Gordon Brown attacks 'morally bankrupt' Goldman Sachs over its dealings

GORDON Brown has condemned leading investment bank Goldman Sachs for being "morally bankrupt" and called for an immediate investigation into its dealings.

The anger of the Prime Minister was provoked when it emerged over the weekend that Goldman Sachs was intending to pay 3.5 billion in bonuses despite facing claims of a $1bn fraud in the US.

The billions in bonuses to its staff worldwide announced over the weekend includes almost 600 million to its 5,500 London-based staff – for just three months' work.

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The saga has reignited concerns about the practices of banks in the international markets and the bonus culture that appears to be persisting despite efforts to stop it.

Among the claims being made against Goldman Sachs is that it collaborated with hedge fund manager Paulson & Co to create the subprime mortgage-backed product and lied about the mortgages in a package to investors which led to it allegedly defrauding the Royal Bank of Scotland.

RBS paid out 841m to Goldman Sachs to get it to walk away from an insurance policy on the mortgages set up by the Dutch bank ABN Amro which the Scottish bank took over in 2007. RBS has yet to confirm that it will be taking legal action.

But yesterday a furious Mr Brown insisted the city watchdog, Financial Services Authority (FSA), should join its American equivalent Securities and Exchange Commission (SEC) in investigating Goldman Sachs.

In an interview he said that the case was the worst one he had heard yet and suggested that there needed to be a deeper look into the activities of banks as a whole, describing them as "still a risk to the economy".

He added that the case underlined the need for further reform of the international banking system: "I am shocked at this moral bankruptcy. This is probably one of the worst cases that we have seen.

"Everything I find out convinces me that we have got to go in deeper and I believe that I am the man to deal with these problems of the banks and to challenge them about the way they behave in the future."

He went on: "There have been hundreds of millions of pounds been traded here and it looks as if people were misled about what happened. I want the Financial Services Authority to investigate it immediately. We will work with the Securities and Exchange Commission in the United States.

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"The banks are still an issue; they are a risk to the economy. We have got to make sure they behave in a proper way."

The FSA has since confirmed that it will be holding a full inquiry into Goldman Sachs, although this is unlikely to include the question of bonuses.