The shocking news that the SEC was actually going to charge Goldman Sachs with criminal fraud, a move most of us had long ago given up expecting, was so well-received that it seems to have galvanized rank-and-file Democrats.
Because the government has committed so much money to A.I.G., Representatives Elijah E. Cummings, Democrat of Maryland, and Peter DeFazio, Democrat of Oregon, are asking the S.E.C. to investigate all the Abacus deals issued by Goldman, and especially those insured by A.I.G.
The congressmen want regulators to determine whether fraudulent conduct by the investment firm contributed to billions of dollars in losses. If such conduct is found, the congressmen are urging the S.E.C. to recoup payments made by A.I.G. to Goldman.
Mr. Cummings and Mr. DeFazio are also asking the S.E.C. to refer matters that appear to involve criminal misconduct on the part of Goldman Sachs to the Justice Department.
"We request that S.E.C., with all due haste, pursue investigations into the remaining 24 Abacus transactions for securities fraud, evaluate the extent of any receipt, by Goldman Sachs, of fraudulently generated A.I.G.-issued credit default swap payments, and vigorously pursue the recovery of such payments on behalf of the U.S. taxpayer," the representatives wrote to Mary L. Schapiro, the head of the commission, in a letter dated April 19. Mr. Cummings and Mr. DeFazio are still gathering signatures from other members of Congress to add to their letter, so it has not yet been sent.
As a result, there is enormous pressure building on the Obama WH and Obama appears to be listening ("appears" being the operative word). Finally regulating Wall Street's ingrained thievery, they think, might be good politics after all. And what the hell, they can always finesse it like healthcare and get credit for backing a reform that doesn't actually reform anything.
With the Senate scheduled to begin debate on a financial overhaul bill this week, the fraud suit against the Wall Street titan Goldman Sachs has emboldened Democrats to ratchet up pressure on Republicans who oppose the Obama administration's proposal.
In a sign of the Democrats' increasing confidence that they have the better of the argument in an election year defined by voter anger at big banks and bailouts, White House officials said Sunday that President Obama would take his campaign for a regulatory overhaul on the road in coming weeks - starting on Thursday at the Cooper Union in New York City, where, as a presidential candidate in 2008, six months before the financial crisis hit, Mr. Obama outlined a program for tightening oversight.
And it isn't only the Democrats who've figured this out. The banks themselves are beginning to shake in their boots after this past weekend when two foreign govts, Britain and Germany, allowed as how they're ready to consider charges as well.
[T]he British prime minister [Gordon Brown]...asked his nation's securities regulator to investigate the Wall Street powerhouse because of losses suffered by a major British bank.
The German government, too, said it was considering taking legal action against Goldman because of a German bank's losses, a spokesman said.
So after meeting with several Wall Street honchos last week, this week Sen Richard Shelby suddenly offered Chris Dodd an offer he couldn't hardly refuse: he claims the Pubs will accept the proposed independent consumer financial protection agency.
Republican Sen. Richard Shelby recently made Democratic Sen. Chris Dodd a tantalizing offer: He'd drop his opposition to an independent consumer financial protection agency as part of a renewed round of negotiations over sweeping financial reform.
It's not clear what the top Republican on the Senate Banking Committee asked his Democratic counterpart for in return for the offer, which Shelby made almost immediately after a regulatory reform bill cleared the committee last month. But Shelby's willingness to negotiate signals that an agency that would regulate mortgages, credit cards and most loans to consumers - once viewed as a major stumbling block to the bill's final passage - is now viewed as an inevitability by Republicans and key industry lobbyists alike.
Big banks that have been vocal opponents of the agency have decided they have the legal resources to deal with a consumer agency, whether it's independent the way it was originally proposed by President Barack Obama, or as a part of the Federal Reserve, as envisioned in Dodd's bill.
What do the banks want in return? Politico thinks maybe it might have something to do with killing derivative regulation.
An even larger factor is that big financial institutions now have more important concerns as they scramble to fend off tighter restrictions on lucrative derivatives trades and other provisions of financial regulatory reform legislation that threaten the industry's bottom lines. Obama on Friday threatened to veto any bill that fails to place tight controls on derivatives, the complex financial instruments that played a key role in the 2008 global meltdown.
"While media reports and attention has been focused on the consumer protection piece, most industry believes there is a greater threat in other areas of the bill," a Democratic industry lobbyist said.
Indeed, mammoth financial institutions like Citigroup, JPMorgan Chase, Goldman Sachs, Bank of America and Morgan Stanley are worried about one provision that would force more open dealings in the $450-trillion over-the-counter derivatives market, an unregulated playground largely dominated by the quintet.
Another provision, the so-called Volcker Rule preventing federally insured banks from trading on their assets, essentially threatens to break up financial titans like JPMorgan. And megabanks are worried about new rules governing how companies once deemed too big to fail would close down under the new system should they implode again.
Those five banks spent more than $21 million lobbying Congress last year, according to the Center for Responsive Politics.
They may be right to be scared. Their usually stalwart friend Harry Reid is talking to long-time banker nemesis Sen Maria Cantwell and making noises about backing her, something he has previously been noted for NOT doing.
For months, Cantwell has been pressing to include stringent regulation of the currently unregulated $600 trillion derivatives markets. Last week, Sen. Blanche Lincoln, D-Ark., chairman of the Senate Agriculture Committee, proposed legislation that goes a long ways toward satisfying Cantwell.
"It looks to me as though Blanche is proposing a real stare-down of Wall Street," Cantwell said.
Senate Majority Leader Harry Reid said he may bring a bill to the Senate floor as early as this week, and Republicans were threatening to mount a filibuster.
Of course before we get our hopes up too high we have to remember that this is most likely a Scapegoat Hunt to appease the peasants, not a serious attempt to regulate a run-amok financial sector that donates reams of money to Rahm Emanuel's favorite front man. We can't really expect that they will sacrifice those $$$ for the sake of a safer, saner economy and a banking system where outright criminality is no longer protected.
Still, if you have to gut a Goat, Goldman is a pretty good goat to gut. If we can just get them to include equally guilty hedge fund manager John Paulson on the chopping block, we might at least have cause for cheering if not relief.