regulation

I reported earlier this week about the way in which Goldman Sachs manipulated its earnings release. It magically overlooked telling us anything about what happened in last December when, whoops, it lost a ton of money. What I didn’t report is the ongoing campaign the bank is waging to establish itself as a ‘model citizen’ and in particular how keen it is to repay TARP money. Here’s a very good article from today’s Financial Times that gets to the heart of the scam Goldman is trying to run:
FT.com / Columnists / John Gapper – Don’t set Goldman Sachs free, Mr Geithner

The main point is this: while it appears very good that a bank is ‘eager’ to repay the TARP money and therefore appear to be a model citizen and get itself off the taxpayer’s books, it really is not good public policy for them to repay us just yet.

Why not?

Because we need to keep the big banks tethered while we figure out just how to pen them in permanently.

Don’t forget that they were the ones whose monumental failure and incompetence started this historic recession. Their failed business model, not least their totally misguided bonus payment practices, led them to drive off a cliff and take us with them. No amount of contrition on the part of ‘chastened’ CEO’s can substitute for permanent regulatory control.

And in any case there is ample evidence that Goldman, at least, has no intention of reforming voluntarily. It set aside a whopping 50% of its income for its bonus pool in the first quarter this year. No other business sets aside such an amount. More to the point: those Goldman earnings only existed because we bailed the place out. Not just TARP money, but FDIC money and the even more invaluable tag of being ‘too big to fail’ have kept Goldman afloat. They owe us a lot more than contrition. They owe us a total makeover of attitude. Setting aside 50% of its income suggests that the bank has no intention of changing.

So we need to keep it under control so it cannot hurt us any more.

That’s why we should gratefully decline the repayment of the TARP money and keep up our meddlesome approach. They have shown that their hubris has not been punctured one bit.

So while we figure out the strength and length of the leash we need to use we need to keep Goldman under our thumb.

And we need to keep reminding ourselves that it is very far from being a model citizen. It is a rogue. One that needs to be reformed.