Timing of the GS Charges Is Suspect
By Investor's Business Daily
Financial Reform: It may well be that Goldman Sachs is guilty of what it's been charged with. But no one will know until the law takes its course. We do think, however, that the timing of the charges is highly suspect.
Was it just a fluke that SEC charges against Wall Street's best-connected and most-aggressive investment banking house came down just as financial reform is about to take center stage in Congress? In politics, unlike the real world, such coincidences don't happen.
Since last year, the White House and congressional Democrats have attempted to blame the 2008 financial meltdown on Wall Street, though history shows it was government regulatory incompetence that was almost entirely responsible for the debacle.
That's why it seems strange that these charges would emerge right now - unless, that is, Democrats need an arch-villain, someone who can be made to look especially bad in the public eye.
Goldman Sachs fits the bill. The company's swagger, its aggressive style and its success in minting Treasury secretaries - including Robert Rubin and Henry Paulson - for both political parties give it a public profile second to none.
Whether Goldman is "a great vampire squid wrapped around the face of humanity," as Rolling Stone colorfully put it, or just another big bank that lost money and now finds itself charged with fraud, is open to question. What isn't open to question is that the charges against the company make the financial reform bill about to be presented in Congress more likely to pass.
And that's not just our opinion.
"(The fraud charge against Goldman) reinforces the need for much of what we were doing," said Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee.
"Targeting GS, given the flurry of anti-Wall Street press that has centered around that firm, offers the publicity that the administration needs at this critical juncture," wrote Roger Freeman, a bank analyst for Britain's Barclays, in a note to clients.
If so, it's a pity. No matter how you feel about Goldman, the fact is the financial reform bill backed by disgraced and soon-to-retire Sen. Chris Dodd is a dud. This bill would make our financial system more fragile, not less, and more likely to experience another earth-shaking meltdown like the one that took place in 2007 and 2008.
For instance, the bill institutionalizes the doctrine of "too big to fail," a major reason why American taxpayers will be paying off the $700 billion TARP bailout fund for decades to come. Under Dodd's bill, every financial institution that might have a "systemic" impact if it failed would be given the too-big-to-fail treatment.
This is an invitation to bailouts without end. It even sets up a $50 billion special "fund" to bail out future "too-big-to-fail" failures, giving large, sloppy, poorly run companies a competitive edge over small, entrepreneurial and innovative companies.
Worse, the Dodd bill's presumption that Wall Street is to blame for the meltdown gets it all wrong. In fact, and as we've explained many times, government is to blame.
The 1977 Community Reinvestment Act (CRA) was used as a bludgeon to force private banks to lend to unworthy borrowers. Politicized GSEs Fannie Mae and Freddie Mac became the chief funding mechanism for this corrupt housing policy and its bad loans.
The very same people who caused the problem in Congress today point fingers at Wall Street while pushing more of the same.
Today, even as we "reform" Wall Street, government-run Fannie and Freddie, with losses totaling hundreds of billions of dollars, stand untouched by the Dodd bill. And the CRA, which is at the heart of the mortgage collapse, remains in effect.
Dodd's bill, if passed, won't solve our financial problems. But it will plant the seeds for our next major meltdown.
