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April 20, 2010

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BBC and CNN INternational

Goldman Sachs, When did you stop beating your wife?

Danube of Thought

Why assume that this SEC civil action, even if successful (an iffy proposition), will take Goldman down?

anduril

So the argument is that GS gets to keep bailout money but shouldn't have to submit to close scrutiny? And let's not forget that many of GS's strongest allies are actually in the government.

Danube of Thought

Drexel wasn't so much a case of either "the Feds" or the estblishment wanting to check an upstart as it was a single, politically ambitious and largely unprincipled prosecutor makng a name for himself. Giuliani committed the cardinal prosecutorial sin: he selected a defendant, then started searching for the crime.

anduril

I was going to stick this on the Kaus thread, but I'll put it here before we go much further. Hugh Hewitt has an excellent Memo To Senator Corker. He begins by pointing out the current GOP electoral advantage, and then continues:

The GOP can lose this current advantage --easily in fact. Senator Graham will try and punt it away with next week with a half-baked cap-and-tax scam that has near-zero support among the GOP and is viewed with enormous skepticism by a weary public that isn't affiliated with either party. Even many Democrats think it is a bad joke to be pushing this scheme as the economy struggles to escape double-digit unemployment.

The financial institutions reform bill isn't in the same category of "manifestly stupid" as cap-and-tax, but neither is the public clamoring for Congress to do anything right now, and especially not something rigged up by Chris Dodd. Yet yesterday you were quoted as saying there would be 70 votes for a bill by Memorial Day.

You are a smart guy --smarter than most of your colleagues in fact, so your statement could mean that most Republicans will join with most Democrats to do some common sense things, and then stand against any attempt by the president and Barney Frank to change the deal. That would be a genuine legislative accomplishment, jimmied out of the most reckless Congress of my lifetime.

But your statement could also mean that you intend to lead a handful of Republicans who cannot stand MSM criticism across the aisle in exchange for some cosmetic changes to the Dodd bill. Such a move will gravely wound the national GOP and with it, the ability to restore balance to the Senate in November, as the current, massive mobilization of the grassroots would watch such a deal and conclude "What's the use, the GOP always sells out in the end."

I don't think you folks in the Beltway as yet understand how deep the suspicion of the D.C. GOP runs. Please don't add to it for the sake of hurry. There is absolutely no reason to rush any bill right now. An additional year of work on reform would produce a much better bill if it emerged from a rebalanced Congress --one that did not have Chris Dodd in it. You cannot say such a thing because of the traditions of the Senate, but that is the truth and that is the public's assessment of your colleague from Connecticut. Please keep in mind that patience is a virtue, even inside the Beltway. Senator Collins earned a great deal of appreciation yesterday with her refusal to be conned into providing the Democrats with the vote they need to rush the door. Please follow her example and don't throw the leverage --and this map-- away.

matt

That we now find that the decision to sue Goldman was made along partisan political lines only adds to the odor of this one.

Thomas Collins

See LUN for testimony by former Attorney General Thornburgh on the problem of overcriminalization. Among the topics discussed in this testimony is the criminal case brought against Arthur Andersen.

Because the Goldman case isn't criminal, and because the SEC doesn't appear to have unearthed anything that would result in sustained media scrutiny, Goldman's existence isn't threatened unless the case moves to discovery and bombshells are found(which would seem to be unlikely).

JadedByPolitcs

Not really "rooting" for Goldman Sachs because the truth is they should have FAILED however having the Democrats have their tentacles in the banking industry is a recipe for DISASTER!

Ranger

This NY Post bit is making the rounds:

Internet surfers who entered "Goldman Sachs SEC" into Google were directed to the president's campaign Web site via a sponsored link titled "Help Change Wall Street." The White House's political arm paid for the keywords — but would not say how much. The tactic provided the latest evidence of how Obama and the Democratic National Committee are using the Securities and Exchange Commission's bombshell fraud suit against the financial giant to push financial-reform legislation through Congress.

glasater

I was in the gambling biz for ten years--ten years ago.

OK--so that said and the comparison may be poor--there are some similarities between the GS situation and my former occupation.

Both play on human frailties but liberals take the horribly mistaken view greed and other bad character traits can be legislated out of human nature.
It ain't ever going to happen.

I saw poor folk who should never have been sitting in front of a slot machine--with food stamps hanging out of their shirt pockets--lulled into thinking the next "pull" was going to make them a winner and all their worries would be gone. And they knew the percentages were not in their favor!

