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Goldman Sachs Strikes Back by John M. Curtis Copyright
Jan..21, 2010 Calling the shots on Wall Street, Goldman Sachs Chief Financial Officer David Vinar threw cold water on President Barack Obama’s plan to strip the nation’s last remaining investment bank of its recent bank holding company status. When Goldman plead poverty Nov. 10, 2008 and filed to become a bank holding company, it did so to get federal cash from President George W. Bush’s Toxic Assets Relief Program [TARP]. Failed derivative investments caused Goldman Sach’s, together with the nation’s biggest banks, cash-crunch, driving credit markets to a screeching halt. As a bank holding company under Federal Reserve Board supervision, Goldman Sachs receives cheap loans and bailout money. “We’re now regulated by the Fed and I expect we will be on a continuing basis,” said Vinar, rejecting Obama’s plan to strip risky investment banks of bank holding company status. Filing Nov. 10, 2008 to become a bank holding company only had an upside to Goldman Sachs. They could receive bailout money without regulating risky investment strategies, like derivatives. When former President Clinton helped pass the Finanical Services Moderization Act, AKA Gramm-Leach-Bliley, Nov. 2, 1999, it authorized bank holding companies to own or operate brokerage houses, something banned under the 1933 Glass Steagall Act, establishing the Federal Deposit Insurance Corporation and banning bank holding companies from risky stock market investing. Bank officials pressured Congress to reverse Glass Steagall after watching record stock market profits from 1997-2000. Bank holding companies screamed bloody murder watching investors rake in record profits. They wanted a piece of the action, eventually granted under Gramm-Leach-Bliley. Advised by former Fed Chairman Paul Volcker, Obama wants investment banks to no longer take advantage of their status as bank holding companies. Reporting a fourth quarter profit of $4.95 billion, Goldman Sachs profited from TARP bailout funds, receiving over $14 billion from American International Group Insurance [AIG], its major insurer of derivative investments. Barack wants to prevent banks receiving low cost loans or federal bailouts from investing in hedge funds, private equity funds or risky stock market trading that brought about the last financial market meltdown. Questioning the fairness of bailing out investment banks, Volcker wants banks to return to safe investment practices or surrender their holding company status. Goldman Sachs wants it both ways: The security of low cost federal cash and bailouts while engaging in risky investment strategies. Vinar blames the crash in the derivative markets on growing defaults and foreclosures on “collaterialized debt obligations.” “If people are focused on things that caused, or were real contributors to the crisis, it wasn’t trading,” said Vinar, insisting that risky trading had nothing to do with the financial collapse. “Most trading results were actually pretty good, not just at Goldman Sachs but at most firms and that’s not really where problems were,” denying that speculative derivative trading skyrocketed real estate investments. Vinar wants to blame the financial market crash on unqualified or so-called sub-prime borrowers, not risky investment strategies. Between 1933 and 1999, somehow banks survived without jumping back in the stock market. Goldman Sachs takes no responsibility for risky investments strategies, while, at the same time, jumping at the chance of federal bailouts. Obama finds himself caught between a rock and a hard place, with respect to reining in wild speculation by investments banks. As soon as he suggests curbs on banks, the market sells off. Goldman Sachs, JP Morgan Chase, Citgroup and Bank of America lost 5% on Barack’s attempt at regulation. Investment banks and newly minted bank holding companies want the expectations of high market returns, without returning to old fashion ways of making money. “Banks will no longer be allowed to own, invest, or sponsor hedge funds, private equity funds or proprietary trading operations for their own profit, unrelated to serving their customers,” said Barack, insisting on new regulations for bank depository institutions. Obama no longer wants the federal government bailing out bank holding companies that engage in highly speculative derivative or stock market investing Goldman Sachs and other banks that took billions in TARP funds from bad investments won’t comply or acquiesce easily to new proposed regulations. Wall Street reads regulations and government interference. If Wall Street’s big players managed their investments responsibly, they wouldn’t run to Uncle Sam for bailouts. “It’s very easy for the president to go on TV and shake a fist,” said Mark Calabria, director of libertarian Cato Institute’s Financial Regulation Studies. Calabria blames too much government regulation for bedeviling the market. “Ultimately, this will have to be worked out by the Congress and it will likely get watered down by Congress and we’re not going to see a real solution,” skeptical of any real changes. During weak economic times, it’s difficult to legislate more controls on a lax financial industry already blaming poor profits on too much government regulation. About the Author John M. Curtis writes politically neutral commentary analyzing spin in national and global news. He’s editor of OnlineColumnist.com and author of Dodging The Bullet and Operation Charisma.
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