A Well Placed Warning Kick To The Junk

2010 April 18
by Dave

There are three plausible stories of the motivation of the SEC’s action against Goldman Sachs that was made public on Friday. First, and to my mind least likely, is the possibility that the SEC is just doing it’s job and this was the natural point in time when this investigation hit the news. Second, with strong plausibility, is the chance that what is going on is that the SEC is trying to show off it’s teeth during this time of pending financial system reregulation. The third possibility, and the one that my paranoid mind likes the most, is that this SEC investigation is a shot across the bow of Wall Street.

The timing is perfect for the White House. They have just gotten media attention shifted onto financial reregulation and both the Democrats and the Republicans in congress have staked out their ground(something and nothing being their respective positions). The GOP has staked out the position that regulating and regularizing resolution authority for non-bank financial institutions is promising future bailouts and thus the proposed Democratic legislation is just a sweetheart deal for the financial sector that puts the  taxpayer on the hook for the financial sector’s next catastrophe. The Democrats of course claim that it is the GOP in the bankers vest pocket and doing nothing will guarantee that the recent troubles will be repeated ad nauseum.

For the sake of my paranoid argument we need to assume that it is the GOP that is actually on the side of big finance. I know it’s a stretch, but bear with me.

The recent example of healthcare legislation has given the financial people the idea that they might be able to keep the GOP voting in lockstep and bog the whole thing down forever, or at least pull most of the teeth out of anything that does get passed. Of course the Democratic legislators have taken their fair share of Wall Street lobbying money over the years so they might have a difficult time holding together.

And so we arrived at a point last week when the administration needed to gain a bit of leverage on all parties if they want to get any meaningful financial reregulation passed. Following is the text that I imagine might have been sent along with the cannon ball that took down some of Goldman’s rigging but didn’t hull them below the water line:

Dear Wall Street,

I thought we had a deal. The Fed and the Treasury would get you out of this mess and you would not stand in the way of legislation aimed at stabilizing the system. Well here is some news. Even if you manage to fight legislation to a standstill so that it never passes, we still control the executive branch of the federal government for at least two more years, and likely six. We can fuck you up so badly that when we are done, none of you will be too big to fail.

The end.

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