Very rarely do I comment on active investigations which are taking place in Washington. However, the current witch hunt, yes, "witch hunt!" that is directed at Goldman Sachs is full of total hypocrisy and a waste of taxpayer money. Congress is supposedly concerned that Goldman participated in unethical trading practices and thus reaped huge profits during the height of our nation's financial crisis. Congress is only now asking questions about what really happened-- almost three years later! They believe they owe it to us, the taxpayers, to "get to the bottom of things" which took place during the biggest financial crisis to hit our country in almost 70 years. Somehow Congress feels that by putting executives at Goldman on national television it will send a message to the voters that they are doing their job.
In fact, Congress was asleep at the wheel as the financial storm clouds were forming. For example, they turned a blind eye as Fannie Mae and Freddie Mac actually encouraged excessive lending practices to low income home buyers throughout the 1990's causing these quasi-government entitites to need to eventually get bailed out by the taxpayer. More than one of the former Board members at Fannie and Freddie are now Presidential Cabinet members or close advisors. Look it up. Where where these Congressional Committees then?
Some important facts are coming out during this present investigation:
1. Congress doesn't have a clue what Goldman actually does. Goldman serves as a market maker in multiple levels of security transactions to help the markets remain liquid. They MUST participate in either side of a buy/sell trade depending on whatever side the counter-party takes. A market-maker buys when others are selling. A market-maker sells when others are buying. By nature of the magnitude of these transactions there is huge risk to the market-maker. They also have the ability to place hedged transactions to help protect each position they take. Congress is somehow alluding that by participating in the other side of transactions, sometimes taking alternate sides in different transactions, this is somehow unethical for a market maker to do.
2. Congress isn't talking about why they selectively let Lehman Brothers to go bankrupt yet they rescued several other financial firms which were ready to go under, but already had buyers. Why this selectivity? The Lehman bankruptcy exacerbated our financial crisis from primarily a mortgage problem to a global financial investment problem. There are reports of many Congressional back-room deals and ultimatums which took place during the height of the crisis. Then they had the audacity to change the rules after TARP money was actually distributed.
3. This witch hunt is also causing much uncertainty in the financial markets at a time when our economy is showing signs of recovery. Markets never like uncertainty and this could cause serious harm at this particular moment in time.
Bottom line: This is nothing more than a dog-and-pony show by Congress to give voters a perception that they are doing something to protect us from the "evil" Wall Street firms. I have one question-- Who is protecting us from Congress?
