Opinion

The Great Debate

SEC’s case against Goldman highlights need for Wall Street reform

By Ed Mierzwinski
April 22, 2010

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.

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The media’s fanfare about SEC fraud charges against Goldman Sachs is designed to scare politicians into passing the so-called financial reform bill that is before Congress, which will increase the power of the monopoly banks, reduce competition from financial institutions and ultimately raise borrowing costs to consumers and lower returns to investors.

This show is a smoke and mirrors ploy to pass the Bill.

This Bill will give to the Federal Reserve, a puppet of the huge monopoly banks, including Goldman Sachs, control over their remaining banking competition, what their media calls the “shadow banking system”. This competition is composed of financial institutions, such as, Fidelity, Vanguard, Charles Schwab, American Century, etc… which act like banks with checking accounts, savings, mutual funds, lending and brokerage services.

Contrary to the media hype of a “new” financial order, the recent financial crisis created by the Federal Reserve has eliminated banking competition and kept the “old” financial order in power that has governed since the reign of Abraham Lincoln (1861-1865).

In three years these monopoly banks have bankrupt, bought, or gained control of much of their banking competition, from Lehman Brothers to CIT.

It should be no surprise that the largest monopoly banks left in power are Goldman Sachs, Citibank, J.P. Morgan Chase, Wells Fargo, Bank of America, Mellon Bank of New York and Morgan Stanley.

All, except Bank of America, are part of the “old” financial order that mushroomed into power about 150 years ago during and after Lincoln’s Tax War. Remember, Lincoln declared in his First Inaugural Speech (paragraphs 4, 21 and 32) that he started his war solely to collect his new 40% import tax from Southerners under the Morrill Tariff Act of 1861.

With the passage of his National Bank Act of 1863, Abraham Lincoln, a puppet of Northern banks and industries, re-established Alexander Hamilton’s centralist banking system in the United States, which set the foundation for the present day Federal Reserve System.

Under his First Legal Tender Act of 1862, Lincoln printed worthless paper money displaying images of Alexander Hamilton and Lincoln’s Treasury Secretary Salmon P. Chase (as in Chase Bank), which ultimately destroyed State banking.

Consumers and small businesses will have to lick the boots of the few elitist banks of the “old” financial order to obtain a loan. Investors and savers will have few options in their choices for high yields and returns on their investments.

Right now these monopoly banks are borrowing from the Federal Reserve at 1% and lending to consumers, via credit cards, at up to 30%. Price gouging is always the result of establishing monopolies.

Posted by jebahoula | Report as abusive
 

You have to police money. What you are saying is just not true. The SEC and financial oversight was let go over the last 10-15 years (both political parties responsible) Lacking oversight and enforcement of mis conduct (rating agencis..insurance ..bank reserves) the mushroom cloud got bigger and bigger. Especially when no one was paying close attention to the explosive growth of the synthetic CDO market. When investment banks realized the profitability of that type of trading, geez, raise capital for a young company, underwrite bonds?? How boring! They then had access to bank assets, and the all time favorite Mortgages!! Securtiize, get you underwriting fee, flip the paper to the Hedge fund, flip it back and let the last one holding the bag loose. As it turns out they were all holding a smelly bag that is now stinking up the federal reserve.Did you ever think the more mortgages that were underwritten, they more they could securitize?? And lastly you have to review trades, and pricing (Madoff??) The principles that were set in the 1930′s and the agencies that were created is what made our markets most admired world wide. Do you think Bankers want to walk away from that money machine and go back to lending?? And on a final note, borrowing cost will naturally go up for interest rates are at 30 year lows, and taxes are naturally going up next year for the tax cuts had an expiration date.

Posted by mmcg | Report as abusive
 

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