“Who’s Watching Wall Street? The Feds Turn a Blind Eye,” states David Dayen in a recent Fiscal Times article. It looks as if Goldman Sachs is on a shopping spree, spending $500 million plus or minus to buy 12 percent of Riverstone Holdings, a private equity firm. They’ve also acquired stakes in private equity players Littlejohn & Co. and ArcLight Capital Partners, and Accel-KKR.
He says, “There’s only one problem with these investments: They’re supposed to be illegal under the Dodd-Frank Act”… however “Big banks have turned one key section of Dodd-Frank into mush, such that Goldman can flaunt its defiance openly without an ounce of fear.” He wonders, “why House Republicans are working so hard to repeal Wall Street reform when regulators have shown so much willingness to repeal by neglect.” Well said.
Is anyone watching Wall Street? It appears not and so Goldman is taking advantage of the many loopholes inserted into the Volker rule before it was finalized. The Volcker rule, named after former Federal Reserve Chairman Paul Volcker, was written to prevent banks from trading on their own accounts and essentially gambling with their depositor funds. And one part of the rule specifically sought to prevent banks from “owning or sponsoring private equity firms and hedge funds.”
However, bank lobbyists weakened the Rule and before Dodd- Frank could be adopted the “Senate inserted a loophole that was intended to enable firms like Goldman Sachs to keep a “de minimis” 3 percent stake in hedge funds or private equity firms.” Further if a “new” investment fund is in its “seeding” phase the bank can own up to 100% up to one year. However, in their infinite kindness, the Fed then said that seeding could take more than one year, perhaps three.
And while banks initially had about four years after Dodd- Frank was passed to divest their existing investments in hedge funds and private equity funds the Fed has actually allowed banks to apply for yet another extension of up to five years. Regardless the Volker Rule is in name only, only one bank has been fined since its inception in 2014 so Goldman Sachs and others can shop to their heart’s desire. No one’s watching and no one will prosecute!
And get this- former Goldman Sachs President Gary Cohn said in 2012, “we will continue to source and pursue attractive investments on behalf of our clients.” Admirable, however Mr. Cohn is now the director of the White House’s National Economic Council. The Fed has demonstrated it hardly supports the law. The banks obviously want the Fed to have more control on Volker Rule enforcement.
Dodd-Frank has no chance. Bank lobbyists have effectively written the rules for the government. In another example, Dodd-Frank had required banks to use non-bank subsidiaries to do much of their derivatives trading using their own money instead of federally – insured deposits, however that has been chipped away and recent bills allow for banks to keep this risky financial trading within the banks themselves.
As Senator Warren says ”In virtually every economic policy discussion held in Washington the point of view of the Wall Street banks is represented – so well represented in fact, it crowds out any other point of view.”
That’s not to say that Dodd–Frank works. It has not shown much promise. More than a few experts point an accusing finger at Dodd-Frank for causing other problems. A Harvard University working paper released in early 2015 argues Dodd-Frank is the culprit contributing to the demise of community banking in this country. Marshall Lux, a senior fellow at Harvard University’s Kennedy School and one of the paper’s authors says, “This is a piece of legislation that needs to be fixed.”
The failure or near-failure of Lehman Brothers, Fannie Mae, Freddie Mac and many of the large banks caused an outcry for due process, rule of law, regulation and reform. And while the intention was to revitalize the American economy, the reverse occurred. The 19,000 pages of regulations, $35 billion of economic impact and 72 million hours of paperwork in Dodd-Frank did not work as intended.
If Dodd-Frank is not working then what will? We need to also ask how it’s possible that large banks can wield such power over our government that pretty much they can dictate whatever they want. Such power endangers our economy and the very foundation of democracy on which this country was built.
Richard Bowen is widely known as the Citigroup whistleblower. As Business Chief Underwriter for Citigroup during the housing bubble financial crisis meltdown, he repeatedly warned Citi executive management and the board about fraudulent behavior within the organization. The company certified poor mortgages as quality mortgages and sold them to Fannie Mae, Freddie Mac and other investors.
