Can Financial Regulatory Reform Prevent The Next Goldman?

It should be obvious on its face that the sort of fraud that Goldman Sachs is alleged to have participated in is illegal -- after all, the SEC is in fact, bringing a claim against the financial giant.

But there's a talking point emerging: since it's possible to bring these sorts of charges against Wall Street firms anyway, what's the point in more regulation? On "Meet The Press" this weekend, Representative Marsha Blackburn (R-Tenn.) probably believed she was making a trenchant point when she took pains to note that, "The Goldman charges that have come forward now... have come forward under existing SEC rules." She had just finished decrying government overreach and insisting that the "free market" had "no expiration date," so I'm pretty sure I know the score when it comes to her opinion of regulatory reform.

Nevertheless, one of the whole points of reform is to prevent such fraud from ever happening in the first place. And over at TAPPED, Tim Fernholz goes into detail on how the reform bill "in a number of areas would make the scheme less likely to work and more likely to be detected." The proposed Consumer Financial Protection Bureau would create regulations to make the sorts of bad loans that Goldman played shell games with less likely to default. It would take steps to end the dark market of derivatives and swaps that kept investors in the dark. Finally, regulators will be armed to take a hard look at interactions between financial institutions.

This is just a distillation, of course. I encourage you to read Fernholz's explanation in its entirety.

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Comments

[letsmakesense]

03:17 PM on 04/20/2010

We all know what's going to happen. Dr Ron Paul works for years to get 330 co sponsers on a bill to Audit the Fed yet it does not come to a vote but Obama will force a vote on a Wall Street written regulatory bill of 1000's of pages which no one will read. It will pass.

[AceNewsServices]

01:35 PM on 04/20/2010

Great article as usual Jason,

Firstly the proposed financial reform will not prevent the bankers greed be it Goldman Sachs or others such as JPMorgan or Wells Fargo to name but 3 of the 6 that are the protagonists. So back to will financial reform of the banks stop another Goldman Sachs, l would rather ask if it will prevent another financial crisis and l answer not unless people like the financial institutions have more truly honest people working for the good of their investors and not themselves.

The real problem lies with just that word LIES and the ability for people to get away with manipulating systems as they will unless a body of honest individuals oversee their actions, but they must be incorruptible as at http://en.wikipedia.org/wiki/incorruptible and only Saints have achieved this and then become beatified.

So l need 12 Saints to become a committee and stand up for the rights of people - anyone know where l might find them?

[Stencil]

11:53 AM on 04/20/2010

Since it's designed not to; I doubt it will.

[amacd]

10:42 AM on 04/20/2010

FDR famously (or infamously) “saved capitalism from itself”.

Obviously, finance capitalism did not allow its mind to be "focused by the prospect of hanging in the morning" back in the last Great Depression --- and will hopefully get it just rewards this time.

Alan MacDonald
Sanford, Maine

[ARTIST50]

10:50 PM on 04/19/2010

I know a lot of you are young, but - remember when we didn't have legalized gambling? Just a thought.

[Eddie Coomer]

10:49 PM on 04/19/2010

The main author of the current financial reform bill is Chris Dodd. Do you folks on here pleading for this bill to be passed remember who Chris Dodd is? He's the same crook "on the take" for the wall street elite, he admitted to putting last minute verbiage into TARP that secured full bonuses for same executives who ran the banks that asked for and got the bailouts. Have you researched and read the bill that Dodd is proposing? This bill currently at 1336 pages also places the branch that is supposed to watching over the financial institutions under the control of the Federal Reserve, another batch of fiends who sat back and let this crap take place unimpeded. Read this bill it is another boondoggle written to benefit the banks and big finance, we need a bill that not authored by lap dog for wall street.

[jeanrenoir]

10:15 PM on 04/19/2010

Like all the other "talking points" which work so well with the Archie Bunker morons of white America, this one is a slam dunk with fools, since they are no more capable of understanding ANYTHING about Wall St., much less derivative fraud, that, as always, they will eagerly believe anything Beck and Rush tell them, since otherwise they would be incapable of any opinion at all. It doesn't matter that the talking points are so transparently false, ludicrous, beside the point, and lying, because the dumb Fox-Rush audience can't detect any of this from the vacuum between their ears. So, in a way, we're all wasting our time analyzing the operations of the fascist propaganda machine of the American right. It's so obvious that it's not worth thinking about. And until the left can figure out a way to counter the lies, it's worthless either to laugh or cry about how dumb the voters are. It is what it is.

[carl gray]

09:52 PM on 04/19/2010

i don't think any civil penalties levied in these cases will be effective to stop these abuses. as long as there is only a monetary penalty the "smart people in the room" will only consider these fines as a cost of doing business. on the other hand, a felony conviction and prison time in a real prison,not a white collar "country club" might just make them pause to consider the consequenses of these acts.

