The New York Times reports this morning, "Politicians like nothing more than a convenient foil, and Democrats locked in a stubborn impasse with Republicans over new rules to govern Wall Street believe they have found a gold-plated one in Goldman Sachs. Democrats say the convergence of their push for an overhaul of financial regulation and a prominent federal securities case against the prestigious investment firm is a matter of coincidence, not planning." Sen. Byron Dorgan (D-ND) added: "If the disclosures at these hearings are not the final nail that persuades the American people to demand this be done now, I don’t know what would be."
But the big problem for the leftist majorities in Congress is that the American people just don’t believe that Washington has any idea about why the financial crisis happened or how to regulate our financial system. According to Rasmussen Reports, 64% of Americans are not confident that policymakers in Washington know what they’re doing when addressing the current economic problems on Wall Street. Intent on proving his ignorance of how finance works, Dorgan went on to say: "To bet against your clients, to bet against your country, all for the sake of big profits. The timing is serendipitous but it should increase the pressure on Republicans." Is Dorgan for real? Does he really believe that anyone who did not blindly keep inflating the housing bubble was "betting against your country"? Is it now unpatriotic to believe that housing prices cannot infinitely rise?
The left would have us believe that the 2008 financial crisis was all the fault of greedy Wall Street bankers like those at Goldman Sachs who dared to change their investment strategy on the belief that housing prices were inflated. To protect against future financial meltdowns, the left wants to give more power to the same federal regulators who failed to recognize the systemic risk caused by the very bubble Goldman and others correctly identified. In fact, one of the main reasons for yesterday’s hearing was to deflect attention away from Washington’s role in creating the 2008 financial crisis.
It was the government-created and subsidized Fannie Mae and Freddie Mac that played leading roles in the markets at the center of the housing storm. But the left prioritized their political goals over financial reality. Rep. Barney Frank told the House Financial Services Committee: "These two entities–Fannie Mae and Freddie Mac–are not facing any kind of financial crisis," and "[t]he more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing." And the author of thevery financial reform bill currently being debated in the Senate, Sen. Chris Dodd (D-CT) , told CNN in July of 2008: "To suggest somehow that [Fannie Mae and Freddie Mac] are in trouble is simply not accurate." Just two months later, completely overrun by bad debt, both companies were placed in conservatorship.
So unable to acknowledge the government’s role in the last crisis, not only were Fannie and Freddie not mentioned at yesterday’s hearing, they are not included in Dodd’s financial regulation bill at all. Hence the need for a villain like Goldman. And what does Goldman think of the actual legislation the left is using them to pass? They are for it, Goldman CEO Lloyd Blankfein confirmed yesterday.