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Senators Target Wall Street, With Goldman Sachs in Mind
A quintet of Democratic senators introduced legislation Wednesday to specifically prohibit investment maneuvers that have been likened to "selling a car with faulty brakes and then buying an insurance policy on the buyer of those cars".
The Wall Street sign is seen in front of the New York Stock Exchange, October 8, 2009 file photo. (REUTERS/Chip East) Senators Jeff Merkley (Ore.), Carl Levin (Mich.),
Sherrod Brown (Ohio), Ted Kaufman (Del.) and Jeanne Shaheen (N.H.) are
pushing the Obama administration's proposal to rein in banks' Wall
Street-like practices, such as trading securities for their own profit,
while they enjoy the protections afforded by U.S. taxpayers through
deposit insurance and access to cheap funds courtesy of short-term
loans from the Federal Reserve. Their legislation also attempts to
sever the ties between banks and largely unregulated hedge funds and
private equity funds -- firms that invest and bet for the benefit of
their investors.
Those two proposals try to resurrect the wall between Main Street banking and Wall Street trading, a Depression-era reform that was torn down during the Clinton administration. After excessive risk-taking by Wall Street culminated in the worst economic crisis since the Great Depression, necessitating hundreds of billions of dollars in a taxpayer-funded bailout, top economists and Wall Street veterans have come out in favor of at least partially restoring that divide.
But it's the last two pages of the 11-page bill that gets to the heart of what's been referred to as the most egregious of Wall Street practices -- packaging and selling securities, like those backing home mortgages, to investors worldwide, and then taking contrary positions against them in case they default. Or as Financial Crisis Inquiry Commission Chairman Phil Angelides put it to Goldman Sachs chief executive Lloyd Blankfein during a public hearing in January:
"Your firm sold a significant amount of subprime mortgage-related securities. And it appears, at least according to public documents and other reports, that you may have simultaneously betted against the securities you sold to clients. According to the reports, you sold about $40 billion in 2006, 2007. In December 2006, I think, you came to the conclusion the mortgage market was heading south and you began to reduce your own positions.And many of the securities that you sold to institutional investors, other folks went bad within months of issuance. Now, one expert in structured financing said, 'The simultaneous selling of securities to customers and shorting them because they believe they are going to default is the most cynical use of credit information that I've seen.'
Do you believe that was a proper legal, ethical practice? And would the firm continue to do that practice? Or do you believe that's the kind of practice that undermines confidence in the marketplace?"
After Blankfein explained that Goldman sells these positions to investors who want them, and then takes contrary positions to protect itself against that risk, Angelides distilled it to its most elemental form:
"It sounds to me a little bit like selling a car with faulty brakes and then buying an insurance policy on the buyer of those cars."
In an interview, a Senate aide said that's exactly what the proposed legislation attempts to end.
The aide, who spoke on the condition of anonymity because he wasn't authorized to comment publicly, said that's what the senators had in mind when the legislation was drafted.
According to the text of the bill, firms involved in bringing an asset-backed security to market -- like those backing home mortgages -- shall not, at any point while the security is held by investors, take any position that would create a "material conflict of interest" or "undermine the value, risk, or performance of the asset-backed security."
The bill "would address fundamental conflicts of interest associated with the sale of packages of securities made up of loans," according to a summary provided by the senators' offices. "Some financial firms put together and sold securities to their clients and then bet heavily against them. As some have noted, this is like building a car with no brakes, and then taking out life insurance on the purchasers. The [bill] would establish strong conflicts of interest protections to protect clients from these unfair and deceptive practices."
In short, firms that sell interests in these securities to investors can't go out into the market and make bets that they'd fail. Or as Angelides told Blankfein:
"And let me just tell you, as someone who's been in business for half my career, the notion that I would make a transaction with you and then the person with whom I made that transaction would then bet that that transaction would blow up is inimical to me."
READ the bill below:
25 Comments so far
Show AllIt takes one to know one...?
Seems a bit silly for a nest of crooks
to investigate a den of thieves.
The first and most critical step in controlling the financial industry is to dust off FDR's New Deal financial industry regulation and reinstate it, followed by amendments such as this that address financial products that have eveolved since 1935.
Contrary to bankster propaganda, 1)New Deal regulations are not obsolete. Today's banksters commit the same crimes their ancestors did prior to FDR cleaning up, and 2) Regulations do not stifle meaningful innovation.
This is really funny. People say they are upset and mad at congress especially the Senate when it is Wall Street and their control over congress that people are really upset with. For some unknown reason people cannot bring themselves to admit it is Wall Street and the totalitarian capitalism they represent.
Thanks. I've been saying the same thing repeatedly.