[jwalter]

09:34 PM on 04/19/2010

Can financial regulatory reform prevent the next Goldman? of course not. These companies know that no matter what they do, the nanny state won't allow them to fail. notice how you don't hear much of the word "captialism" from the business press these days. it's only capitalism when it's convenient. If these people understood and feared FAILURE none of this would happen.

[BurtonOerney]

09:54 PM on 04/19/2010

Oh yes. That's why the 19th century was such a golden period for consumers and workers. Bankers were afraid of failure. It's sad that we're not capable of discussing this. 'Derivatives,' for example refers to any kind of fund that works of a commodity or security or whatever that changes over time. Airlines have derivatives that cushion against spikes in fuel prices so they can pay their employees when OPEC gets squirelly. Is that wrong? But we have to have a single label for all of these transactions. Bond insurance is the same thing as betting on the insolvency of Greek debt. It's ridiculous.

[jwalter]

10:41 PM on 04/19/2010

right or wrong is irrelevant. if these companies want to deal in derivatives, that's fine, but their dealings shouldn't involve me unless i want them to. i believe the saying goes "you mess with the bull, you get the horns." well, at least theoretically you should. but we all know who got the raw deal here.

as long as banks have existed, banks have manipulated the economy. everyone should know that.

[rad21]

09:21 PM on 04/19/2010

We just came through a healthcare debate which started telling us that America had the best healthcare in the world. As the dialog progressed, we found out 35 million had no insurance and 45,000 die a year because of lack of insurance. There was 40% of care that is over-, under- and inappropriate-treatment. USA is about 35th on WHO scale, despite spending 30% to 50% more per person than European countries.

Now in high finance and Wall Street, we are finding something very similar. A lot of machinations and system-wide crooks which hold retirement funds, savings funds and other investments hostage. The govt supervised institutions have more hubris than substance.

All these finance systems have been parasites on the backs of hard working Americans, who have been working their butts-off; for little in saving-security to speak off. All this, as these high-fliers and money managers are walking away with million+ dollar pay-bonuses and multi-million dollar severance packages.

All this goes as our Congress and Senate wax eloquently on preserving our high values.

[BurtonOerney]

09:55 PM on 04/19/2010

I kind of like deposit insurance...

[hen81]

09:08 PM on 04/19/2010

In my book TARP Town U S A, I called what took place with the mortgage foreclosue crisis the result of a sociopathic economic system and now the evidence is clear. This is the corporate cousin of Madoff and the scale is going to be massive once everything is uncovered.

http://www.youtube.com/watch?v=vfaAb54d_qU

http://DTPollard.com

[BurtonOerney]

09:56 PM on 04/19/2010

Um... Goldman Sachs lied to its investors. What does that have to do with TARP?

[RicoShay]

08:46 PM on 04/19/2010

It's all about the haves and have nots
there is no middle ground
many people being left to rot
no security to be found

The rich just get richer
the rest cant make ends meet
its not a pretty picture
when people cant afford to eat

Something drastic better change
the wealth needs to be evened out
it's time for it to be rearranged
so others won't go without

*Shay*

[FogBelter]

07:56 PM on 04/19/2010

I'm afraid that nothing short of reinstating the firewall between Commercial Banking, Investment Banking, and Insurance will guarantee malicious behavior from Wall Street in this area ends. Everyone has a price, even regulators, and the only way to prevent these destructive shenanigans is to completely remove the possibility of them from the framework of the Wall Street game.

Trusting human beings to honor their responsibilities as regulators is foolhardy at best and should be avoided. Drop the firewall.

[BurtonOerney]

09:58 PM on 04/19/2010

Well, don't you sort of have to invest your retirement funds? You know, in a money market account that wouldn't have any of the restrictions savings accounts have? How does separating one kind of savings from another kind of savings help anybody?

[FogBelter]

11:01 PM on 04/19/2010

Well, let's take the situation of saving for your kid's education. You can open a boring savings account and put money in overtime ... or you could have opened 529 college investment account. In this recent downturn an investor would have lost a considerable amount of money in a 529 account where the money in the simple savings account would still have been accumulating. I prefer the sure thing.

[Middle Blue]

07:32 PM on 04/19/2010

Of course it is.

Set up a series of CFRs and enforce them.

In essence, make it illegal to be on both sides of a market.

Any market.

;}

[TheFabOne]

06:23 PM on 04/19/2010

I don't think regulatory reform can prevent much of anything, be it financial or otherwise.

IMHO, as soon as the new laws are enacted, lobbyists and all those types spend every waking hour trying to circumvent the very laws that were just imposed. That's what they make the big bucks for.

So new law after new law, end-run after end-run, nothing ever really changes.

[BurtonOerney]

09:59 PM on 04/19/2010

If the rule is you have to keep enough cash on hand to cover any leverage you take on, how does that get circumvented?