WHY DOES Goldman get to game the system–?!!!
By Daniel at 5 October, 2009, 11:14 pm
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These conflicts of interest has everyone up in arms about Goldman, dubbed “Government Sachs” by its haters (see here, here, and here). That is why the face-sucking squid polemic by Matt Taibbi was a zeitgeist piece.
I think eyes should be focused firmly on the government’s responsibility and not Goldman when it comes to these issues. Which is why the issues that Simon Johnson raises are important. They go to the core of the regulation of banks.
Here are four questions we should be asking regulators:
1.Why is Goldman Sachs allowed to maintain leverage ratios significantly higher than the large legacy bank holding companies like Wells Fargo, Bank of America, JPMorgan and Citigroup?
2.Why is Goldman allowed to operate like a private equity company, holding large stakes of foreign non-financial corporations? (I should note that Financial Holding Companies do have ten years in which to sell their stakes)
3.Why is Goldman (and other large banks) allowed to operate like a hedge fund and take outsized risks with capital via large proprietary trading operations. Most of Goldman’s profits are coming from this area. At least Deutsche Bank has offloaded these bets onto hedge funds in which it invests. Given the fact that the large too-bog-to-fail financial institutions have received a large backstop from the taxpayer, the fact that they are loading up in prop trading shows that regulation in the U.S. is non-existent.
4.Why is Goldman allowed to have an interest in the failure of other financial firms? We now hear that Goldman has an interest in the failure of CIT, a major lender to small-and medium-sized businesses. These perverse incentives are everywhere in the derivatives world and were an enabler of the financial meltdown and the principal reason AIG was bailed out with taxpayer money.
Clearly, regulators are not serious about regulating or they would correct these problems.
JanB
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