End of the financial reform stalemate. Republicans announced that they had achieved resolution of bailout loopholes on the financial regulatory reform bill Wednesday afternoon. “Now that bipartisan negotiations have ended, it is my hope that the majority’s avowed interest in improving this legislation on the Senate floor is genuine and the partisan gamesmanship is over,” said Senate Minority Leader Mitch McConnell, Kentucky Republican, in a statement. After failing to move forward on Monday and Tuesday on the financial reform bill by the exact same vote, Senate Majority Leader Harry Reid, Nevada Democrat, scheduled another vote on Wednesday which was promptly defeated as well. The count Wednesday was 56-42 with Senator Nelson, Nebraska Democrat, and Reid voting against the measure. Reid’s “no” vote allows him to bring it up again. A vote later Wednesday, after Democrats threatened to hold an all-night session, succeeded in getting Republicans to drop their filibuster.
Goldman, bad; financial reform, good. Senator Levin, Michigan Democrat, has called on Republicans to allow debate on financial reform legislation so he can address the problem discovered at Goldman. Goldman’s marathon Senate testimony wrapped up yesterday, just as 60-plus members of Congress asked the Department of Justice to pursue a criminal investigation. These reviews are in addition to an SEC case, the UK Financial Services Authority (FSA) inquiry and several private lawsuits, all alleging misconduct by Goldman in the complex Abacus CDO deal. Employing an unusually assertive damage control strategy, Goldman has voluntarily provided its chief executive and traders to appear without subpoena for an 11-hour grilling. Goldman admits that certain negative information was not disclosed, but claims that the undisclosed information was not material to its sophisticated institutional investors.
The other side of the “Abacus” doesn’t add up either. Goldman’s Abacus presumably had many investors, but the SEC complaint identifies only one investor and one insurance company. The private lawsuits being filed against the Abacus deal prove that there were additional investors that the SEC chose not identify or include in its complaint. The sole investor named in the SEC compliant is the German bank IKB, which engaged in billions of dollars of similar deals. The only other named party, ACA Capital, insured the credit risk for the Goldman deal and was involved in tens of billions of dollars in similar deals. There are charges in the SEC complaint, but neither IKB or ACA have contended publicly that they were misled by Goldman’s omission. Neither IKB nor ACA have initiated private action against Goldman, and neither has been reported to have joined any of the private lawsuits filed by shareholders regarding Abacus. The Senate, SEC or other inquiries have provided no information on the diligence that these investors did perform, or what diligence they may have been required to perform for their own investors and shareholders. Goldman may not have offered the information, but it is not at all clear what responsibilities these investors had to ask questions. While none of this information would exonerate or remove the ethical taint from Goldman, in an inquiry that has reached the stages of the Goldman firestorm, “material” questions remain.
Go figure. In a pair of Wall Street Journal stories, Democrats may not be answering calls for help from financial companies and the result is a jump in donations to Republican politicians. Devlin Barrett wrote that New York’s congressional delegation has been criticized New York Mayor Bloomberg for failing to protect the state’s main industry. Sens. Schumer and Gillibrand, both New York Democrats, have refused to help modify proposed legislation that would force banks to spin off their derivatives trading desks to be eligible for assistance from the Fed and the FDIC. So it may be no surprise, as Brody Mullins writes, that the biggest Wall Street firms are giving most of their campaign donations to Republicans. Contrary to the Democrats’ charges that Republicans are the party of Wall Street, according to Center for Responsive Politics, Democrats have received nearly two thirds of the $35 million donated by the entire securities and investment industry since 2009, 57 percent of Wall Street’s donations in 2008, and 52 percent during the 2006 midterm elections. In a reversal, firms such as J.P. Morgan, Goldman, Morgan Stanley, KPMG and FMR Corp. (the owner of Fidelity Investments) are writing large checks to the Republican Party, while stiffing the Democratic Party.
New Transparency Caucus. Reps. Darrell Issa, California Republican, and Mike Quigley, Illinois Democrat, announced the formation of the bipartisan Transparency Caucus, which will serve as a resource on bipartisan open government initiatives. The caucus will promote legislation that requires federal information to be freely accessible, as well as advocate for new initiatives that support transparency. The creation of the caucus is particularly timely as members of Congress have recently asked whether the administration had any role in prompting the SEC climate change guidance, the SEC Goldman lawsuit announcement and GM’s early debt “payment” with TARP funds. The administration has denied all of the above. So this week, when the chief executive of Citigroup sent a letter to the White House supporting financial reform, an administration official disputed that the White House solicited the Citigroup letter. An industry source said the White House “asked them to put out a statement or a letter in support of reg reform.” The Citigroup letter may not have been explicitly “solicited,” but perhaps it did not need to be. The Treasury Department — which also support the pending financial reform package — is Citigroup’s largest shareholder, just announced that it will begin selling off its shares in Citigroup next week, and also quietly agreed to forgo billions of dollars in potential tax payments from Citigroup in December.