Carney: Goldman rallies to Obama’s side in quest for Wall Street ‘reform’ 

In his self-styled war against Wall Street, President Barack Obama appears to have a powerful ally: Goldman Sachs.

The nation’s largest investment bank, famously cozy with top government officials in both parties, has tipped its hand to its shareholders, indicating that major financial “reform” proposals will help Goldman’s bottom line.

Goldman executives are calling for two regulations. First, they want the government to restrict freewheeling, heavily leveraged, high-stakes financial risk-taking. Second, they want the government to set more rules of the road for trading derivatives.

The question: What’s in it for Goldman?

If you take the executives’ word, stricter federal liquidity and capital requirements would amount to regulators doing Goldman’s work for Goldman. They want the government to reduce the risk that Goldman’s debtors or insurers will run into trouble.

This is an odd function of government: making Goldman Sachs feel safer in its business dealings. Blogger Ira Stoll, at his Web site The Future of Capitalism, put it well:

“It’s one thing for some elderly retail depositor to ask the FDIC to protect her from risk by guaranteeing bank deposits. But the idea that the government needs to run around setting capital requirements to protect [Goldman CEO Lloyd Blankfein and President Gary Cohn] from the risk that their counterparties might go under or get in a liquidity crunch seems a bit odd. Let them protect themselves.”

Also at play in Goldman’s call for stricter capital requirements and standardization of derivatives: the confidence game. Much of America has lost some faith in the markets. Regular investors are still a bit scared of the stock market. Financial firms are lending less. Goldman thrives on free-flowing capital.

Restoring public confidence in the markets should be the job of those who profit from your investing in the market — it should not be the job of the federal government.

Another pillar of Obama’s financial reform is the “Volcker Rule,” which would restrict the trading banks can do. Blankfein and Cohn indicate to shareholders that this rule will be no big deal for them.

Almost any deal Goldman would make could be tied to a client, meaning the Volcker Rule couldn’t touch Goldman, even if it cramps the style of smaller, less well-connected banks.

Goldman is lobbying hard on financial regulation, but that doesn’t mean it’s lobbying “against” regulation. So when Obama triumphantly signs his “reform” later this year, forget the rhetoric and watch the smart money — it’ll be betting on Goldman.

Timothy P. Carney is The Washington Examiner’s lobbying editor.

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