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It Isn't Reform Unless It Gives Goldman an Aneurysm

danps's picture

No Associated Press content was harmed in the writing of this post

Issues of financial reform and regulation can be intimidating to laymen (this layman anyway) because of its insanely complex nature. It is easy to imagine the system as a big Jenga tower, and moving one piece might cause the whole thing to come crashing down. No one wants to be seen as inadvertently - but earnestly! - advocating for a ruinous policy. Of course, that means the opposite extreme is then in play: Turning into Hamlet and endlessly agonizing over what to do at the expense of actually doing something. Not to mention the fact that, not to put too fine a point on it, wide swaths of our leadership has for years now been deliberately advocating ruinous policies both at home and abroad. That should certainly make those of us in the unwashed masses comfortable with forcefully advocating what seems reasonable based on available data. It's not as though we could screw it up any worse.

Still, it would be nice to have a rule of thumb, compass point or guiding principle to go by. Having been a reasonably close observer of the meltdown and its aftermath, here is one I have come up with: It is necessary (but not sufficient) that any proposal be strenuously opposed by Goldman Sachs (GS). In a largely protected industry Goldman appears to be the closest thing to untouchable as we have. It is in Matt Taibbi's already-legendary description "a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money." It has installed a revolving door between the highest levels of the government and its board room, enjoys privileged lines of communication with the Treasury secretary exceeding even that of our closest allies, was happily positioned as a key competitor died, then days later benefited as a key debtor was drenched in cash (Yves Smith called it a "massive backdoor subsidy to the likes of Goldman"), and as it happens was the second largest contributor to the president in the 2008 election cycle. More so than any other player in financial services, GS always seems to be nearby when bad things happen.

With that in mind, we can use Goldman's position as a handy template for evaluating any reforms. The much heralded limits on executive compensation? They do not include Goldman. Therefore they are not real reforms. It is just so much transparently phony political grandstanding. The "Too Big Too Fail" bill making its way through the House looks like it will miss GS through a combination of loopholes and inadequacy (and may in fact be an enormous giveaway to the industry). The Consumer Financial Protection Agency seems to be a mixed bag, but note that the "financial autopsy" amendment was defeated. What might GS have thought of that? To get an idea here is the take of George Washington from Washington's Blog (emphasis in original):

Instead of trying to pass a one-size-fits-all bill prohibiting certain specified conduct, it will force an annual analysis of what financial products are sticking it to the consumer. Remember, credit default swaps didn’t bring down the economy because they are toxic while all other financial vehicles are pure as the driven snow. CDS brought down the economy because they were the choice du jour of the looters. If we outlaw CDS (which I have argued for in the past), then the looters would create some other instrument for looting.

Considering GS's plunge into the CDS pool I think it is safe to say a financial autopsy would not be great PR, nor would autopsies for whatever havoc Wall Street's next adventure in casino capitalism produces. In other words, it would have been real reform. The same appears to be the case for Ron Paul's bill to audit the Federal Reserve. We know that Stephen Friedman, then-chairman of the New York Federal Reserve's board of directors and GS board member, was engaged in substantial stock trading right around the time Goldman was converting to a bank holding company regulated by the Fed. Since it led to his resignation GS probably has skeletons in that closet as well. Fed chairman Ben Bernanke opposes it too, which may be suggestive. GS does not appear to have come down firmly against it, but as Paul's bill goes down to the wire it looks like GS will lobby hard against it. Which means, real reform.

Despite the somewhat flippant tone, my main point is completely sincere: As Congress looks at various proposals, the opposition of GS may be as accurate a barometer as the average citizen will have for deciding just how substantive the various proposals, bills and amendments really are. Goldman Sachs is a nearly perfect example of the modern Wall Street ethos, and it has become the inverse of Charles Erwin Wilson's vision of GM: What's good for it is bad for America.

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BDBlue's picture
Submitted by BDBlue on

Sheila Bair, who is rapidly winning my heart or at least my brain despite being a Republican (although she describes herself as a Teddy Roosevelt Republican), testified about the proposed regulatory package and noted a lot of its weaknesses in contradiction to Geithner's testimony. She also spoke at the Showdown in Chicago before going to the ABA convention.

Might I suggest that as with Elizabeth Warren and the Democrats, Bair would be an excellent choice to try to draft as the GOP nominee in 2012. Why should the Dems have all the fun?

And what is up with so many of the prominent critics of Wall Street and the bailouts and "regulatory" proposals, including inside the Administration, being women. Perhaps it's the boys' club nature of Wall Street and women are the natural outsiders. Of course, the White House under this President is is all about the mens, so perhaps that, in addition to all of those donation, explains its affinity for Wall Street (which seems to go beyond simply business transactions to a cultural affinity, IMO).

Submitted by lambert on

.... to people who aren't testosterone-driven. Some cultures do. And gawd knows, we've tried everything else.

BDBlue's picture
Submitted by BDBlue on

Women own less than 1% of the landed property in the world (and only 2% of all landowners are women). Of course, women with property are also often women with power (in one study, in Kerala, India, found that 49 percent of women with no property reported physical violence compared to only 7 percent of women who did own property).

Of course, some countries - Finland, Sweden, Norway, do very well in gender equality. Interestingly, and unsurprisingly, these are countries with relatively high taxes and a strong social net.

And it's not so much that I think women are better people - more ethical, more generous, smarter, etc. - so that they would inherently make better and more just decisions with the money, it's that I think that societies that are so imbalanced in terms of power are less likely to be balanced in other ways (the same applies to racist societies, which also applies to us). A culture that lets men treat women like crap is more likely, IMO, to let the rich treat poor like crap, especially when a lot of the poor are women.

danps's picture
Submitted by danps on

societies that are so imbalanced in terms of power are less likely to be balanced in other ways

That's right on, I think. Women have been excluded from the top to a much greater degree and that means whistleblowers, naysayers and other outsiders are more likely to be women. As they achieve parity at the upper levels they will prove just as fallible as men, a phenomenon I think of as the Blanche Lincoln Principle.

Submitted by lambert on

First, until the rot sets in, we can at least assure ourselves of marginal improvements.

Second, they may have fallibilities that are different. For my part the fallibility of the "boom/bust" cycle -- Will Doctor Freud please pick up the white courtesy phone? -- is one that I would willingly dispense with.

An example would come from the Founders. They set in place a system where fallibilities were set against each other. And, as it turned out, one set of fallibilities was destroyed in the ensuing conflicts: The fallibilities that come from owning slaves. Now, there are plenty of other fallibilities! (Among them would be the idea of framing the Jim Crow Era as being authentically fascist). But I'm glad to see that one go. I think the net is positive.

danps's picture
Submitted by danps on

coming up with some kind of creature or metaphor to connote general approval of Sheila Bair, Brooksley Born and Elizabeth Warren - three modern Cassandras. Alas my creative writing skills were not up to the task. It's interesting that women are so well represented among those trying to steer us clear of disaster, isn't it?