Republicans have been crying foul over the timing of last Friday’s Securities and Exchange Commission announcement of an investigation into wrong doing by Goldman Sachs. Yes, the timing – just as the Democratic push for financial regulatory reform seemed doomed and just as Goldman’s stock was approaching something close to where it was before President Obama announced the Volcker Rule – was extremely convenient. And Alberto Gonzales’ U.S. Attorneys debacle pretty much underlined to everyone why politics in the agencies is bad. But let’s put that aside for a moment and look at the bigger picture.
Since taking office, Obama has rattled awake regulators who’d grown somewhat somnolent under George W. Bush – not a totally shocking turnabout from a Republican to a Democratic Oval Office. But these efforts have often been in tandem with parallel tracks on the Hill. When Obama couldn’t get the Employee Free Choice Act though the Senate, he moved to change several administration rules to make it easier for unions to organize and made two recess appointments to the National Labour Relations Council when Republicans blocked a favoured nominee. On global warming, environment czar Carol Browner have very effectively used the threat of EPA regulation of greenhouse gases as a cattle prod to Congress’s rear end – though their hide has proven tougher than she anticipated.
I’m not making a case here that the Administration did collude with the SEC — that would be wrong. But, I have to ask, is it much of a surprise that the SEC would be looking at cracking down on Wall Street – especially retroactively given the, um, near collapse of our entire financial system? Some trader friends in London told me over the weekend that something like this has been long expected – they just didn’t imagine the Administration would pick industry leader Goldman Sachs days before earnings were announced. The Administration, the SEC, heck, the Pope have all been forceful in their disapproval of Wall Street’s lack of morals in recent years. This case will be closely watched by other banks: if it succeeds it creates precedent under which many other dominoes may fall. Of course it’s totally wrong for the SEC and the Administration to collude and if they did the perpetrators should be punished. But if this was two hands independently working (with arguably great or terrible timing depending who you’re talking to) towards the same goal – to force Wall Street into actually taking a little responsibility for its actions – does it matter which way we get there, through regulation or through the courts?