As I've said before--I got out of that business just before I lost my faith in humanity. Now I'm close to being back to my thinking of ten years ago.

anduril

Here's an alternative to Google. Don't know much about it but it doesn't redirect as described above:

http://scroogle.org/cgi-bin/scraper.htm

Danube of Thought

So the argument is that GS gets to keep bailout money but shouldn't have to submit to close scrutiny?

No.

Danube of Thought

I have e-mailed five Harvard-Law-Review-type litigators, two of them securities specialists, asking whether they believe the SEC has stated a sufficient claim. Stay tuned.

Danube of Thought

Here's one response:

Not if the judge understands how synthetic CDOs work. (For every long
position there must be a short position.)

Danube of Thought

Here's another:

Not sure. If I understand the narrow issue here, it all turns
on the materiality of Goldman's not disclosing Paulsen's role, if any,
in structuring the deal. I'm unaware of cases extending the duty to
disclose that far, but I'm not a true expert. I do believe that at
some point (summary judgment?), Goldman will win as a matter of law.
Otherwise, the disclosure requirement would become completely absurd.

nathan hale

In my brief experience with business school, I was taught about GAAP, proper price to earnings ratios, due diligence, return on
investment,this was pre Enron, Worldcomm,
Global Crossing, Lehman, AIG and Goldman.
Who would have thought none of that mattered
in the long run, as Keynes would say.

Captain Hate

The GOP can lose this current advantage --easily in fact. Senator Graham will try and punt it away with next week with a half-baked cap-and-tax scam that has near-zero support among the GOP and is viewed with enormous skepticism by a weary public that isn't affiliated with either party.

I wish Hugh "Have I told you I'm from Ohio?" Hewitt would point out that Buckeye squish and RINO Voinovich voted against McCain's resolution against a VAT, the only Repuke to do so. It easily passed without him as even the Commiecrats realized what a CYA gift this was. Voinovich has never met a tax he didn't embrace.

Danube of Thought

I'll always remember that fool Voinovich blocking John Bolton's nomination to the UN Ambassadorship because Voinovich learned that he had yelled at a secretary.

The scope of the power that we have surrendered to these morons is a fearsome thing to contemplate.

nathan hale

He cried over that instance, DoT, I think the stache scared him myself

Charlie (Colorado)

I have e-mailed five Harvard-Law-Review-type litigators, two of them securities specialists, asking whether they believe the SEC has stated a sufficient claim. Stay tuned.

DoT, would you like to do a piece for PJM on that?

nathan hale

We are quietly reaching the Phillip Roth equilibrium, where reality outpaces fiction.
The current events are almost to fantastical
for a Stephen Frey or Michael Thomas novel,
but there are no words for this, in the LUN

rse

Ranger- Heard Rush at lunch and that was the story he was leading with.

The relationship with GS and Google truly exemplifies crony capitalism.

Pasadena Phil

I am not sure which side you are on because you first have to define what you mean by "side". I can tell that most of the confusion about this case is related to people's political orientation. My comments have been designed to voice my frustration about how I see nothing but bad political "solutions".

The Democratic solution is about to squelch the entire "free market" capital system by imposing a monster of a new bureaucracy.

The Republicans don't have a solution because they continue to insist that all regulation is bad. They were wrong to repeal the Glass-Steagall Act. They should be fighting hammer-and-tong to re-instate it.

Separate commercial banks (conservative capital managers) from insurance companies (conservative capital managers) from investment banks (spin and win capital management).

All three are essential for the maintenance of a thriving, stable innovative and job-producing economy but commercial banks and insurance companies represent much more capital than the investment banks. We can't have the spin-and-win gamblers handling all of the capital in this country. It is that simple. They will always do what they are genetically programmed to do and cannot be trusted with ALL of the capital.

This solution will not happen because the Republicans (Assistant Democrats) are dead in the water with their big tent, don't-stand-for-anything-anymore attitude.

I would make a long speech here defending the integrity of the people in my industry (I am a portfolio manager) but you would run out of server capacity.

jimmyk

pp, which Republicans insist that "all regulation is bad." Do you have a quote or citation? I didn't think so.

As for Glass-Steagall, that horse has long since left the barn. No doubt you think Regulation Q was a great idea too. Just because a regulation was in place in the 20th century does not mean that its absence is responsible for the financial meltdown.

anduril
I wish Hugh "Have I told you I'm from Ohio?" Hewitt would point out that Buckeye squish and RINO Voinovich voted against McCain's resolution against a VAT, the only Repuke to do so.

