Goldman Sachs was probably negligent, if not complicit, in the huge losses incurred by its investors. Meanwhile, there can be no doubt that the timing and method of pursuing a redress in this matter is politically motivated by Obama to once again create a boogeyman that can help ram through a piece of legislation designed to give government huge control over the financial industry and maybe even over other corporations deemed "too big to fail". It's part of the Obama-Democratic playbook to create a boogeyman. Next, we can expect those who oppose Obama's financial regulatory reform to be labeled "racists".
1. Goldman-Sachs and the entire investment banking industry needs better regulation with regard to highly leveraged instruments such as derivatives based upon risky mortgages. The problem is just as much ENFORCEMENT as it is REGULATION. The SEC, the bond rating firms and every board of directors of investment banks were highly negligent or incompetent leading up to the 2008 credit crisis. They had the authority and the means to head off the economic crash but didn't do their jobs; it was not a lack of regulatory rules that caused the crisis.
2. Hedge funds have very little activity in hedging against the market going either up or down at various times; "hedge" is a misnomer to what these funds do. The hedge funds have turned into big gambling ventures dealing in highly leveraged financial instruments much more often betting with the direction of the market than "hedging " against it. Hedge funds need to be regulated, the leverage of any instrument needs to be reduced and more importantly, regulations need to be ENFORCED in an timely manner, not just after a disaster.
3. The biggest financial gambling houses, with virtually no enforcement of regulations and, worse yet, protection by politicians, are Fannie Mae and Freddie Mac. These are government entities that have accumulated far bigger losses than any private Wall Street banks. Many politicians had as much or more effect in causing the financial crisis of 2008, one person who stands above all others in causing the meltdown is Rep. Barney Frank (D-MA) for leading the effort to force banks to make highly risky loans and then blocking all attempts at regulation of Fannie and Freddie for 15 years. His buddy, Sen. Chris Dodd (D-CT) aided in the effort to block all regulation of Fannie and Freddie; now like all two-faced lying politicians, Chris Dodd is leading the effort in the senate to ram through Obama's financial regulatory reform which is not as much reform as it is a vehicle for the government to take over and run the entire investment and banking industries.
4. There are a few simple actions that could be taken to reduce the risk of future financial meltdowns without giving the government the power to take over these industries, such as: (a) reducing allowed leverage ratios, (b)re-instituting the separation of commercial banking and investment banking; under Bill Clinton in 1999 the Glass Steagall Act was repealed which allowed commercial banks who were supposed to deal in low risk loans to get into competition with investment houses and offer high risk instruments such as mortgage backed securities and collateralized debt obligations, (c) increase the tax on stock trades to dampen the volume of day trading which has nothing to do with the intrinsic value of companies, (d) do not give any financial institution cover through bailouts as "too big to fail", and (e) lower the tax rate on long term capital gains and dividends and (f) put immediate limits on Freddie and Fannie with no more risky loans so "poor people" can own houses and have a plan to turn these government entities into private sector institutions.
5. These simple changes do not require a 1000 page financial reform act as proposed by Obama and will not increase the size of government but they would dampen speculation, the level of outright gambling, the opportunities for fraud or negligence and would encourage safe long term investments in the private sector.
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