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An Inside Look at How Goldman Sachs Lobbies the Senate

I am not as negative toward naked short-selling as Matt Taibbi (feel free to convince me I’m wrong), but his insights into the lobbying effort against financial reform are useful, and I share his concerns about the distortions (e.g. regulatory capture) this brings to the reform process: 

An Inside Look at How Goldman Sachs Lobbies the Senate, by Matt Taibbi: …Later on this week I have a story coming out in Rolling Stone that looks at the history of the Bear Stearns and Lehman Brothers collapses. The story ends up being more about naked short-selling and the role it played in those incidents than I had originally planned…, but it turns out that there’s no way to talk about Bear and Lehman without going into the weeds of naked short-selling…

It’s the conspicuousness … that is the issue here, and the degree to which the SEC and the other financial regulators have proven themselves completely incapable of addressing the issue seriously, constantly giving in to the demands of the major banks to pare back (or shelf altogether) planned regulatory actions. There probably isn’t a better example of “regulatory capture” … than this issue.

In that vein, starting tomorrow, the SEC is holding a public “round table” on the naked short-selling issue. What’s interesting about this round table is that virtually none of the invited speakers represent shareholders or companies that might be targets of naked short-selling, or indeed any activists of any kind in favor of tougher rules against the practice. Instead, all of the invitees are either banks, financial firms, or companies that sell stuff to the first two groups.

In particular, there are very few panelists — in fact only one, from what I understand — who are in favor of a simple reform called “pre-borrowing.” Pre-borrowing is what it sounds like; it forces short-sellers to actually possess shares before they sell them.

It’s been proven to work, as last summer the SEC, concerned about predatory naked short-selling of big companies in the wake of the Bear Stearns wipeout, instituted a temporary pre-borrow requirement…

The lack of pre-borrow voices invited to this panel is analogous to the Max Baucus health care round table last spring, when no single-payer advocates were invited. So who will get to speak? Two guys from Goldman Sachs, plus reps from Citigroup, Citadel (a hedge fund that has done the occasional short sale, to put it gently), Credit Suisse, NYSE Euronext, and so on.

In advance of this panel and in advance of proposed changes to the financial regulatory system, these players have been stepping up their lobbying efforts… Goldman Sachs in particular has been making its presence felt.

Last Friday I got a call from a Senate staffer who said that Goldman had just been in his boss’s office, lobbying against restrictions on naked short-selling. The aide said Goldman had passed out a fact sheet about the issue that was so ridiculous that one of the other staffers immediately thought to send it to me. When I went to actually get the document, though, the aide had had a change of heart.

Which was weird, and I thought the matter had ended there. But the exact same situation then repeated itself with another congressional staffer, who then actually passed me Goldman’s fact sheet.

Now, the mere fact that two different congressional aides were so disgusted by Goldman’s performance that they both called me on the same day — and I don’t have a relationship with either of these people — tells you how nauseated they were.

I would later hear that Senate aides between themselves had discussed Goldman’s lobbying efforts and concluded that it was one of the most shameless performances they’d ever seen from any group of lobbyists, and that the “fact sheet” … was, to quote one person familiar with the situation, “disgraceful” and “hilarious.” …


Originally published at Economist’s View and reproduced here with the author’s permission. 

One Response to “An Inside Look at How Goldman Sachs Lobbies the Senate”

AnonymousSeptember 30th, 2009 at 12:41 pm

Here is an article about itRolling Stone Explains Role of Naked Short Selling in Financial CrisisNew York City, NYFormer DTCC operations manager Susanne Trimbath is interviewed by Matt Taibbi for his latest article in Rolling Stone. She blows the whistle on the world’s largest central depository by revealing that she warned them 15 years ago of an impending financial crisis.Rolling Stone’s own Matt Taibbi interviewed industry expert Susanne Trimbath, Chief Economist at STP Advisory Services, LLC in Omaha, for his latest article in the magazine explaining “how we got into this financial crisis.” Taibbi’s latest piece looks at the history of the Bear Stearns and Lehman Brothers failures. His controversial article earlier this year, “Inside the Great American Bubble” on the undue influence of Goldman Sachs in contributing to and benefitting from the recent economic collapse and the subsequent bailout gained significant attention from media, investors, shareholders and companies.In his new article, Trimbath tells Taibbi the story of how, in 1993, she tried to get senior management at the world’s largest central depository (Depository Trust Company) to stop allowing shares of stock in US companies to be multiplied through stock lending and excessive short selling. “You can’t balance the world,” was the response she got from regulators. She contends this is because “Wall Street is self-regulated and they don’t want to write regulations against themselves.” By 2003, the size of the problem had increased ten-fold; by 2008 it contributed to the collapse of major financial institutions and the global financial crisis. Trimbath goes into more detail about this, and the impact of naked short selling and failed trades on shareholders in the recently released Hollywood movie, “Stock Shock: The Short Selling of the American Dream.”Susanne Trimbath holds the Ph.D. degree in economics from New York University. She is an expert on post-trade securities operations and is featured in several films about Wall Street. She frequently acts as an expert witness in securities litigation. Trimbath is a former mid-level operations manager at Depository Trust Company (now a subsidiary of Depository Trust and Clearing Corporation in New York). Matt Taibbi, who is best known for his articles and books on politics, turned to writing and blogging on finance after the 2008 Presidential election. His new expose will be featured in the upcoming issue of Rolling Stone magazine due out in early October.Susanne Trimbath can be reached through http://www.stpadvisors.com .

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