It's worse than that. Hugh actually vociferously supported Specter against Toomey. Still, I liked his memo.

nathan hale

The CRA, Phil, created this problem, it may have been a good intention, although considering the likely roots probably not,
Glass Steagal had very little to do with the quality of securities. Instead of solving the subprime we've made it worse

Pasadena Phil

Jimmy

Let's start with Phil Gramm. If you have to ask the question, you haven't been paying attention. As I write this, Bloomberg is announcing that a "bipartisan" agreement is near at hand and that it will announce the end of "too big to fail". The problem is that it will include a monstrously ginormous new bureaucracy.

Glass-Steagall (a dirty word that must not be spoken) represents efficient regulation. That is a good thing because we can see what the lack of such leads to: ponderous bureaucracy. Thank you GOP! Well done!

Pasadena Phil

Nathan,

The Glass Steagall issue is not about the quality of securities but WHO gets to manage WHICH assets. The entire reason of Glass Steagall was to protect depositors and insureds by isolating capital deposits and placing them under conservative management. This assured this class of investor that their money was safe and available for lending or insuring.

Under the current system, we have surrendered management of ALL capital to the casino operators and being what they are, they put as much of this easy money in their own pockets as they can get away with. Too much is never enough with these guys. We need to make them work for their money by making sure they only have access to truly risk intended capital placed at risk by sophisticated investors.

Those days are apparently long gone and whoever is most to blame, THIS Republican party was instrumental in bringing it about. How can anyone defend these guys? THEY SUCK!!!!

jimmyk

Thank you GOP!

Wiki on Gramm-Leach Bliley: "The final bill resolving the differences was passed in the Senate 90–8 (one not voting) and in the House: 362–57 (15 not voting). The legislation was signed into law by President Bill Clinton on November 12, 1999."

Yep, it was those nasty Republicans alright. All 362 of them in the House and 90 in the Senate. Oh, and that sly President Clinton, making us think he was a Democrat.

I still await any evidence of a Republican saying "All regulation is bad." As for the merits of Glass-Steagall, in this century its impact would simply be to shrink the commercial banking system and move more activity to the less regulated sector, which was where the crisis originated in the first place. But let's not let facts get in the way of a good argument, shall we pp?

Danube of Thought

I have no doubt that the repeal of Glass-Stegall was a mistake. I also have no doubt that attributing the repeal to the Republican party was a mistake.

nathan hale

Who is to decide what is intended capital,
'the Obama administration" Wasn't the major problem that led to the '29 crash, trading
on margins, how was that solved by Glass/Steagall. Why did the major creative
players in the business like Kennedy and
Forrestal end up in Government. The issues
of moral hazard, the CRA revisions, play much more in the mix. Why wasn't Madoff stopped,who were the major players. Why was Cassini so interested in having Dodd as finance chair, because like the REid character in Casino, there was an expectation he would stay bought, Same for Frank and Obama and Biden

Danube of Thought

Thanks, Charlie--still waiting to hear from two of them. I'll let you know.

Pasadena Phil

Jimmyk

You obviously have been asleep for the past twenty years haven't you? You are also being tediously disingenuous. The GOP has been THE FORCE for deregulation for thirty years now to the point that they carried it forward into MINDLESS deregulation.

That the Democrats are unprincipled opportunistic enough to jump on band wagons like the did in 1998 doesn't change the truth. The GOP has crowed for years about being the party of deregulation and open-markets. You can't have it both ways.

In a one-party system, there are no good guys. You are trying to salvage the reputation of one whore because she wasn't as slutty as the other. Don't you feel a just a little dirty?

The Republicans controlled EVERYTHING for a long time and delivered big government and all that comes with it.

GOOD JOB GOP!!!

Ignatz

--The Republicans controlled EVERYTHING for a long time and delivered big government and all that comes with it.--

Well for about six years.
Isn't excessive regulation, not deregulation, what ordinarily comes with big government?
I'm having a hard time finding the coherent argument in your posts.

jimmyk

Sensible deregulation is not the same thing as no regulation at all. Even after GLB the banking system remained highly regulated. By 1999 Glass-Steagall was an anachronism.

How would Glass-Steagall have prevented the run on Lehman?

Pasadena Phil

Ignatz, I'm having a hard time finding the coherent argument in your posts.

That is because you are confusing regulation with bureaucracy. Glass Steagall controlled risk by separating the conflicting risks associated with the three main players. The pending bipartisan solution is to impose an intrusive and ponderous bureaucracy. Big difference.

What is "excessive" regulation? I support efficient regulations like Glass-Steagall.


Pasadena Phil

You guys are avoiding the point entirely. I can't make it more blunt and plain than I have. What ultimately took the entire system down was WHO WAS MANAGING AT THE TOP. It would have made a big difference if the conservative commercial bankers had been managing and protecting depositors. It would have made a big difference if conservative insurance company management been managing their own reserves. It would had made a big difference had the investment bankers been limited to gambling with their own traditional high-risk investors' money.

