Brandon Turbeville
April 22, 2010

It only takes a passing knowledge of current events to prompt the question of how many times the American people can be conned before they begin to wake up. Indeed, one might even ask how many times they can be conned with the same lines for the same result. Yet unfortunately, it appears that the most realistic answer is that there is in fact no limit to the gullibility of the general public. Despite the growing tea party movement as well as protests against higher taxes and bailouts, the U.S. government is gearing up yet again for another round of bailouts and the populace is geared up to accept them.

There is literally no incentive to avoid making bad investment decisions, since the consequences will be absorbed by the taxpayers.

Ironically, the antipathy toward big banks and corporate socialism is leading the nation straight for more of just that. Under the guise of regulatory reform, President Barack Obama, with the help of congress, is attempting to ram through a bill that provides very little real oversight or protection from financial calamity. Rather, it almost ensures it.

First, the legislation creates an FDIC directed slush fund of approximately $50 billion for any future bailouts that arise. The FDIC would raise this money by levying a tax on large banks and “other eligible financial companies. (Darling) Yet while the notion of imposing taxes on the financial industry may at first seem appealing, both as a source of revenue and revenge, it should be remembered that the cost of these new taxes will inevitably be passed on to the ultimate victims of all bad decisions made by large financial institutions and the government – the taxpayer. (Darling) Eventually, these costs will all trickle down in one form or another. If nothing else has survived, the concept of passing down costs to the consumer has remained as one of the last vestiges of a once capitalist economy. That is, at least from a corporate perspective.

However, a second and much more pressing problem exists within the bill. Namely, that it is mainly a cover for unlimited and permanent bailout authority granted to the Treasury Department. Under this legislation the Treasury would be able to make loan guarantees for any institution that is deemed to be “systemically significant,” a term that can be open to many interpretations and no doubt will be as things progress. (Ward) This is similar to the blank check written in the TARP legislation during the bailouts of 2008-present, now totaling close to $25 trillion dollars of total cost.(Watson) In an interview with Politico, Democratic Congressman Brad Sherman of California stated plainly, “The Dodd bill has unlimited executive bailout authority. That’s something Wall Street desperately wants but doesn’t dare ask for. The bill contains permanent, unlimited bailout authority.”(Mark)

The bill, authored by Senator Chris Dodd of Connecticut, would not even require those institutions receiving the bailout to take a loss on their failing investments. If the bailout fund is used, then the FDIC would be able to bail out creditors at rates that are even more than what they had originally invested to begin with. (Darling) Once again, the taxpayers would be on the line for the risks of bad investments yet reap no benefits whatsoever when profits are made. This creates an enormous moral hazard in the financial industry, at least for those firms large enough to be bailed out. There is literally no incentive to avoid making bad investment decisions, since the consequences will be absorbed by the taxpayers.

Much like the Obama Healthcare bill, the mainstream media has done its’ best to make regulatory reform a partisan issue. Congress, of course, has made their job much easier with the childish antics of both democrats and republicans. Like the Obamacare debacle when insurance companies pretended to oppose the healthcare bill, there is a concerted effort to portray the financial industry as being in opposition to the regulatory reform bill. Not only that, it is the industry itself that will benefit the most from its’ passage.

In this case, democrats have charged that republicans are opposing the bill because of money donated by the financial industry to many republican senators and representatives, a sum of $7.3 million dollars in this election cycle alone. The President himself even commented on Senate Minority Leader Mitch McConnell’s meeting with Wall Street executives in an effort to portray the financial sector as opposed to the legislation. “I don’t know exactly what was discussed,” he said. “All I can tell you is when [McConnell] came back, he promptly announced he would oppose financial regulatory reform.”(Ward) However, this is nothing more than the pot calling the kettle black, as democrats received $11.1 million in donations from the financial industry in the last election cycle, with Obama himself having received close to $1 million in his campaign for the presidency. (Ward) Obama has also had his own meetings with Wall Street. In both February and March of 2009, Chief Executive of Goldman Sachs met with the President at the White House according to White House visitor logs. He also visited twice with Obama’s top economic advisor Larry Summers. (Gordon)The fact is, both democrats and republicans are beholden to the financial sector. For one party to accuse the other of making policy based on contributions is not only hypocritical, it is simply playing into the dynamics of the false left-right paradigm.

