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The Prospects for Real Financial Reform Remain Remote

by ANDREW COCKBURN

Anyone who believes that Goldman Sachs is made up of coldhearted calculating machines, with scant room for any human emotion apart from avarice, should have been monitoring the firm’s most recent global videoconference.   This is a quarterly event in which senior executives address the firm’s managing directors assembled at their various far-flung outposts around the planet.  These are normally sober events, but this time, so I am reliably informed, Goldman CEO Lloyd Blankfein was given a standing ovation by the hundred or so executives – “reportedly a first time for such emotional release in the reptile cage” reports one close observer of Goldman culture.

The fact that Goldman stock was rising — the firm was worth an extra $549 million by day’s end — even as Blankfein and various underlings were being grilled by Carl Levin and others on their misdeeds indicates how little the bank has to fear from the people’s wrath, muffled as it is by the administration and congress.  After all, the real threat of Blanche Lincoln’s killer provision on derivatives trading, lurking like a nuclear suitcase in the financial “reform” bill, is already rapidly going away.

As I reported last week, Lincoln introduced this provision, which effectively implements the “Volcker rule” – ballyhooed and then forgotten by Obama a while back – excluding the banks from their most profitable line of proprietary trading in derivatives — in a fit of pique at Tim Geithner.  Word in the lobbying community is that her lapse from normal subservience to Wall Street’s command was deeply gratifying to Pat McCarty, Chief Counsel to Lincoln’s Agriculture Committee.

McCarty has reportedly long chafed at crafting legislation implementing the bankers’ dictates, so it was with great pleasure that he, at Lincoln’s request, told the committee, as well as the lobbyists packing the room, that the bill would deprive derivatives traders of access federal bank insurance programs, especially all those nice bailout vehicles such as the Fed’s discount window, not to mention the deposit guarantee from the FDIC, thus effectively driving JP Morgan etc out of the business.

On the other hand  it is hardly possible that Lincoln, still less her fellow Democratic senators, have really decided to usher in the communist revolution by wiping out the banks’ major source of trading profits.  Nor will the White House or Treasury  permit this to happen.  We know this because New York Senator Kirsten Gilliband has been telling emissaries from Barclays Plc so, adding that it would never get through the senate anyway. This was very welcome news for the emissaries, conscious as they were that the top five Wall Street banks made $28 billion in profits from derivatives trading last year, and they rushed to pass on the good news to clients.
Lincoln’s populist lunge hasn’t done her much good in Arkansas, where the latest polls put “Bailout Blanche”  further behind her primary (May 18) and general election opponents than ever.

For a few days this week it looked as if the senate Democrats could afford to pose as the flails of Wall Street while the Republicans obligingly blocked debate on the reform bill.  Now that the Republicans have abandoned that strategy, we can assume that Blanche’s provision will be taken into a back room and quietly smothered in the interests of bipartisanship.

ANDREW COCKBURN is the co-producer of the feature documentary on the financial catastrophe American Casino.  He can be reached at amcockburn@gmail.com

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Andrew Cockburn is the Washington editor of Harper’s Magazine.  An Irishman, he has covered national security topics in this country for many years.  In addition to publishing numerous books, he co-produced the 1997 feature film The Peacemaker and the 2009 documentary on the financial crisis American Casino.  His latest book is Kill Chain: The Rise of the High-Tech Assassins (Henry Holt).

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