Instead, the restrictions were taken down and the most aggressive and least ethical managers took over the entire system.

Put away your microscopes and take a couple of steps backward and you will see the elephant I am talking about.

Ignatz

--What is "excessive" regulation?--

Too much?

--That is because you are confusing regulation with bureaucracy.--

Regulation is what bureaucracies do.

--The pending bipartisan solution is to impose an intrusive and ponderous bureaucracy.--

At this point it is not bipartisan; even Olympia Snowe is opposed to it.

I understand you apparently believe it was the repeal of the Glass Steagall which rendered all of the financial crisis possible. It's just that the argument is not that convincing. Financial crises seem to be an incurable facet of a free market. In fact it is usually the cures that are worse than the panics.

I do agree Dodd's proposal is a mess. Here is Larry Lindsey's list of just a few of its many problems.

Frau Fragen

Honest questions for the Group Mind: I remember seeing the Congressional questioning, IMHO abusive, of the regulators who came to raise concerns about Freddie/Fannie. They were promptly reminded that they were appointees and could be replaced. Did any Republicans participate in the demeaning of the regulators? I don't recall any, but it may be selective memory on my part.

Also, I have heard the public statements by then-president GWB asking for more regulation. Was he insincere?

pp -"The Republicans controlled EVERYTHING for a long time and delivered big government and all that comes with it." What do you count as a long time?

jimmyk

Financial crises seem to be an incurable facet of a free market.

I'm not sure I'd go that far. Most crises have the unmistakable hand of government involvement, either by omission or commission. In addition to the recent crisis, the Great Depression largely resulted from the Fed's abandonment its lender-of-last resort function, something that it had taken on and pushed aside private institutions. The various Latin American crises all involve fiscal train-wrecks of the sort our current government is undertaking in an unprecedented way.

Rick Ballard

jimmyk,

In re price discovery - this piece clarifies (sort of) the ABN Ambro involvement. ACA wasn't actually strong enough to back this deal without reinsuring with Ambro (which was subsequently purchased by RBS - just in time to start paying off Paulson). ABN had to have done its own due diligence (insert wild laughter) and should have been appraised of Paulson's involvement by ACA - unless ACA believed that Paulson was actually playing for the home team.

ABN also owned LaSalle Bank, which was the Trustee/Issuing and Paying Agent on the deal. There are families living in the back hills of Kentucky with family trees that look like telephone poles that are much less inbred than the Wall Street Sporting House/Casinos.

Danube of Thought

Inconvenient historical truth:

As for deregulation, that actually began under Carter, not Reagan. Carter deregulated airlines, trucking, railroads, oil and interest rates, and set up much of the deregulation machinery that Reagan would later use.

And the house and senate numbers on the Glass-Steagall repeal signed by Bill Clinton speak most eloquently for themselves.

Danube of Thought

Further inconvenient historical truth:

Bush Fought to Regulate Freddie Mac and Fannie Mae 5 Years Ago Until Democrats Stopped Him

New Agency Proposed to Oversee Freddie Mac and Fannie Mae By STEPHEN LABATON

Spetember 11, 2003

The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.

Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume More..supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.

The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.

The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac -- which together have issued more than $1.5 trillion in outstanding debt -- is broken. A report by outside investigators in July concluded that Freddie Mac manipulated its accounting to mislead investors, and critics have said Fannie Mae does not adequately hedge against rising interest rates.

Danube of Thought

I can't make it more blunt and plain than I have.

Speaking only for myself, you can stop trying. I understand perfectly well what you are saying; it's just that I find you a bit hysterical and uninformed.

Ignatz

--I'm not sure I'd go that far. Most crises have the unmistakable hand of government involvement, either by omission or commission.--

Well certainly all national free market economies exist within some governmental authority. But the panic takes place within the free market. In the case of the depression the intial panic was largely outside of governmental policy as were the panics of 1819, 1837, 1853, 1873, 1893, 1907. Did I miss any?
Governmental policy particularly monetary and fiscal policy can make them worse or better, usually the former and can make their onset more likely but they appear to me to still largely involve the periodic concatenation of private market events.
In the present case monetary policy certainly provided the tinder for the fire, but it was largely the free market which struck the match.
I'm not condemning the free market. Left to their own devices, ordinarily these panics are short lived and necessary to purge the excesses that build up. Sensible and frugal governmental actions can shorten them even further but sensible governmental action is such a rare and precious commodity as to almost never be available in any market, free or otherwise.

