets, history shows us that the City of London ultimately tends to rush in too

The primary argument of the banking lobbyists is that the Volcker rule now constrains "liquidity" in financial markets, specifically because it limits banks' ability to take positions in the assets they trade. But the benefits of liquidity in financial markets for the wider economy are grossly exaggerated. Ordinary people do not turnover their pension share portfolios multiple times a day. Even large multinational corporations, which do need to buy and sell currencies and hedge themselves against rising interest rates regularly, really do not require the kind of hyper-liquidity that the banks are talking about.

As Denis Kelleher, the head of the Better Markets pressure group in Washington, puts it: "There is no evidence that the Volcker Rule has had any negative effect on financial activities related to the real economy."

The real beneficiaries of hyper-liquidity in financial markets are speculators. And, of course, dealers, such as the large banks. The watering-down of Volcker is not about benefiting the US economy, but further boosting the profits of the large banks and the bonuses of their employees. And as we saw happen with the tight financial regulations that prevailed after the Second World War, such as the strict separation of investment and retail banking, Wall Street tends to play a long game of suffocation: breach the spirit of the law and then hollow it out gradually until there's nothing left.

This is not just a tale of American folly. Where Wall Street treads in financial markets, history shows us that the City of London ultimately tends to rush in too.

Trump, readers might remember, campaigned as a champion of Main Street, accusing Wall Street of "getting away with murder". He pilloried his opponent Hillary Clinton for once making a speech to Goldman for which she received $225,000. So effective was this anti-finance shtick that the whistleblower Edward Snowden even tweeted in February 2016 that the presidential election represented a dismal "choice between Donald Trump and Goldman Sachs".

As the assault on the Volcker Rule confirms, this was one of the worst pieces of analysis of recent history.

You can indeed have the nightmare combination of Donald Trump and Wall Street - and America is now getting it good and hard.