The lawsuit against Goldman Sachs by the SEC is only one more part of this show. Only a few weeks ago, the Securities Exchange Commission charged Goldman Sachs with fraud, alleging “Goldman wrongly permitted a client that was betting against the mortgage market to heavily influence which mortgage securities to include in an investment portfolio, while telling other investors that the securities were selected by an independent, objective third party.”(Hunter) Essentially, the charges suggest that Goldman Sachs, along with a hedge fund client, assembled a collection of sub-prime investments that were put together intentionally to fail and then bet against it. They then took out an insurance policy on those same securities with AIG. (Hunter). Yet while many Americans laud the actions of the SEC and celebrate what they believe to be the hand of justice descending down upon the big banks, they lose sight of the fact that this is only one individual case of fraud. Realistically, this is business as usual on Wall Street and it represents virtually the entire derivatives market. However, the SEC has only managed to produce charges for one isolated incident. (Hunter) This situation is reminiscient of the outrage expressed at a few billion dollars worth of executive bonuses while the trillions of dollars funneled to international banks was completely ignored. These charges, while well-deserved, are potentially a setup for the American people. Indeed, they provide the populace with the opportunity to cheer as Goldman Sachs gets handed a fine that they will almost certainly be able to pay without batting an eye while the real cost of the bailouts and corrupt derivatives market is entirely ignored.

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Yet even the prospect of a hefty fine, when looked at closely, seems to dwindle. Tony Fratto, former White House and Treasury Department expert on financial policy has suggested that the case produced by the SEC is weak. He is quoted by the Daily Caller as saying, “I think it’s becoming clear to most people who understand the business and the law that SEC is very unlikely to prevail in court.” (Ward) So did the SEC intentionally produce a fragile case against Goldman Sachs so as not to ensure any in-depth meaningful investigation? At this point, we can’t be entirely sure. However, we can be sure that the prospect of anything more than a show trial is getting smaller by the day.

So it does appear, at least right now, that the SEC’s action against Goldman Sachs is nothing more than a brilliant PR move designed to guide public opinion into supporting a disastrous piece of legislation and provide the current regime with a populist image of being “against the banks.” Even Rep. Darrell Issa, republican member of the House Oversight Committee, questioned the timing of the charges. (Allen) In a letter addressed SEC Chairwoman Mary Schapiro, he says,

The events of the past five days have fueled legitimate suspicion on the part of American people that the commission has attempted to assist the White House, the Democratic Party, and Congressional Democrats by timing the suit to coincide with the Senate’s consideration of financial regulatory legislation, or by providing Democrats with advance notice. (Allen)

Although Issa predictably attempts to make this a left/right issue, the charges he makes are valid. Peculiar circumstances tend to surround the announcement of the charges such as the fact that shortly before the SEC made its charges public, the New York Times had already published a story on its website describing the suit. (Allen) When one considers the hype these charges have been subjected to, and that they appear at the same time the regulatory reform legislation comes up for a vote, one begins to see the potential for a more coordinated method of action than is readily apparent at first glance. Indeed, the SEC itself is not exactly free of guilt when it comes to funneling taxpayer money to undeserving financial institutions. In May 2009, the SEC agreed to keep secret many of the most important details of the AIG bailout, which was largely the funneling of billions of dollars into large banks and financial institutions, particularly Goldman Sachs. (Nimmo)

Like the healthcare bill before it, the regulatory reform bill is being rushed through congress with little debate in an effort to avoid the backlash that would occur if the American people were to find out that it was nothing more than a continuation of a policy of upward wealth transferrance. Unfortunately, the House has already passed a version of the bill that will have to be reconciled with the Senate version should it pass there (Darling).

Works Cited

Allen, Mike. “GOP seeks SEC records on Goldman.” Politico. April 20, 2010.

Darling, Brian. “Obama Now Pushing Sneaky Wall Street Bailout.” April 20, 2010.

Gordon, Greg. “Goldman’s White House connections raise eyebrows.” McCLatchy Newspapers. April 21, 2010.

Hunter, Greg. “Fraud: It’s Much Bigger Than Goldman Sachs.” USAWatchdog. April 19, 2010.

Mark, David. “Sherman: Dodd Bill Contains Unlimited Bailout Authority.” Interview conducted by David Mark. Politico. April 20, 2010.

Nimmo, Kurt. “SEC Engages in Conspiracy with AIG to Hide Bailout Evidence.” January 13, 2010.

Ward, Jon. “Regulatory reform debate obscures key fact: Everybody’s getting money from Wall Street.” The Daily Caller. April 20, 2010.

Watson, Steve. “Banksters Rally Round Fed To Keep Bailout Trillions Secret.” April 15, 2010.

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