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Wall Street Banks in Commodities Businesses: An Inherently Unethical Conflict of Interest

Writing to the bank’s board of directors, an executive at Goldman Sachs wrote that the bank’s commodities division would achieve higher value “if the business was able to grow physical activities, unconstrained by regulation and integrated with the financial activities.”[1]According to Sen. Carl Levin, Goldman’s goal here is “to profit in its financial activities using the information it gains in the physical commodities business.”[2]The integration could be achieved in part by using the bank’s access to nonpublic information from the banking or trading operations to manipulate the price of a commodity by artificially restricting or adding to supplies through ownership at the production or storage stages. This structure contains a conflict of interest. Because resisting the temptation to exploit the conflict would put the Goldman bankers at odds with the bank’s financial interest, I contend that reliance by the public on intra-bank firewalls (i.e., policies) separating the commodity businesses from the bank’s trading operations is too weak to protect the public, including buyers of the commodity.


The full essay is at “Wall Street Banks in Commodities



[i]Sen. Carl Levin, “Opening Statement,” Wall Street Bank Involvement in Physical Commodities Hearing, Permanent Subcommittee on Investigations, U.S. Senate, November 20, 2014 (accessed November 21, 2014)

[ii]Ibid.

[iii]Ibid.

Continue reading Wall Street Banks in Commodities Businesses: An Inherently Unethical Conflict of Interest

The New York Fed: A Case of Regulatory Capture

According to The Wall Street Journal, a study sponsored by the Federal Reserve Bank of New York in 2009 uncovered “a culture of suppression that discouraged regulatory staffers from voicing worries about the banks they supervised.”[1]Whereas the report points to excessive risk aversion and group-think as the underlying problems, a fuller explanation is possible—one with clear implications for public policy.


The full essay is at “The New York Fed



1. Pedro N. Da Costa, “N.Y. Fed Staff Afraid to Speak Up, Secret Review Found,” The Wall Street Journal, September 28, 2014.

Continue reading The New York Fed: A Case of Regulatory Capture

The New York Fed: A Case of Regulatory Capture

According to The Wall Street Journal, a study sponsored by the Federal Reserve Bank of New York in 2009 uncovered “a culture of suppression that discouraged regulatory staffers from voicing worries about the banks they supervised.”[1]Whereas the report points to excessive risk aversion and group-think as the underlying problems, a fuller explanation is possible—one with clear implications for public policy.


The full essay is at “The New York Fed



1. Pedro N. Da Costa, “N.Y. Fed Staff Afraid to Speak Up, Secret Review Found,” The Wall Street Journal, September 28, 2014.

Continue reading The New York Fed: A Case of Regulatory Capture

Is this the reason behind the rash of banker suicides? (Video)

Does the possible explanation in this video for the rash of banker suicides have any basis in reality?Watch and decide for yourself! H/T Free Zone Media Advertisement

Continue reading Is this the reason behind the rash of banker suicides? (Video)

Is this the reason behind the rash of banker suicides? (Video)

Does the possible explanation in this video for the rash of banker suicides have any basis in reality?Watch and decide for yourself! H/T Free Zone Media Advertisement

Continue reading Is this the reason behind the rash of banker suicides? (Video)

Obama and Goldman Sachs: A Quid Pro Quo?

Obama nominated Timothy Geithner to be Secretary of the Treasury. While president of the New York Federal Reserve Bank, he had played a key role in forcing AIG to pay Goldman Sachs’ claims dollar for dollar. Put another way, Geithner, as well as Henry Paulson, Goldman’s ex-CEO serving as Secretary of the Treasury as the financial crisis unfolded, stopped AIG from using the leverage in its bankrupt condition to pay claimants much less than full value. At Treasury, Mark Patterson was Geithner’s chief of staff. Patterson had been a lobbyist for Goldman Sachs.

To head the Commodity Futures Trading Commission—the regulatory agency that Born had headed during the previous administration—Obama picked Gary Gensler, a former Goldman Sachs executive who had helped ban the regulation of derivatives in 1999. Born had pushed for the securities to be regulated, only to be bullied by Alan Greenspan (Chairman of the Federal Revere) and Larry Summers, whom Obama would have as his chief economic advisor. To head the SEC, Obama nominated Mary Shapiro, the former CEO of FINRA, the financial industry’s self-regulatory body.

In short, Obama stacked his financial appointees during his first term with people who had played a role in or at least benefitted financially from financial bubble that came crashing down in September 2008. Put another way, Obama selected people who had taken down the barriers to spreading systemic risk to fix the problem. Why would he have done so? Could it have been part of the quid pro quothe president had agreed to when he accepted the $1 million campaign contribution from Goldman Sachs (the largest contribution to Obama in 2007)? Might Goldman’s executives have wanted to hedge their bets in case the Democrat wins. Getting Goldman alums in high positions of government would essentially make the U.S. Government a Wall Street Government—that is, a plutocracy with the outward look of a democracy. It is no accident, we can conclude, that the spiraling economic inequality increased during the Democrat’s first term of office.

Source:

Inside Job, directed by Charles Ferguson

Continue reading Obama and Goldman Sachs: A Quid Pro Quo?