Friday, April 16, 2010

Dems, Not GOP, Have Taken Side of Wall Street

How ironic that Michael Barone wrote this one day before the SEC charges against Goldman Sachs came out.

This is some good advice from Barone. From real Clear Politics


It's not hard to predict how the coming fight over financial regulation legislation will be framed by most of the mainstream media. Democrats like Christopher Dodd, the sponsor of the pending Senate bill, will be portrayed as cracking down on greedy Wall Street operators. Republicans will be portrayed as letting Wall Street operators have their way.

That might be a fair characterization if Republicans concentrate their fire on the consumer protection agency the bill would establish in the Federal Reserve. But that's a peripheral issue, and Republicans would be well advised to leave the opposition to CEOs like JPMorgan Chase's Jamie Dimon, a Democratic contributor, who argues persuasively that regulators should just do a better job of enforcing already existing rules.

The real heart of the Dodd bill is the provision creating a $50 billion fund collected from large financial firms and authorizing the FDIC to use the funds to reorganize any such firm it decides is failing. Under the bill, the FDIC would use this "resolution authority" rather than have the firm go into bankruptcy courts, as Lehman Brothers did after it collapsed in September 2008.

This sounds reassuring. But actually it's very dangerous. It amounts to granting "too big to fail" status to financial firms like Goldman Sachs and JPMorgan Chase. As my American Enterprise Institute colleague Peter Wallison and University of Pennsylvania law professor David Skeel explain in The Wall Street Journal, it tells those firms' creditors and shareholders that Uncle Sam will bail them out if they make what turn out to be imprudent loans.

...

In addition, "too big to fail" status means that, as Wallison and Skeel write, "large financial firms will be seen as protected by the government and, with lower funding costs, will squeeze out their Main Street competitors."

Little wonder that Goldman Sachs likes the idea. It will be able to borrow at lower cost than small competitors and will be assured that its large counterparties will qualify for government bailouts. Big firms tend to favor regulation because it insulates them from competition and protects them against loss.

Republicans owe no political debt to the big Wall Street firms. In the 2008 campaign cycle, according to the Center for Responsive Politics' opensecrets.org website, Goldman Sachs personnel contributed $4.5 million to Democrats and just $1.5 million to Republicans.

Add in three other big Wall Street firms -- Morgan Stanley, JPMorgan Chase and Citigroup -- and the total take was $12.7 million to Democrats and $6.7 million to Republicans. The image of Wall Streeters as solid Republicans is as dead as J. P. Morgan himself.

It's time to slam the limosine leftists which have taken over Wall Street, starting with Goldman Sachs.

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