SEC vs Goldman: A look back at my Bootlegger and Baptist prediction
Now that “Historic Financial Regulations” are about to be signed into law, wouldn’t you know it, the SEC and Goldman have settled on that pesky investigation in to Abacus. Some people might think it just mere coincidence, not me. I see it as all part the plan. First take a look at what I said back in April.
Bootleggers: Goldman Sachs
- What do they care about image anyway right?
- Unlimited Bailouts at the discretion of the POTUS, whom they already bought.
- More than likely, the SEC charges will not amount to any fine, or if there is a fine, it will be minuscule compared to what they made over the last year, thanks to Fed money.
Baptists: Obama and the Democrats
- They get to appear tough on Wall Street.
- They want to pass the Dodd bill, which wouldn’t have stopped the crash from happening if it would have been passed 5 years ago.
- They get to appeal to the emotions of their base, Democrats would think Obama sold them out, maybe stop some of the hemorrhaging of support.
- They will try to campaign on the Dodd bill instead of Healthcare, because of Obamacares horrible approval numbers.
They get to use this to write lots of new regulations to help their buddies. This isn’t capitalism, it’s Mercantilism.
First things first, what about bailouts? Well the new bill gives the FDIC new powers to break up big financial institutions if they are deemed a systemic risk. Does it actually do that? Not really.
The FDIC will take over big troubled financial firms. It will then do whatever it must to both stabilize the financial system and maximize the value of failed firms’ assets, so to minimize the costs of the resolution process. In order to achieve financial stability, the FDIC will have to cover many of the big firm’s obligations. After all, that’s kind of the whole point. Consequently, these counterparties, customers, creditors, etc. will prefer to do business with companies that fall under the resolution authority’s umbrella. That should provide these big regulated firms a competitive advantage over smaller ones.
So what really happens is that the resolution process instead of bankrupcy is going to be a politically run operation. I don’t think anyone will argue that regulators are already politicized. Liberals complained about it during the Bush years, and conservatives complain about it now. So being already politicized, which creditor do you think will get priority during the resolution process? Remember how the GM and Chrysler bankruptcies went? That’s right the more politically connected groups will get first cut at any money coming from the FDIC.
This is nothing more than a lobbyist wet dream come true. That just gravy though, does it really end to Big to Fail? Again not really. By giving these big firms even more competitive advantage over smaller firms, by giving them monopoly power, thanks to the Federal Government barring entry of smaller firms, they only get bigger. As they get bigger and make more and more money, they give more and more money to various politicians that govern the financial regulatory boards. If the FDIC regulators start to think that a certain firm, (*cough Goldman Sacs*) is getting too big, a call from powerful Senator will curb their fears, not doubt about it. We’ve seen this play out with Fannie and Freddie already. How long before we have Rep. Bawwny Frank up berating people for questioning Goldman’s balance sheet, like in 2003?
“These two entities—Fannie Mae and Freddie Mac—are not facing any kind of financial crisis,” said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. “The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”
So when it comes to ending Too Big to Fail, this bill falls short, especially considering it doesn’t even attempt to do anything about Fannie and Freddie!
My April prediction: 1
That’s got to be the biggest joke of them all. $550 million? Are you kidding me? Goldman earned $13.39 billion in profits in 2009. So taking the $550 million and dividing it by the $13,390 million it made last year alone and you get a laughable 4.1% Oh it gets even better, from the same Post story, Goldman gave out $16.7 billion in compensation, most of that was bonuses. So now the fine amounts to 3.3% of its bonus packages. HA HA HA nice try.
My April prediction: 2
They pretty got almost everything I had predicted. They passed their bill, thanks to demagoging the same firms that this bill protects. And just like the Health Care Bill, we don’t know how it’s going to work!
The bill, completed early Friday and expected to come up for a final vote this week, is basically a 2,000-page missive to federal agencies, instructing regulators to address subjects ranging from derivatives trading to document retention. But it is notably short on specifics, giving regulators significant power to determine its impact — and giving partisans on both sides a second chance to influence the outcome.
As I said before, this is a lobbyist wet dream. Thank you Dodd, Frank and Obama!
Now the only question is will this pay off. Will the Democrats be able to use this for November? They are claiming victory over the Goldman settlement, using it to push this financial regulatory bill. Will it pay off? Kim Strassel says, maybe not.
That’s because, like stimulus and health care, Democrats turned the financial regulation bill into a monstrosity. What started as a promise to streamline and modernize the financial system turned into 2,300 pages of new agencies and new powers for the very authorities that fomented the financial crisis. The bill is laden with uncertainty and brimming with costly regulations on small businesses. Sen. Chris Dodd and Rep. Barney Frank made it easy for Republicans to pronounce their bill more Obama Big Government—a “Main Street takeover”—and to justify their votes against it.
Those votes were made easier by the knowledge that, like stimulus and health care, this is legislation that has overpromised. The bill does nothing to address the root causes of the crisis. Yet Mr. Obama recently assured the nation that it not only fixes the system’s problems, but was “good for businesses, it’s good for the entire economy.”
So tell me what you think, how did I do back in April? I think my predictions were spot on. Although I should have added in the Bootlegger part, that the end result, the Financial Regulation Bill, gives Goldman an even bigger slice of the pie by making the new regulations so hard and so costly that only the Too Big to Fail firms are the ones that are able to comply. So score another on to Goldman.
That $550 million will go down as the cheapest multi-billion dollar investment ever.
Democrats: 3 for 4, not bad.
Update: From Charles Rowley on the Federal Reserves role.
The Federal Reserve will become the primary regulator for large complex financial firms of all kinds, as it adds the responsibility for maintaining financial stability to its existing responsibilities for promoting price stability and maximum sustainable employment. To make sure that the Federal Reserve is completely politicized, the new legislation will require it to obtain the prior agreement of the Department of the Treasury before using its extraordinary authority to lend to almost anyone and to force any large company, bank or non-bank, to boost its capital and its liquidity in accordance with transient Fed impulses.
As further evidence of its receding independence from the Executive Branch, the Fed will be assigned an additional vice-chairman, responsible for supervision, and to be chosen by the White House, no doubt as the enforcer of its comprehensive financial and industrial policies.
Almost without a whimper from Wall Street, and with an embarrassing silence from the media, the United States economy is being propelled irreversibly away from laissez-faire capitalism, to the crony capitalism of national socialism.
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