Yesterday the Securities Exchange Commission voted 3-2 to file a lawsuit against Goldman Sachs over some shady dealing with credit default swaps. Insiders think this decision increases the likelihood that the Obama administration will pass sweeping regulatory reform; an obvious populist victory… right?
Well, maybe not. According to Timothy Carney, an expert on government-corporate collusion, Goldman Sachs is fully behind the new regulations. As Carney writes:
It looks like [Goldman Sachs] wants more regulation. The question is: What’s in it for Goldman?… stricter federal liquidity and capital requirements would amount to regulators doing Goldman’s work for Goldman. They want Uncle Sam to mitigate “uncertainty about counterparties’ balance sheets.” That is, they want the government to reduce the risk that Goldman’s debtors or insurers will run into trouble.
He concludes that, “If Obama signs a financial ‘reform’ and declares that it now safe to enter the waters of the stock market, that’s good news for Goldman.” And we can look past the incentives to their own words. Carney quotes Goldman Sach’s 2009 Annual Report, which says the following:
Given that much of the financial contagion was fueled by uncertainty about counterparties’ balance sheets, we support measures that would require higher capital and liquidity levels, as well as the use of clearinghouses for standardized derivative transactions.
In other words, they support regulation, which, of course, is nothing new. Both the recently passed healthcare reform bill and the cap-and-trade bill meandering around waiting for a vote in the Senate, are little more than corporate welfare. Just remember, the next time you see some politician taking digs at Wall Street, more often than not, it’s just a show.