Discussion in 'Political Discussion' started by IcyPatriot, Apr 16, 2010.
S.E.C. Sues Goldman Over Housing Market Deal - NYTimes.com
Heh, this after I was reading the apologist perspective in BusinessWeek last week. Coincidence?
This will prove interesting.. the timing is interesting right on the heals of the proposed regulatory reform..
This could be disasterous to Goldman. If they are ever found guilty of purpously defrauding investors then the firm could be done. Not to say that the investigation should't be done. But the SEC better have some hard evidence here and not just be going on some witch hunt to gather support for their reform agenda.
Guess we can stop calling them "Government Sachs" now
Reg. reform is going to be huge. I am almost certain that here, we'll have a rehash of the insane rhetorical flourishes of last summer's health care debate. We are already seeing the talking points published, followed word-for-word, and implemented as a united 41-Senator front against. We'll no doubt have the board full of really obvious lies and dire warnings.
I'd frankly like us to debate it in a serious way but I don't think that likely.
I'm a little out of the financial markets game to be debating it and given that this next week is hellish for me, I think maybe it will make for a good discussion later. This isn't the last we've heard of this.
Nope. In fact, it's just getting warmed up.
Maybe if we get exhausted in financial markets reforms like we did in health care we'll be down to universal nuclear disarmament by next summer while nobody's looking
From what i've read the feds may have a hard time making the charges stick, but now others may jump in with civil suits. It seems to me like a ploy, obama is trying to push through financial reform (which i think is desperatly needed) and the GS focuses attention on why reform is needed.
As a small GS shareholder I find this absolutely dispicable. If this is true then the SEC should be brought up on charges. The SEC should not be a tool to push administrative agendas. Its this type of bull that makes me against more regulation, particularly one that consolidates power in a goverment agency.
Does anyone know what this proposed reform is supposed to look like? I know there is supposed to be some "Too big to fail fund", which sounds just like insurance to me, but that is all I have heard of. I still am not even fully convinced in the notion that any organization is too big to fail.
We need to separate the Goldman questions from financial reg. reform - one is symptom, one is treatment.
My understanding is that Goldman is accused of creating "bad investments" that take on the liabilities of good investments... and then reselling the "bad investment" as another good one. It would be as if that shell corporation that has all of old GM's liabilities were created but not as a legal fiction (the way it was created for GM,) and then sold as a going concern to investors. It's the investors being victimized, if the allegations are true.
That's just fraud, and it's already illegal.
Some things the financial reform act has:
- creation of a consumer protection financial watchdog agency (cue the calls against "big government.")
- Creation of, as BSR says, an insurance fund in the event a really big bank fails. That fund addresses system-wide risk with system-wide insurance. The ultimate question is how big does this fund need to be to make good on the scale of leverage indulged in in scenarios like the last meltdown, and, given that scale, whether that means taxpayers are still on the hook to make good on what the fund can't.
- The ability of an investor to sue a ratings agency. This may be pretty important. The Moody's of the world will still be funded by the people they rate, which is crazy. But if you can show you were damaged by the behavior of the ratings agency, you can sue them. Theoretically this should keep them slightly more honest. In practice, it might depend on what bar the courts set to show damage.
- General attention is on the biggest banks (the ones that could single-handedly cause the "too big to fail" bailout excuse to kick in, under current rules.) The logic is that there just aren't the resources to police the smaller ones. It's conceivable that this higher scrutiny at the top tier will make it advantageous to limit a bank's size to the "medium" level.
- Clearinghouses for derivatives trading. Evidently you can't write the big complicated derivatives bet without putting it through a clearinghouse. I freely admit I have no idea how this works. It's supposed to create transparency by clarifying the terms and make them known to third parties (i.e., since the contract isn't signed by 2 parties [I take it,] you're actually advertising the contract to the whole world, not just the other taker - I think.) At any rate, it's supposed to be a transparency feature.
- Big loophole I've heard about: Currency trading. You and your buddy can buy and sell your Deutschmarks for Pounds Sterling over the phone if you want. As I understand it there's no real control of currency trading markets.
