13 thoughts on “Did Goldman Sachs Just Pass Financial Reform?

  1. Newt says:

    Dems are the largest recipients of Wall Street money.

    Everyone agrees that Wall Street is broken.

    CDOs would not have been possible without bad mortgages, which were catalyzed by Frank, Dodd, Clinton, etc. pushing lenders to make uncreditworthy loans.

    This all could be fixed at the consumer level if lenders were prevented from selling off loans. In other words, they need to hold and service loans they make for the lifetime of the loan.

    Then, of course, only worthy bowers would get loans. Which would ignite cries of racism.

    1. PM says:

      I suppose that just goes to show the integrity of the democrats–they get all of the Wall Street money, but are still willing to stand up to Wall Street to push through the necessary reform–in the face if the intense objections of the people who are contributing significant campaign contributions.

      And, on the other hand, the republicans, is a craven attempt to try to obtain more money from Wall Street, are doing everything that they can to protect those wall street fat cats by trying to block that reform effort.

      Or something like that, right, Newt?

      😉

    2. Bruce Benidt says:

      Newt, are you serious about making lenders hold the loans? I like that idea. Part of what gets everyone in trouble is speculation, not loaning and making fair interest returns.

      Why must there be all these speculative schemes, instruments and scams? Loaning money promotes growth at a reasonable rate by providing capital at a reasonable return. Speculation is betting on the come, hoping for huge returns. One is conservative, seems to me, while the second is hustling.

      What’s wrong with blocking speculation? When has it done anything but make the rich richer while undermining the safety of the economy? How did speculation work out for the country in the Roaring Twenties, or in the Gilded Age? Or in the last decade?

      I’m with you on this one, Newt.
      Should that worry both of us? Or should we celebrate?

      1. PM says:

        The problem isn’t speculation, per se, but rather when then reward is separated from the risk…when those who are speculating KNOW that they will be insulated from the downside potential of their speculation (remember the “zombie thrifts”, anyone?)

        This is what economist refer to as “moral hazard”
        http://en.wikipedia.org/wiki/Moral_hazard

        Making banks hold the loans is an attempt to correct this particular problem.

      2. 108 says:

        Liquidity.

        Banks need to be able to get out of loans they’ve originated for the sake of liquidity. They need to fulfill the needs of all their borrowers, which requires cash.

        Speculators provide liquidity – they’re useful. The more buyers and sellers in a market the better.

        By all means, there are some cynical players out their, but this is at its core a pricing problem. The credit and the insurance was much too cheap.

  2. Mike Kennedy says:

    Here is a recent WSJ editorial on why the Goldman case is not what it seems.

    http://online.wsj.com/article/SB10001424052702303491304575188352960427106.html?mod=WSJ_newsreel_opinion

    Just for clarification, John Paulson never worked at Goldman as far as I know. He ran an independent hedge fund and was a Goldman customer — no dupe or rookie when it came to understanding what he was buying.

    Also, Goldman didn’t invent or dream up CDOs. As I have mentioned on this blog before — the folks at J.P. Morgan did. Google Blythe Masters (she was one of math quants that invented them) and you’ll see the epitome of beauty and brains.

    I have recommended this so many times here that the author should pay me royalties, but if you want to understand CDOs, CMOs, CDWs and all the rest of this, read “Fool’s Gold” by Gillian Tett.

  3. Mike Kennedy says:

    I heard it’s good. Doesn’t Mr. Paulson play a prominent role in that book? That’s the next one on my list after “Rebound,” which I highly recommend.

    Also, “Crash: The American Automobile Industry’s Road From Glory To Disaster,” by Paul Ingrassia. This book is so well written it’s sick (in a good way).

    He chronicles idiotic and shortsighted management, along with the greedy unions and their job banks and the smart moves made by foreign competition (like building plants in the U.S.) to present an utterly shocking portrait of a once proud and strong industry driven straight into the ditch.

    It’s like watching a car accident unfold in slow motion and is a mere 275 pages or so that breezes through about 85 years of history.

    A particularly funny story: Back in 2008 at a time of high gas prices Chrysler was unveiling the new Dodge Ram pickup and had trucked in 130 longhorn steers from Oklahoma and paraded them through Detroit’s downtown streets toward an exhibition center, where Chrysler bigwigs were speaking.

    There, in front of men, women, children and TV cameras, as the bigwigs spoke, some of the steers began mounting each other.

    I also liked some of the old timer union workers acronym of BOHICA (Bend Over. Here It Come Again).

  4. Newt says:

    Brad Sherman Congressman (D-Calif.), member of House Financial Services Committee :

    (Interview with POLITICO’s David Mark)

    How can Democrats get out ahead of the Goldman Sachs story politically?

    We can say, “No taxpayer money to Wall Street firms, their creditors and the counterparts.” Then we go to the voters and tell them there’s no money for Wall Street, but regulation instead. If you can’t run on that slogan, you’ve got a problem.

    But there are serious problems with the Dodd bill. The Dodd bill has unlimited executive bailout authority. That’s something Wall Street desperately wants but doesn’t dare ask for. The bill contains permanent, unlimited bailout authority.

  5. PM says:

    Newt– the interesting thing is that those funds for the “permanent, unlimited bailout authority” are not taxpayer dollars–they would all be funded by the financial industry–and this is why the financial industry (and Mitch McConnell) are opposing this legislation.

    Don’t believe me? Here is what senator Bob Corker (R), the lead negotiator for the R on the committee with Dodd has to say about it all:
    http://www.salon.com/news/bank_reform/index.html?story=/opinion/conason/2010/04/19/financial_reform_bill_bob_corker

  6. Newt says:

    Goldman’s White House connections raise eyebrows

    Greg Gordon | McClatchy Newspapers
    McClatchy Washington Bureau

    last updated: April 21, 2010 08:04:06 PM

    WASHINGTON — While Goldman Sachs’ lawyers negotiated with the Securities and Exchange Commission over potentially explosive civil fraud charges, Goldman’s chief executive visited the White House at least four times.

