Why Wall St. Hearts Regulation

This story from the Washington Examiner ties in neatly with another story I just read today, about how regulation will make it very, very difficult for angel investors to help with startups of small businesses – and now I know why:

A powerful alumni network plus bundles of campaign cash mean Goldman will get what it wants — and contrary to the media narrative, what Goldman wants is not laissez-faire.

Politico quoted a Goldman lobbyist Monday saying, “We’re not against regulation. We’re for regulation. We partner with regulators.” At least three times in Goldman’s conference call Tuesday, spokesmen trumpeted the firm’s support for more federal control.

Vague public calls for “reasonable regulation,” of course, are often little more than smoke. But Goldman’s annual report explicitly endorsed stricter federal capital and liquidity requirements. Goldman reported on the conference call that it holds 15 percent “Tier 1 capital,” meaning it is very liquid and not very risky. Goldman can play it safe, you see, without needing a regulation. But regulations prevent smaller competitors from taking the risks needed to compete with Goldman (and every competitor is smaller).

It’s a game that nobody plays as well as Goldman, but all the big banks will have a hand in crafting this “reform.” Consider the recent flap over the $50 billion resolution fund in the Senate bill. Banks didn’t like the resolution fund, because it would be capitalized by a bank tax. Republicans rightly attacked the bill for institutionalizing bailouts, but focusing on the $50 billion was a bit of a distraction. Some leading Democrats are now ready to back away from the $50 billion and the bank tax, which just means that we now have unfunded implicit bailouts. The banks win.

So, just as drug companies and insurers used Republicans to kill the public option before using Democrats to mandate insurance and subsidize drugs, big banks are using Republicans to kill a bank tax while using Democrats to erect barriers to entry, to institutionalize bailouts, and to restore confidence in Wall Street.

Lobbyists working on the issue report that the big banks aren’t fighting against the Consumer Financial Protection Agency anymore. It’s not a big deal to them — it will probably cost them only the salary and benefits of one more lobbyist or lawyer. Citigroup might hire another Barney Frank staffer. Goldman already has Greg Craig.

Pretty soon, the left will be complaining about how Wall Street has “captured” the CFPA. But regulatory agencies aren’t kidnapped — they are born in the custody of the businesses they regulate. This is the nature of the game. And it’s a game rigged in Goldman’s favor, regardless of Obama’s trash talk.

2 thoughts on “Why Wall St. Hearts Regulation

  1. Tangentially, one of the reasons Goldman reported such huge profits for the first quarter is that most of its former competitors are gone. Lehman, gone. Bear Stearns, gone. Merrill Lynch, absorbed.

    Fewer competitors = more deals = higher profits.

  2. Suzie, I had Bank of America send you a check. It is schedule for today arrival. I have had a consistent delivery yet. Would appreciate it if you could reply to my email when it arrives.

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