The marathon Goldman-bashathon yesterday suggests that Congress knows even less about financial reform than it does about health care. There was profanity from Sen. Carl Levin and histrionics from practically everyone else. The New York Times explains what really was going on:
For hour after hour on Tuesday, Democrats and Republicans interrogated Goldman’s mortgage men, including the chief executive, Lloyd C. Blankfein, and Fabrice Tourre, the employee named in the S.E.C. complaint, putting them on the spot over Wall Street’s questionable conduct at a legislatively propitious moment.
None of the Goldman executives have been found to have done anything wrong, but some Democrats were ready to place them in the same role played in past financial crises by high-fliers like Charles Keating, Michael Milken and Ken Lay, all of whom came to personify the excesses of the moment.
The hearings were the culmination of a Democratic strategy to take full advantage of the opportunity created by the S.E.C. civil case.
Frankly, it’s not even clear that the senators fully understood the transaction or were aware that there’s nothing illegal or unusual about investments between sophisticated players who are taking opposing bets in the marketplace. I was reminded of Rep. Louise Slaughter, who invoked the tale of an uninsured woman reduced to using her dead sister’s dentures. That had about as much to do with the merits of health-care reform — and revealed the paucity of lawmakers’ understanding of the subject — as a flaky fraud charge against Goldman Sachs does with financial reform. The hunger for anecdotal evidence of Wall Street greed — with little understanding of the anecdote — makes for good TV and poor reform.
There are real issues to be examined (e.g., the independence of rating agencies, the conflicts in investment-banking transactions), but it’s far from clear that the pending legislation is going to address those. But — like the frenzy to nix AIG bonuses — lawmakers aren’t as interested in legal niceties or creating a coherent, predictable financial system as they are in stoking populist anger against Wall Street. It is a convenient way of redirecting public anger away from them, of course. It might work, but we’re likely to wind up with financial “reform” that reforms very little.