    White House logs show that Chief Executive Lloyd Blankfein traveled to Washington for at least two events with President Barack Obama, whose 2008 presidential campaign received $994,795 in donations from Goldman’s political action committee, its employees and their relatives. He also met twice with Obama’s top economic adviser, Larry Summers.

    No evidence has surfaced to suggest that Blankfein or any other Goldman executive raised the SEC case with the president or his aides. SEC Chairwoman Mary Schapiro said in a statement Wednesday that the SEC doesn’t coordinate enforcement actions with the White House or other political bodies.

    Meanwhile, however, Goldman is retaining former Obama White House counsel Gregory Craig as a member of its legal team. In addition, when he worked as an investment banker in Chicago a decade ago, White House Chief of Staff Rahm Emanuel advised one client who also retained Goldman as an adviser on the same $8.2 billion deal.

    Goldman’s connections to the White House and the Obama administration are raising eyebrows at a time when Washington and Wall Street are dueling over how to overhaul regulation of the financial world.

    Lawrence Jacobs, a University of Minnesota political scientist, said that “almost everything that the White House has done has been haunted by the personnel and the money of Goldman . . . as well as the suspicion that the White House, particularly early on, was pulling its punches out of deference to Goldman and its war chest.

    “There’s now kind of a magnifying glass on the administration for any sign of interference or conversations with the regulators and the judiciary,” Jacobs said.

    The SEC investigation of Goldman’s dealings lasted 18 months and culminated with the SEC filing civil fraud charges against the investment bank last week.

    According to White House visitor logs, Blankfein was among the business leaders who attended an Obama speech on Feb. 13, 2009, and he also joined more than a dozen bank CEOs in a meeting with Obama on March 27, 2009.

    Blankfein also was supposed be among the CEOs who met with Obama in December, but he and two others phoned in from New York, blaming inclement weather.

    He and his wife, Laura, were listed on the logs among 438 presidential guests at the Kennedy Center Honors the previous week.

    The logs also indicate that Blankfein met twice in 2009, on Feb. 4 and Sept. 30, with Summers, who was undersecretary of the Treasury Department during the Clinton administration when it was headed by Robert Rubin, a former Goldman CEO.

    Asked whether Goldman executives had talked to administration officials about the SEC inquiry, Goldman spokesman Michael DuVally said that the firm doesn’t discuss “what conversations we may or may not have had with government officials.”

    Schapiro’s statement said that she’s “disappointed” by Republican rhetoric suggesting that the SEC case against Goldman might have been timed to boost legislative prospects for a financial regulation overhaul bill, which Obama plans to pitch in a speech in New York Thursday.

    “We do not coordinate our enforcement actions with the White House, Congress or political committees,” Schapiro said. “We do not time our cases around political events or the legislative calendar . . . We will neither bring cases, nor refrain from bringing them, because of the political consequences.”

    Obama dismissed any such suggestion as “completely false” Wednesday, saying in a CNBC television interview that the SEC “never discussed with us anything with respect to the charges that would be brought.”

    While describing Craig, his former counsel, as “one of the top lawyers in the country,” Obama also said that he’d imposed “the toughest ethics rules that any president’s ever had.”

    “One thing he (Craig) knows is that he cannot talk to the White House,” Obama said. “He cannot lobby the White House. He cannot in any way use his former position to have any influence on us.”

    Goldman’s chief spokesman, Lucas van Praag, said the firm “wanted Craig . . . for his wisdom and insight.”

    Craig, now an attorney with the Washington law firm of Skadden, Arps, Slate, Meagre & Flom, said: “I am a lawyer, not a lobbyist. Goldman Sachs has hired me to provide legal advice and to assist in its legal representation.”

    Goldman’s nearly $1 million in campaign contributions to Obama’s presidential campaign were the most from any single employer except the University of California. Still, they represented only a fraction of the more than $700 million that the campaign raised.

    “The vast majority of the money I got was from small donors all across the country,” Obama told CNBC. “Moreover, anybody who gave me money during the course of my campaign knew that I was on record in 2007 and 2008 pushing very strongly that we needed to reform how Wall Street did business.”

    One White House insider who knows something about how Wall Street does business is chief of staff Emanuel, who earned millions of dollars in investment banking after he left the Clinton White House. His work for the Chicago-based financial services firm Wasserstein Perella & Co. intersected with Goldman in at least one deal.

    In 1999, Emanuel was a key player representing Unicom Corp., the parent of Commonwealth Edison, in forging its merger with Peco Energy Co. to create utility giant Exelon Corp. Goldman was also advising Unicom.

    The White House declined immediate comment on that connection.

    Several former Goldman executives hold senior positions in the Obama administration, including Gary Gensler, the chairman of the Commodity Futures Trading Commission; Mark Patterson, a former Goldman lobbyist who is chief of staff to Treasury Secretary Timothy Geithner; and Robert Hormats, the undersecretary of state for economic, energy and agricultural affairs.

    Jacobs of the University of Minnesota said that the administration now risks “kind of a feeding frenzy.”

    “The administration has to be very careful,” he said, “because . . . they’re seen as the ones who bailed out Wall Street. If there are indications that the administration was talking to regulators or to Justice Department people about when and how Goldman or other firms would be investigated, I think that’s going to create almost a mob scene.”

    (Margaret Talev, Steven Thomma and Tish Wells contributed to this article.)

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