All in all, I think the most salient feature of the bill is still the insurance fund that banks pay into to provide a line of defense where other banks, in an organized way (not a cascading frenzy,) have put money aside to pay the bill if one of that community fail. In principal it's similar to what pertains to the non-business personal savings side. FDIC collects premiums, and insures against banks failing. One big difference between 2008 and the Depression was that there was no appreciable run on the banks on the part of the general public. There was a mass sell-off of equities by investors, and there was a huge loan to the at-risk gigantobanks by the government, but not a mass withdrawal of savings. It seems the principal is that IF the nutjobs at the top do this again, they're on their own. It also provides the rationalization for letting such a bank simply go under, and letting the fund repair the systemic damage done. I just don't know how big that fund needs to be to keep them from holding the Depression gun to our heads again one day in the future.
I am sure given the intent of the legislation that this fund won't be backed by the "full faith and credit," because the whole point is to get the taxpayer off the hook. But what happens when the rubber hits the road is another matter.
At the very least, the big banks won't be able to play the "Paulson Put" in the future, unless and until it's established that the new legislation can't prevent it.
I don't get the GOP response, but I have seen memos written before the reform was even proposed, instructing the party to paint any such legislation as creating perpetual bailouts. I don't understand the talking point in the face of the facts on the ground, but I do understand it in the context of the pre-existent memos.
The "perpetual bailout" would be the province of a private-sector sustained insurance fund, rather than by the taxpayers. And the "perpetual" bit would be a "perpetual promise" that the insurance fund would exist, to clean up when your insane bank goes bankrupt -- not to bail it out.
One note - I have not seen anything about broadening the definition of "fiduciary responsibility." That's the position of trust that certain actors have, that puts their skin in the game by making them personally liable for bad outcomes that are their fault. So you don't just sue the company, you sue the individual.
We have accepted in certain relationships that "caveat emptor" just does not cover the universe of outcomes, particularly with unsophisticated e-trade babies putting their trust in ratings agencies (for example.) It might not be a bad idea to find places to broaden the fiduciary relationship; skin in the game, on a personal level, might make for a much more sober landscape.
I know, I know, Wall Street should be a big wild fun casino... my problem with this argument is that the big wild fun casino model leads to runs of good luck and bad luck for the investor, because you are preserving opacity to the small investor, and insuring that the "house" always wins, by backing them with taxpayer money. To the extent that an investment bank or rating agency has common cause with its "customer," large and small concerns can keep the financial system liquid to do what we want it to do, to wit, capitalize businesses. The point of the market, from the point of view of the society as a whole, is not to make individuals rich. That is rather the necessary concomitant needed to incentivize investments via markets, in businesses (at least by the classic model.) Penalizing bad bets via an expanded sphere of personal responsibility would have a chilling effect on some plays that would result in huge gains, but it would also have a chilling effect on outlandish risk-taking.
But I understand the natural aversion to personal responsibility among actors in the financial sector and their cheering section in politics.
So for those here who are against personal responsibility, I understand how this proposal may seem somewhat provocative.
As a financial advisor, I find it repugnant that the folks on CNBC (in particular, Mr. Cramer) keep repeating "Don't taint Goldman Sachs when it was only one rogue guy (Fabulous Fab) who was the problem".
I'm a small, one-person shop in a large company. The amount of money I manage is a mere fraction of the $1 billion Tourre malpracticed. Meanwhile, I have THREE levels of corporate compliance auditors constantly monitoring my practice.
How the hell can Goldman Sachs say "Oh it was just one rogue guy who did this, the firm as a whole isn't complicit".
Sorry, that doesn't hold water here.
Will our President show good faith to the American public and return his nearly $1 Million of Goldman Sachs campaign contributions?
EXCELLENT point. This proves that President Obama can't be bought!
Sorry that backfired on you.
W. and Cheney would have had Little Gonzo squash something like this had it been Halliburton.
Thank goodness we have an ethical man as President now.
Wow ... way too many links to list.
Lehman Brothers, Germany ... everyone is lining up to take Goldman Sachs to court ... this will be huge.
Separate names with a comma.