With Goldman Sachs facing a lawsuit from the Securities and Exchange Commission, the effort to get financial regulatory legislation on the Senate floor is getting a fillip. But Republicans show no signs of backing down their opposition to the current bill.
Bad news for Wall Street is translating into good news for Democrats on Capitol Hill. With Goldman Sachs facing a lawsuit from the Securities and Exchange Commission and new questions being raised about accounting tactics at the defunct Lehman Brothers, the effort to get financial regulatory legislation on the Senate floor is getting a boost.
The financial regulatory bill is long and complicated, but Democrats often portray it in simple terms of good and evil.
"It's a good bill. I support it because I support transparency, accountability and economic security," Senate Majority Leader Harry Reid (D-NV) said. "Those opposed to it favor secrecy, irresponsibility and reckless risk-taking."
The news that the SEC is suing Goldman Sachs is just the latest opportunity to pile on that message. Sen. Chris Dodd (D-CT), chairman of the Senate Banking Committee, said the accusation against Goldman will make it harder and harder for Republicans to justify their opposition.
"Let there be no doubt in my mind, our bill would have prevented that kind of an event from happening, in my view," he said. "And that's what the public needs to know.
"By not enacting our legislation, by filibustering it, stopping it, we leave the American public vulnerable once again to the kind of -- the kind of shenanigans that have occurred in our large financial institutions across this country."
The SEC says Goldman misled investors about the riskiness of mortgage financial products it produced with the help of a hedge fund manager who was allegedly betting against those same products. Goldman calls these allegations unfounded. So far it's unclear whether the company actually did anything illegal.
Goldman's Actions Debated
"I still have concerns over whether that allegation is correct or not," said Darrell Duffie, a finance professor at Stanford University. "But I don't see how the legislation, however valuable it is, is going to address this particular problem.
"If a bank misleads its clients, it's always been liable, and it will continue to be liable in the future."
But Douglas Elliott, a former investment banker and now a fellow at the Brookings Institution, says some provisions in the bill could have made the situation with Goldman less likely to occur. He points to other Senate proposals to regulate these kinds of financial products and add more transparency to the deals.
Elliot says another provision that might have made a difference would force firms who produce and sell such securities to keep a percentage of the risk.
Whether the SEC is successful or not, Elliott says Democrats benefit from the filing of the Goldman suit last week.
"Public anger is the main political thing that is going to drive this forward," Elliot said. "The public really wants something to be done. And with them being angrier at Goldman Sachs, there is even more political momentum than there was on Thursday when they only somewhat hated Goldman Sachs."
GOP Seeks Bipartisan Bill
But Republicans show no signs of backing down their opposition to the current bill, nor should they, says Sen. Judd Gregg (R-NH).
"That should not cause us to legislate based on hyperbole and based on populist pandering," he said. "We should legislate on what should be based on the financial services industry and for main street, which depends on the financial services industry to get credit."
Gregg is among those senators that Democrats have hoped would break ranks and support the bill. The Obama administration has reached out to other potential swing votes, such as Susan Collins of Maine and George Voinovich of Ohio. But so far all three have said they will vote against the start of debate this week in the hopes of pushing for a bipartisan bill. Copyright 2010 National Public Radio. To see more, visit http://www.npr.org/.