The Friedmanites really have the US electorate brainwashed.
q
the Friedmanites of course are just the later version of the american Dictum that equates "liberty" and "freedom" and "democracy" WITH capitalism...although they are distinct notions and realities.
when one thinks about it - ALL cultures are captives of their own realities or imaginations and tendencies .
but they each develop or evolve a way of contending with the realities that shape their cultures..whether it's through a certain economic system or governance or cultural traditions.
but in most cultures -- I believe that MOST do not have the DELUSION of believing that they are "free" BECAUSE of their realities or their social order. in fact they are very AWARE of the reality that they can not be "free" to do as they please without perhaps also challenging the culture in which they have thrived or evolved.
the USA however has a very unique INNER culture of its own that actually BELIEVES in its 'absoluteness' of its "freedom" as given supposedly by its "capitalism" or what it calls "the american way" .
example:
does ANYONE say that the Chinese people have as their most prominent trait the ClAIM of being "free" people? no - they acknowledge their authoritarian CULTURE..live by it - and with - for all intents and purpose - for GOOD reason - the very reason being that they have SURVIVED thousands of years of challenges to exist..whether from internal problems or foreign assaults.
they KNOW - that no one is "reallY" free - in the way that the americans always proclaim, unthinkingly even, thinking that there is some kind of absolute measurement to be gotten by merely having MATERIAL wealth and achievement and then one can say "we are FREE".
- my point is this:
the americans, imo, are the people MOST guilty of the one delusion:
thinking that they are FREE - or for that matter - Free-ER than others - when in fact
they are NEITHER.
as an old saying goes:
"at no time is a person LESS free than when he or she is absolutely convinced that he or she IS".
that's up to interpretation of course....
but concerning the reality of the american "experience" -- it APPLIES with great precision:
the USA - the americans - the people that MOST PROCLAIM endlessly and even without being asked about it -- that "we are a FREE nation"
are actually among the LEAST free of all. precisely because of that delusion.
if anyone wants to test it - in real life....
this notion of "american freedom" and apply it to the most ESSENTIAL of its elements - such as PURE ''free speech"....
let that person go out in front of the white house - protest and call the president cuss words and even threaten him....
and see where that "free speech" goes.......
or just as good -- let that person - without "permission" from the local police -- go in front of a McDonalds and protest about slave wages....and see where that gets you.......
or stand inside a church worship service - and CHALLENGE the pastor preaching about the "work of our men and women in iraq and elsewhere for our freedoms and jesus christ" and - "in the spirit of free speech" in an assembly , politely offered....
challenge the pastor and congregation to confront their OWN hypocrisies about "freedom, liberation, Jesus Christ tortured and dying on the cross -- AND dead Iraqis from US bombs".
and SEE how SOON before the churhc ushers call the POLICE to take you out....for being "unpatriotic and ungodlike".
Teddy-
If you were to ask me why I dwell among green mountains
I should laugh silently; my soul is serene.
The peach blossom follows the moving water;
There is another heaven and earth beyond the world of men.
Li Po
well -- the general "rule" of beliefs in american polity and economics is always and has always been :
"WE ARE CAPITALISTS".
sure - there are parts that would think it can be "improved" such as with "less corruption" , take the monye out of politics, reform...etc....but that's nothing different anywhere else , regardless of society or political or economic tendencies.
the bottom line is - the AMERICAN IMPERATIVE of "BEING" capitalists...small or big. worker or manager, owner or debtor,
it is the same as saying "we are in it together" -- America - WE -- america ARE capitalists.
capitalism has "brought us our houses, our american dream, our vacation, our clothes, our baby stroller, our television programs, our hollywood, our celebrities, our game shows, our best sellers, our music, our culture, our literature, our programs, our highways, our trains and airplanes and yachts , our restaurants, our billboards, our farms, our eye-specialists, our technologies, our guns, (insert FREEDOM), our insurer, our investments, our savings, our business, our jobs, our cars, our highways, our trade, our dividends and interests, our stakes, our shareholdings, our ....this and that"....
that's what it means that capitalism IS in the DNA of americans. they DON'T need to be kicked or coerced into BELIEVING it. they ARE capitalists in general.. who wish to believe that capitalism has given them the "freedom" to have what they think is their "god given right to private property and if you work hard enough -- you'll have MORE private property bigger than Tutankhamun's")...
that to BE america MEANS to OWN private property regardless of its consequences to others when the whole sorry scheme's competing interests for private gain and private ownership CLASH with each other and the whoel sorry concoction - having deprived the country and people themselves (usually by their own inattentiveness or delusions in their short-term gain motives, thinking that this is their "security for the future")
of the very things that protect them from the sorry mess that they themselves have collective arrived at...such as bankrupcties, loss of jobs, "return to jobs" that are lower in wages, loss of benefits, loss of social and civil protections, deteriorating infrastructures, corrupted government, rule of corporations...war. national debt...etc....because they ONCe thought that by their adherence to capitalism - when they THOUGHT they were "on the upward mobile" track - they would be IMMUNE because they THINK that in their adherence to capitalism they were "doing the right thing to secure" themselves
ONLY TO FIND OUT it's a TRAP .
