Wednesday’s Puts and Calls: The Politics of Business
First Senate Move on Financial Reform Defeated – Despite control of the White House, the House and the Senate, and almost 70% of the country supporting financial reform, the Democrats could not prevail on a crucial financial services vote Monday. The first vote to move along the financial reform bill was defeated 57 to 41, with 60 votes needed. While the press today is full of attacks for Republicans voting (as did the Democrats) along party lines, a major cause for the loss was the fact that Democrat Ben Nelson (D-Neb) voted with the Republicans against the financial reform bill.
Senator Nelson met with Banking Committee Chairman Chris Dodd just before the vote to discuss regulation of derivatives, an item of interest to Nebraska billionaire investor Warren Buffett, that Dodd stripped out of the bill. Barclays Capital said Monday the stripped Senate bill now “could result in a drain on the company’s excess cash” and force Berkshire to set aside between $6 billion and $8 billion in collateral. Senator Nelson owned between $500,000 and $1 million in Berkshire stock at the end of 2008, according to the most recent financial disclosure forms, but a spokesman for Senator Nelson has said that money had no influence on Mr. Nelson’s role in the matter. His opposition to the financial reform bill was because of concerns about the bill’s impact on auto dealers and dentists, among other things. Chairman Dodd has said Senator Nelson did not mention those concerns during the vote. “Dentists and auto dealers did not come up,” Dodd told reporters.
Strike Two – Senate Majority Leader Reid scheduled another vote today on the same bill that failed Monday evening. The Republicans have asked to negotiate all disagreements before voting instead of offering amendments on the floor, but “That’s not the way the Senate works,” Reid said today. Tuesday’s vote failed by the exact same tally and Senator Nelson voted again with the Republicans. Senator Reid clearly sees the deadlock as a political win for the Democrats and Chairman Dodd remains steadfast in his opposition to the derivatives needs of Nebraska dentists.
Goldman Senate Hearings – Five current and former Goldman employees appeared today before the Permanent Subcommittee on Investigations, in the latest of hearings on the financial crisis. The hearings focus of accountability started early, with Chairman Levin’s opening statement.
“These findings are deeply troubling,” said Levin. “They show a Wall Street culture that, while it may once have focused on serving clients and promoting commerce, is now all too often simply self-serving.”
“You had less oversight than a pit boss in Las Vegas,” said Sen. Claire McCaskill (D-Mo). “There is no doubt their behavior was unethical,” added Sen. John McCain (R-Ariz). “This hearing is to find out whether you’re market manipulators rather than market makers,” Sen. John Ensign (R-Nev.).
Goldman CEO Blankfein responded that the investment CDO at the center of the SEC fraud charge against the firm looks bad but isn’t fraud. The trader at the heart of the transaction also denied any wrongdoing, stating “I deny categorically the SEC’s allegations. I will defend myself in court against this false claim.” He added that a deal at the center of the suit “was not designed to fail.”
The Market Response – According to the Wall Street Journal, bank stocks were under pressure as Wall Street is vilified to support the financial reform bill and the Senate Subcommittee slams Goldman, whose shares were up 0.7 percent, while the rest of the financial sector lost ground. Morgan Stanley fell 3.3 percent, J.P. Morgan Chase dropped 3.4%, Bank of America slipped 3.2 percent and Citigroup tumbled 5.9 percent. AIG fell 16 percent, following bearish analyst comments.
Program! Get Your Program Here! – To better understand the Goldman brouhaha, CNN provides a helpful guide to the key players involved and the Financial Time’s chief business commentator provides another very useful guide to Goldman Sachs’ alleged offences. CNNMoney.com provides a third roadmap in its “Why you don’t care about Goldman Sachs.”
This last piece suggests that perhaps the biggest reason why the average American is not particularly excited about the charges against Goldman is that the investors that lost in the complicated scheme were sophisticated, large asset managers and banks. “The Goldman disclosure debacle didn’t cause massive financial pain for pension funds, widow and orphan investors or lower-level employees who suddenly found their retirement funds wiped out.” The SEC and Senate Subcommittee have pursued this case for more than a year on behalf of the asset managers and banks, who were gracious enough to finally file suit for themselves last week.