SEC’s case against Goldman highlights need for Wall Street reform
— Ed Mierzwinski is the longtime consumer program director of U.S. PIRG, the federation of state Public Interest Research Groups. U.S. PIRG is a founding member of Americans for Financial Reform, an unprecedented coalition of over 250 labor, senior, civil rights, community and consumer organizations. —
Over 18 months ago, U.S. taxpayers bailed out the reckless Wall Street banks. Yet, despite widespread and overwhelmingly public support for Wall Street reform and dramatic House action in December, efforts to move a Wall Street bill through the Senate have been stalled for months by a phalanx of powerful Wall Street lobbyists. While we cannot count them out, because they’ve increased their lobby and campaign spending as we move toward the endgame, Banking Committee Chairman Chris Dodd’s (D-CT) coup in moving a strong bill closer to floor action gave us some wind in our sails.
Then, several events last week put an even bigger whirlwind behind our reform efforts.
The biggest was that on Friday the SEC filed fraud charges against Wall Street’s high-flying Goldman Sachs and its bond salesman Fabrice Tourre. The SEC alleged that they had made “material misstatements and omissions in connection with a synthetic collateralized debt obligation marketed to investors” and that these CDOs (a type of derivative) had contributed to the enormity of the financial crisis. The SEC’s claim, if proven, essentially will translate to this: Goldman stacked the decks against investors. Fabrice Tourre (who is known as Fab) even sent one email (SEC complaint paragraph 18) that said:
“The whole building is about to collapse anytime now… Only potential survivor, the fabulous Fab… standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstruosities!!!””
In Washington, you don’t have to make this stuff up, it writes itself.
That same day, over at the Permanent Subcommittee on Investigations, Senator Carl Levin (D-MI) excoriated former Office of Thrift Supervision (OTS) boss John Reich for his mishandling of the Washington Mutual collapse (WashPost). Earlier in the week, he had done the same with the executives of the failed bank. In his statement announcing the hearings, Levin was succinct: “The recent financial crisis was not a natural disaster; it was a man-made economic assault.” Consumers were sold predatory, unsustainable loans, by WaMu, Countrywide and many, many others.
Also last week, President Barack Obama issued a veto threat if the final Wall Street package does not rein in the derivatives marketplace that Goldman plays in (AP via Time). That – coupled with the Goldman scandal — helped Agriculture Chair Blanche Lincoln (D-AR) move a tougher derivatives reform bill earlier this week than anyone thought possible. It isn’t perfect, but better than it would have been.
Now, chances for immediate final passage of a strong Wall Street reform bill have increased. Senator Dodd is negotiating from a position of strength with Republican Senators, who are led by Banking ranking member Richard Shelby (R-AL) and no longer can play the classic Washington game called “slow-walking.”
In our view, final reform must achieve the following:
Protect consumers: It must protect consumers from predatory mortgages, unfair credit cards, triple-digit payday loans by establishing a strong, independent Consumer Financial protection that regulates all financial products no matter where you purchase them, at a bank or non-bank.
No more bailouts: It must protect taxpayers by first regulating banks and then guaranteeing that they don’t get too big to fail.
Rein in the shadow markets: It must regulate the shadow markets where derivatives, hedge funds and private equity pools roam. Unless derivatives are traded transparently on exchanges, investors and regulators won’t.
There are many other moving pieces to winning real Wall Street reform, which also requires limiting excessive compensation, reducing dependence on credit ratings, and beefing up the SEC’s authority. But the Senate has finally begun to understand that it needs to listen to American families — who’ve lost jobs by the millions, whose home values have plummeted and whose 401-ks read like Stephen King novels – instead of to the Wall Street CEOs who caused the biggest economic collapse since 1929, and whose hired gun lobbyists are peddling the message that no reform is best.