Son of Sarbox
Our postpartisan President came out swinging this weekend at Senate Minority Leader Mitch McConnell, claiming in his now familiar ad hominem fashion that the Republican had decided to oppose the Democratic financial reform bill only after meeting with bankers. This takes some nerve from a President whose own bill would expand federal bailout authorityThe ironies here and the subterfuge are legion. Which of the big banks on Wall Street oppose the legislation? None that I know of. The mom and pop banks on Main Street do however. the Republican had decided to oppose the Democratic financial reform bill only after meeting with bankers. What does the President have against small town bankers?
- The Consumer Financial Protection Bureau........The bureau would have broad power to set the terms of financial products and services, labeling as abusive whatever officials (or outside allies like Acorn) dislike, and paving the way for large new litigation costs. This bureau would barely touch Wall Street, which doesn't oppose it in any case, but it would slam small banks, car dealers and others that extend credit. The entire point of the bureau is to put politicians in charge of allocating credit.
- Too big to fail. The Dodd bill allows too much discretion to federal regulators to determine which firms to regulate and how, which firms to rescue or close down, and which creditors to reward and how.
Just like health care, this is a take over. Not for direct control, but for absolute control. Only the powerful with the best political connections will be able to survive. Wall Street did not give the majority of their campaign contributions to the democrats for nothing. Goldman Sachs did not give a million dollars to presidential candidate Obama for nothing.
And the show must go on! After the president dashed out onto the stage and came out swinging, the choir that is the senate soon harmonized and chanted the chorus that would reveal the villains to the easily amused.
Senators vs. Goldman
Yesterday's hearing of the Senate's Permanent Subcommittee on Investigations came in the wake of a Securities and Exchange Commission lawsuit accusing Goldman of fraud. The SEC case concerns a 2007 transaction arranged by Goldman in which John Paulson's hedge fund bet that subprime mortgage-backed securities would decline, while institutional investors IKB and ACA bet they would rise.So the senators are protecting Wall Street fat cats ACA? This does not exactly fit the populist playlist, but hey, it's a show, just sit back and enjoy.
In sum, it appeared to be another bad day for the SEC's specific case against Goldman. But lawmakers seemed intent on finding the firm generally guilty of meeting institutional (emphasis mine) demand for subprime housing risk.
We're not sure which of the politicians at yesterday's Senate hearing did the most to confuse spectators. Investigations subcommittee chairman Carl Levin of Michigan seemed unaware of the difference between a market-maker, whose role is to offer prices at which a client may buy or sell a given asset, and an investment adviser, whose role is to act in the interests of the client as a fiduciary.Never let facts and reality stand in the way of a good fable. Our modern day Esop's also have motives for their story line.
Noticeably absent were any of these alleged victims who in 2007 were happily chasing yield and hoping to enrich themselves off subprime housing.You can't make this stuff up! Or can you?