The devil wears tailored suits

Our view: Goldman executives underscore Wall Street’s failings, need for reforms

April 29, 2010

Average Americans probably doesn't know a position trade from a secondary offering, but they do know that when a company creates and markets a product of questionable value to customers and then bets heavily against it, something doesn't smell right.

That's why Democrats couldn't have asked for better poster children to focus public outrage at Wall Street than those unrepentant Goldman Sachs Group executives who ducked and weaved their way through 11 hours of a Senate subcommittee hearing this week. Neighborhood bookies have more integrity than these highflyers, with their eye-popping bonuses and e-mail braggadocio.

Small wonder when word came this afternoon that Republicans will finally consent to at least debate the overhaul of financial regulation on the Senate floor. The devil may be in the details of the bill, but the devils the public can see wear tailored suits and see nothing wrong with placing casino-like bets on Main Street's failures.

President Barack Obama is probably secretly disappointed that a third straight day of opposition finally showed signs that the status quo is unacceptable to the general public — signs that even Senate Republicans could no longer ignore. The longer the American people chewed over the behavior of Goldman Sachs, the more distasteful they found it. Re-regulate Wall Street? The public may soon be ready to give Goldman CEO Lloyd Blankfein and Vice President Fabrice P. "Fabulous Fab" Tourre a new suit of tar and feathers.

If Mr. Blankfein is smart, he'll write a big check to settle with the Securities and Exchange Commission before the agency's fraud case goes any further. Goldman can hide behind all the legal technicalities it wants (most notably that a market maker need not disclose its own investment position to a client), but peddling a product designed to fail is like a car manufacturer selling exploding vehicles and then investing heavily in funeral homes.

To their credit, Democrats stuck to their guns but also demonstrated a willingness to make reasonable changes to the bill. They need to hold the line against de-fanging the consumer watchdog the measure would create, or shrinking away from a crackdown on (and more transparency regarding) derivatives trading — as the brigands of Wall Street would clearly prefer. Investors need to be protected from the "Fabulous Fabs" of the world, who acknowledge they sell monstrosities and gloat that they'll be the last men standing when their creations inevitably fail.

Reform opponents like to remind everyone of the lending practices of Fannie Mae and Freddie Mac as the leading villains of the real estate meltdown, and the two companies (now under a government conservator) certainly played a big role. That's an argument for further reforms and taxpayer protections in the mortgage lending business, not for ignoring the appalling actions of Goldman and its Wall Street brethren.

But even more than the hides of Goldman executives, what the public wants right now is protection against another meltdown and another round of bailouts. Is that too much to ask of the admittedly dysfunctional Senate? Let the floor debate begin.

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