Banking/Financial Institutions

Banking/Financial Institutions

Kaufman: Outrage over Goldman is all about bonuses

In an exchange between Goldman Sachs CEO Lloyd Blankfein and Sen. Edward Kaufman (D-Del.), the senator theorized that public outrage over recent actions by the firm was more about executive bonuses than misleading investors on securities that eventually soured, but still made money for the bank. 

"It may be totally a chance, it may be something beyond our control, but the idea that Wall Street came out of this just fine, thank you, is just something that grates on people," Kaufman said. "And I think they think that you just didn't come out fine because it was luck. They think that you guys really gamed this thing real, real well." 

Blankfein told lawmakers that after receiving $10 billion in TARP funds, the bank rebounded by earning approximately $13 billion for 2009 and $3.46 billion in the first quarter of 2010. 

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Blankfein: Goldman has no moral obligation to disclose to investors

Under intense grilling by Sen. Carl Levin, Goldman Sachs CEO Lloyd Blankfein said he does not believe his bank has a moral obligation to tell investors that the bank is betting against investments being sold to investors.

"I don't think we would have to disclose that," he told Levin. 

Levin was floored by the response.  

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Senate GOP draft alternate Wall Street bill

Senate Republicans are drafting an alternate financial overhaul bill that differs in major ways from the Democratic bill pending in the Senate.

According to a 20-page draft summary of the bill, Republicans have significantly different ways of dissolving failing financial firms, bolstering consumer protections and restricting the Federal Reserve. Republicans are terming the bill the, "Financial Regulatory Improvement and Taxpayer Protection Act," according to a summary dated April 26.

"The legislation is still in the drafting stages," said a Republican aide. "Whether and when it is introduced remains to be seen. We remain willing to work to reach a bipartisan compromise."

Among the key provisions:

1. Republicans would create a system to dissolve failing financial firms that requires the Federal Deposit Insurance Corporation (FDIC) to liquidate a firm and would give the FDIC power to recoup money from the firm's creditors that is in excess of what they would have gotten in bankruptcy. The FDIC, with the consent of the Treasury Secretary, would be allowed to issue guarantees, purchase assets and advance funds to creditors. Republicans do not include any sort of industry-supported fund to cover the costs of winding down a firm. The Democratic bill includes a $50 billion fund supported by the industry. 

2. Republicans want to create a Council for Consumer Protection that would have rulewriting and restricted enforcement power. The council would be made up of Federal Reserve, Federal Deposit Insurance Corporation (FDIC) and Office of the Comptroller of the Currency. The council would have primary supervision of large financial institutions, large non-bank mortgage originators, and "other financial services providers who have violated the consumer protection statutes." The council would have backup enforcement power over regional banks and credit unions, while supervision and enforcement of small banks would remain with existing regulators.

Democrats include an independent bureau of consumer protection at the Federal Reserve that would have broader rulewriting and enforcement power and an autonomous budget.

3. Senate Republicans are planning on preserving federal preemption of state laws on consumer protections. Consumer advocates and Democrats have pushed for states to be able to pursue stronger regulations than the federal government.

4. On derivatives, Republicans would give the Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC) and Federal Reserve power to set clearing requirements. Republicans appear to have a much broader "end user" exemption for derivatives users. "End users who are not contributing to potential system failure but rather utilize swaps to reduce or offset risk inherent to their business will not be required to clear their transactions, thereby avoiding the additional costs of clearing," according to the summary.

5. Republicans are looking to cut off federal support for Fannie Mae and Freddie Mac, the mortgage finance giants taken over by the government. Democrats have said they will pursue an overhaul of Fannie and Freddie in separate legislation.


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Goldman stock up despite tough grilling

Goldman Sachs stock survived the Senate grilling of its executives relatively unscathed on Tuesday.

Up more than 1 percent throughout most of trading on Tuesday, Goldman shares gained a little more than half a percentage point while the Dow Jones Industrial Average sank nearly 2 percent. The action occurred while the firm's leaders testified before the Senate Permanent Subcommittee on Investigations.

Goldman executives denied that their firm played a role in the 2008 financial crisis. They also collectively said they didn't do anything wrong in responding to a lawsuit filed nearly two weeks ago by the Securities and Exchange Commission that charges the firm defrauded its customers.


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Reid vows open amendment process for financial reform bill

Two Senate leaders agree that a financial regulatory reform bill isn't finished but they disagree about how to ready it for passage. 

Senate Majority Leader Harry Reid (D-Nev.) vowed an open amendment process if Republicans will agree to begin debate on the measure. 

Whereas Senate Minority Leader Mitch McConnell (R-Ky.) has taken a closer look at the legislation and wants it tightened before starting debate. 

"It's not a finished product but it's certainly ready for prime time," Reid told reporters after the party lunches. "We've worked on this bill for weeks and weeks and we can't solve problems if we're not willing to talk about them."

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Geithner makes point for financial regulatory reform

Congress needs to act soon on financial reform legislation and shouldn't leave changes up to the banks, Treasury Secretary Tim Geithner said Tuesday. 

The legislation under consideration in the Senate would end taxpayer-financed bailouts and the mentality of 'too big to fail,' Geithner said during The Middle Class Task Force in Milwaukee, Wis.

"This is an important and just cause," he said. "It requires reform. Not small changes at the margin, but comprehensive change, clear rules with teeth, enforced by people who care."

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Shelby says progress being made on financial reform legislation

Considerable progress has been made during the past couple of days especially on 'too big to fail' provisions, Senate Banking ranking member Richard Shelby (R-Ala.) told reporters Tuesday 

With the parade of cloture votes on the agenda, including the second today at 4:30 p.m., Shelby said talks still need to continue on regulating the over-the-counters derivatives market and a proposed consumer protection agency that would be set up within the Federal Reserve.

If Democrats would "meet us halfway we could get a bill," Shelby told reporters. 

Shelby wouldn't elaborate on any possible changes to the measure but said Democrats were considering several GOP recommendations on 'too big to fail.' 

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Full disclosure is not Goldman's job, executive tells panel

Daniel Sparks, a former Goldman Sachs partner, told the Senate investigations subcommittee that disclosure requirements varied when selling products to investors. 

Since mortgage-backed securities were peddled by "market makers," there was no need to tell investors that Goldman had bet against the very product they were being sold. 

"Market making itself, as long as people know what they are investing in, I don't think that knowledge of the position of their counter party is something that has to be disclosed and I don't think it currently is disclosed by market makers," Sparks said, adding, "we're [Goldman's] position isn't going to affect how that instrument performs."

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Goldman execs say bank played no role in financial collapse

Goldman Sachs executives appearing before the Senate investigations committee said their bank played no role in the collapse of the financial market. 

"We did not cause the financial crisis," said Michael Swenson, a managing director at the firm. "I do not think we did anything wrong." 

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