"it is the same as saying "we are in it together"
Capitalism makes everyone a competitor, together in the thunder dome.
To Institutionalize Wall $treet-walking!
At least it's a beginning to try to rein in the banking fraud on Wall Street.
“History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling money and its issuance.” -James Madison
There is currently $600 trillion in derivative positions on a global economy of $60 trillion. There's something seriously corrupt with that financial picture.
As with so much that goes on in Washington you have to wonder if this is just theater for the masses or is it a serious attempt at reform. I guess only time will tell.
I am not holding my breath.
Joe
Aye, it's theatre.
And I keep losing track of the players every time they wander behind the Glass-Steagall elephant that's hiding in the middle of the stage.
and it all starts in the USA -
more precisely in Wall Street.
even more precisely in the Banks
much more precisely in those fancy offices where they have spread-sheets made by Columbai, harvar, yale, princeton, etc.
Graduates playing with fancy "mathematical models" to produce fancy "packages and products"
known in the old times as ALCHEMY
and ALL WRONG and FAKE.
that's why I used to argue with friends or acquaintances studying their degrees in managements, economics, etc...- many from columbia university - long ago in the 1990's that
"That wonderful wall street and this capitalism of yours that you brag about so much and put all your heads in your wonderful complex textboods and formulas and feasibility studies? --- that's mostly , if not all, PHANTOM VALUE, MAKE BELIEVE WEALTH..there's really NOTHING there behind the big numbers and these nice sounding "derivatives" that you brag about...these "value added" prices you talk about that you say are the way the world runs and should continue to run on........one day - it will come down crashing like a pack of cards...of course many people will be affected who will suffer because of these games of MAKE BELIEVE, PHANTOM WEALTH economics that your wonderful wall street's great buildings promote while hiding behind its great mysterious looking magical walls..".
they of course laughed at me for knowing nothing. ...of course.
sierra7
For Wall St. to be able to function as it has, there has to be "enablers", and they are the regulators, asleep at the switch, or bought off, and a gullible general public who believes in the "invisible (finger)hand" of capital as twisted by the manipulators of history.
I'll say it again, "We need yellow crime scene tape around our nations capital, wall street, Pentagon and "K" St.
In economics its called regulator capture.
I just saw the responses on Huffington Post and boy are some of them pathetic in apologizing for the Democrats and/or Goldman Sachs. I don't know what to believe of these senators saying that they're targeting Wall Street. Almost a decade ago, the Sarbanes-Oxley Act passed but only after making it toothless. I can't imagine this Congress doing even that. They always seem to find it easy to pass corporate tax cuts, war spending, anti-abortion into the already dying health care bill, and bailing out the big corporations. I don't know if it's necessarily political theater or just cutting corners and taking shortcuts for their safe strategies. Either way, the capitalist system is broken beyond repair and needs to be replaced with socialism.
"And let me just tell you, as someone who's been in business for half my career, the notion that I would make a transaction with you and then the person with whom I made that transaction would then bet that that transaction would blow up is inimical to me."
Inimical?!? Try Illegal, Immoral, Unethical, Rotten to the Core, Greedy, etc...
Considering all this, Why in the World would ANYONE do 'business' with this Corporation - Goldman Sachs? Or any of the other financial firms engaging in this reprehensible behavior??
I say to Investors....Watch Out !!! Do not put your Money into the bloody hands of these sleezebag crooks ! You do so only at your own peril. Because, next time, we will NOT let the US Government bail you out!
Glass Stegall should be reinstated. This bill of course doesn't do it.
The only difference that I've found between the Democratic leadership and the Republican leadership is that one of them is skinning you from the ankles up and the other is skinning you from the neck down.
Huey P. Long
It gonna take Pain...to correct this! someone needs to be stung, by that I mean suffer as in serving time in prison, get physical beaten, Die, lose all wealth. This kind of greed and un moral actions con not be fixed nicely...and it need be discouraged in the future. We need to take extreeme action.
With the recent news that Wall Street is shifting its financial support to the republicans, the Dems have decided to shake the elites down a bit.
q
Hmmm...
Can just anyone take out life insurance on these banksters?
To do it right you really have to invest in some bullets for the people that have an interest in shooting the banker, remind them how to even the score, then get that life insurance policy. You just can't leave things to chance. Let's see, commission on the bullets, consulting fee from the shooters, kick back from the insurance broker, collection of life insurance proceeds, commission on government bailout of insurer, an embarrassingly small benefit package, puny salary, and a modest multi-million dollar bonus.