The problem is that Goldman Sachs was well represented in the government during the last 20 years when radical deregulation of the derivative market became the law. And you’re quite right given the Commodity Futures Modernization Act, pushed through when ex-Goldman Vice Chair Robert Rubin was treasury secretary in the Clinton administration, and expanded in scope under George W. Bush when ex-Goldman Chairman Henry Paulson was also secretary of treasury. There is very little in the way of legal protection for the unsuspecting customer of stocks, and I expect that they will skate on this with a fine that they can easily absorb.
11:50 Comment From P. T.
Thu, 29 Apr 2010 19:50:54 GMT
Comment: I have not followed all the ins and outs, but it sounded kind of like one of the bundles of subprime mortgages was created just so the hedge fund could short it? Is that your sense of things?
11:52 Robert Scheer
Thu, 29 Apr 2010 19:52:42 GMT
Worse than that, we now know of five such packages, but they aren’t even real packages, in the sense that somebody put money up to actually help a human being get a house. These were synthetic bets on what would happen to packages of real mortgages. And the problem is that the games that were played, resulting in a bubble in the market with tremendous run-up of prices, were bound to crash, and Goldman, while it was selling those suspect products, was betting on the crash, and came out very rich as a result.
11:52 Comment From Guinevere
Thu, 29 Apr 2010 19:52:46 GMT
Comment: Do you think anything will be done to change the way bonuses are doled out on Wall Street—e.g., linking them to something other than the bottom line—given how that motivates execs to turn a blind eye to how exactly those profits are made?
11:52 Truthdig Pete
Thu, 29 Apr 2010 19:52:55 GMT
Feel free to submit more questions while Bob answers the latest. We’ll try to get to all of them. Lynne is up next.
11:53 Robert Scheer
Thu, 29 Apr 2010 19:53:07 GMT
The chairman of Goldman Sachs, Blankfein, got $68 million in 2007 when these nightmare products were being marketed.
11:53 Comment From Lynne
Thu, 29 Apr 2010 19:53:11 GMT
Comment: Do you think then that the Dems are merely grandstanding?
11:56 Comment From walldizo
Thu, 29 Apr 2010 19:56:04 GMT
Comment: What you think of Fareed Zakaria’s defence of Goldman Sachs?
11:56 Robert Scheer
Thu, 29 Apr 2010 19:56:07 GMT
I think both the Democrats and the Republicans are now under enormous public pressure to at least appear to be doing something. That’s why the Republicans had to call off their stalling on the debate. But if your question is do I trust the Dems to do the right thing, no. In particular, we have to watch for the survival of two key elements to reform. One is a truly vigorous consumer protection agency that can deal with outrageous loan packages, credit card usurious interest rates, and deception. The other key element is to restore the wall between commercial banking, which is backed by the good faith of the U.S. government, and say that anyone that is such a bank cannot engage in the sale and packaging of unregulated derivatives. And that for Goldman Sachs, for example, which was allowed to become a bank holding company, they would have to make a decision to give up their current ability to go to the Fed window and other important perks, and decide whether they are an investment bank dealing with private investors, which would mean they do not have the backing of the U.S. government.
11:56 Robert Scheer
Thu, 29 Apr 2010 19:56:30 GMT
Derivative trading has to be done on regulated exchanges with complete transparency.
11:56 Comment From Lynne
Thu, 29 Apr 2010 19:56:42 GMT
Comment: If finance is such a huge part of our economy (I’ve seen estimates from 40-60%), then is it really likely that any significant legal reform can take place?
11:58 Robert Scheer
Thu, 29 Apr 2010 19:58:18 GMT
(To Lynne) The financial sector accounts for one-third of all profit. And that is unnatural for any modern economy, and if that greedy appetite of Wall Street cannot be contained, we will not have sound investment in the investments that the American economy really needs, instead of wild gambling.
11:58 Comment From P. T.
Thu, 29 Apr 2010 19:58:23 GMT
Comment: Sounds like Goldman Sachs was killing two birds with one stone. They were getting rid of their lousy subprime mortgages at the same time their cohorts were shorting them. They made out both ways.
11:59 Robert Scheer
Thu, 29 Apr 2010 19:59:30 GMT
(to P.T.) Of course, but the problem is, were they deceiving their customers in the process? And that is the issue involved with the Abacus deal, which clearly was designed to fail, but which they sold as a winner.
11:59 Comment From Bob
Thu, 29 Apr 2010 19:59:31 GMT
Comment: I know it sounds naive, but is there anyway we can make lobbying illegal?