Danube of Thought

To my 3:35, please add "incoherent."

Rick Ballard

Did I miss any?
Panic of 1884.

1920-21 was no picnic either but it was subsequent to establishment of the Federal Reserve, if that was your cut off.

Frau Dankbar

Thanks, DoT, for supplying info for part of my humble question(s)up thread. If you ever have any burning questions about Das Nibelungenlied, I'm the Frau to call on!

anduril

I have no doubt that the repeal of Glass-Stegall was a mistake. I also have no doubt that attributing the repeal to the Republican party was a mistake.

The fact that the Republicans were in bed with the Clinton WH on Gramm Leach Bliley is hardly a badge of honor. I don't know enough about this to say that it was a mistake--although I tend to agree that it was--but I do know that if the Republicans had opposed it it would never have passed. Therefore, since Republicans sponsored and supported Gramm Leach Bliley, their fingerprints are all over it--along with, ugh, Clinton's.

Danube of Thought

Will do, Frau!

jimmyk

The point is that there hasn't been a panic in the U.S. in the last 100 years that didn't have the government's hands all over it, in my opinion. That's a pretty long time if panics are really endemic free markets. I'm willing to concede that maybe they are to the extent that a free market requires a government to enforce laws, and governments can't be stopped from messing things up.

I don't want to get into a big historical debate about the 19th century panics, except to note that most historians point to the peculiarities of U.S. banking regulations that resulted in thousands of small banks instead of a few larger ones. (England was relatively panic-free during this time.)

Pasadena Phil

I am sure that the honest people who read this without commenting understand my point. I am not going to waste any more time arguing with the genetically obtuse who choose to comment on this site.

Pasadena Phil

A bit early to judge but maybe the GOP is finding its spine? I doubt it but there is always hope.

http://www.politico.com/news/stories/0410/36097.html

Melinda Romanoff

Rick-

Care to know where the management team of mortgage origination of LaSalle Bank ended up?

And yes, they took their entire tool box with them and drilled holes in that boat too.

jimmyk

I'm still waiting to hear from the Glass-Steagall fans how it would have prevented the crisis. For example, how it would have prevented the run on the Reserve Primary fund (not a commercial bank), which broke the buck because it held Lehman (also not a commercial bank) commercial paper. This was the pivotal event of the crisis, and it did not involve commercial banks. All I've heard are assertions that somehow Glass-Steagall would have made a difference.

Cecil Turner

I'm still trying to figure out how the GOP is responsible for the Fannie Mae/Freddie Mac shenanigans underlying this mess. AFAICT, the subprime mortgage debacle is a wholly-owned subsidiary of FM/FM, which are in turn wholly-owned subsidiaries of the Democrat party. (And yeah, yeah, Bush once said something nice about minority home ownership.)

The bottom line is that the same idiots who got us into this mess are still in charge, trying the same old crap, with predictable results:

April 20 (Bloomberg) -- The U.S. Treasury Department’s efforts to help troubled homeowners are ineffective, as foreclosures continue to rise and aid fails to reach all those who need it, a watchdog said.
But hey, at least we've got a couple trillion in new entitlement spending.

matt

frau;

I can verify from my recent excursion to Los Angeles that the fat lady does sing at the end.....if you get the chance get to LA for the Ring cycle.

Rick Ballard

Mel,

I know BAC was tasked with robbing the LaSalle corpse but I really have no idea where LaSalle's mortgage assassins went.

Rick Ballard

Mel,

As you cogitate concerning the political implications of the GS lynching, are you including it's involvement in the Greek debt tragedy? When BOzo makes his pitch for $100 billion to give to the IMF he's going to invoke the GS obscurantism as part of his rationale.

Ignatz

--I'm still waiting to hear from the Glass-Steagall fans how it would have prevented the crisis.--

Same here.


--For example, how it would have prevented the run on the Reserve Primary fund (not a commercial bank), which broke the buck because it held Lehman (also not a commercial bank) commercial paper.--

And I believe it would have prevented the method by which Bear, Merrill and others were wound up. I'm not sure I'm a fan of how that was done but it wouldn't have been available with Glass Steagall, so how they would have been resolved needs to be answered.

Danube of Thought

Chaco, still haven't heard from the remaining two. We're packing for a dawn trip back east and can't put anyhing together for PJM.

Danube of Thought

"I am not going to waste any more time arguing with the genetically obtuse who choose to comment on this site."

We could not have hoped to ask for more. See ya.

Neo

If DOJ loses the suit against Goldman Sachs, the costs should come out of Eric Holder's pension plan.

Stretch Marks

Blogs are expressing views and to argue on anything.

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