'Goldman Conspiracy' Must Kill Bank Reforms

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Paul B. Farrell

May 4, 2010, 12:01 a.m. EDT · Recommend (20) · Post:

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By Paul B. Farrell, MarketWatch

ARROYO GRANDE, Calif. (MarketWatch) -- Remember Nietzsche? "God is dead." Let's translate that 19th century Germanic philosophy into modern economics. In Adam Smith's 1776 capitalism, God was the Invisible Hand, a mysterious force running the economy from the shadows.

Flash forward to 2010: Capitalism is dead. The economy has a new Invisible Hand, the Goldman Conspiracy of Wall Street bankers.

Regulatory concerns surrounding the recent Goldman Sachs hearings leave financial advisers with some explaining to do. Steve Stahler, an independent adviser and President of The Stahler Group, explains how advisers can go about having these difficult conversations with clients.

This transfer of power happened suddenly. As recently as late 2008 the Invisible Hand was on life support, near death. Suddenly, miraculously the Treasury secretary, Goldman's former CEO, transferred the power into a new Invisible Hand of God, the free-market ideology of Reaganomics ... a power absolutely essential to the survival of Wall Street's mega-bonus culture.

Yes, that's why the Goldman Conspiracy must kill financial reforms ... why they will kill effective reform with the backroom support of Obama and Dodd. This was predicted back in late 2008, even before the bailouts, back when we thought Reaganomics dead. "Shock Doctrine" author Naomi Klein warned:

"Free market ideology has always been a servant to the interests of capital ... During boom times it's profitable to preach laissez faire, because an absentee government allows speculative bubbles ... When those bubbles burst, the ideology becomes a hindrance and goes dormant while big government rides to the rescue," then a neo-Reaganomics "ideology will come roaring back when the bailouts are done. The massive debts the public is accumulating to bail out the speculators will then become part of a global budget crisis," setting up a new bubble, bigger meltdown, and the Great Depression 2 the world narrowly avoided in 2008.

America's now at a historic turning point. If the Goldman Conspiracy succeeds in killing reform, another collapse is guaranteed, soon. Listen to Time magazine's Stephen Gandel:

"Of all the causes of the financial crisis, one of the biggest was a power shift on Wall Street that left the traders in charge and the bankers who had traditionally run everything from Broad Street to Maiden Lane sidelined. Years ago, the investment world and its professionals believed in long-term relationships. That meant nurturing the economy and the companies and people in it." Yes, that was the culture when I was with Morgan Stanley back in the '70s.

But "two decades of cheap money, though, helped turn the Street over to the traders. That led to a very different way of doing business." Gandel captures Wall Street's new culture in one powerful quote: "With a trader, the goal of every minute of every day is to make money ... So if running the economy off the cliff makes you money, you will do it, and you will do it every day of every week."

Wall Street's culture is without a conscience, reveling in $100 million profit days. Traders act like cocaine addicts. Their brains have warped Wall Street's ethics so badly they can't think of anything but bonuses. They've lost their moral compass.

In this context, the Goldman Conspiracy's goals are very simple as they manipulate Congress and the president to protect their warped culture:

No Fed audits, no transparency, no matter how much money the Fed prints for the banks

A toothless Consumer Protection Agency

Wall Street must continue controlling rating agencies

Unregulated proprietary trading of derivatives with loopholes for corporate derivatives

No new Glass-Steagall laws to prevent Wall Street from trading with customers' deposits

And taxpayers must remain liable for future bailouts over $50 billion up to unlimited sums even greater that the recent $23.7 trillion the Fed and Treasury handed out.

Bottom line: The Goldman Conspiracy must kill any real financial reform. Why? The Goldman Conspiracy cannot generate huge bonuses without their new Invisible Hand; the resurrection of unregulated neo-Reaganomics allowing traders to keep gambling in the lucrative $670 trillion global derivatives shadow banking casino.

There's a super-power ideology driving this new Invisible Hand, the neo-Reaganomics that the Conspiracy's lobby is pushing as a substitute for real reform. The principles of their neo-Reaganomics are simple, three ideologies evolved since Reagan's election.

Former Fed Chairman Alan Greenspan's guru Ayn Rand: "When I say capitalism, I mean a pure, uncontrolled, unregulated laissez-faire capitalism, with a separation of economics, in the same way and for the same reasons as a separation of state and church." This ideology guided the world's monetary policy 18 years.

Nobel economist Milton Friedman taught President Reagan "government is the problem." Democracy changed too slowly for him. Klein tells us Friedman believed that "only a great rupture, a flood, a war, a terrorist attack, can create the vast, clean canvasses they crave ... to begin remaking the nation" using the tools of "privatization, government deregulation and deep cuts in social spending."

Paul Farrell writes the column on behavioral economics. He's the author of nine books on personal finance, economics and psychology, including "The Millionaire Code," "The Winning Portfolio," "The Lazy Person's Guide to Investing." Farrell was an investment banker with Morgan Stanley; executive vice president of the Financial News Network; executive vice president of Mercury Entertainment Corp; and associate editor of the Los Angeles Herald Examiner. He has a Juris Doctor and a Doctorate in Psychology.

Contrarians knew even before today's stock market plunge that sentiment conditions in this country made just such a decline all too possible, writes Mark Hulbert.

11:42 a.m. Today11:42 a.m. May 4, 2010 | Comments: 24

I worked at the Bear for Ralph Cioffi. Every word written here is true. Fact is, bankers regard themselves as wolves and the public as prey, and speak about it openly--among themselves. What is extraordinary to me is only how willingly the sheep submit to this treatment."

- Einai | 11:09 p.m. May 3, 2010

"Goldman Conspiracy must kill bank reform http://on.mktw.net/9JZPjl" 12:45 a.m. EDT, May 4, 2010 from MKTWFarrell

"Six investing rules for a worst-case scenario http://on.mktw.net/bcJ1ct" 11:05 p.m. EDT, April 26, 2010 from MKTWFarrell

"President Obama vs. Goldman's Reaganomics http://on.mktw.net/9dnq88" 11:01 p.m. EDT, April 19, 2010 from MKTWFarrell

"New Dow high ahead? Happy talk feeds sheep http://on.mktw.net/auhV57" 11:03 p.m. EDT, April 12, 2010 from MKTWFarrell

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