Spencer Bachus, Stock Scandal & Goldman Sachs
May. 19 EST
SPENCER BACHUS HUMILIATES ALABAMA AGAIN !
STOCK MARKET SCANDAL SURFACES AGAIN!
The United States Congress has an embarrassing history of proposing regulations from which its members are exempt. Few of these instances are as painfully obvious as Washington’s recent censure of Wall Street.
On April 27, Congress scolded several prominent employees of Goldman Sachs, a large financial investment firm, at a public hearing in Washington, D.C. Regulators expressed indignation over the shorting of derivatives — a financial process whereby investors profit from the diminished future value of a particular asset or commodity. Congress threatened Goldman executives with a slew of new regulations that would restrict short-selling and other controversial trading methods.
Admittedly, short-selling is a risky practice. Critics of short-selling liken it to legalized gambling. While that particular characterization might not be entirely accurate, similar criticisms are not without merit. For instance, in September of 2008, the Securities and Exchange Commission imposed a three-week moratorium on short-selling for 799 financial companies in order to stabilize those firms and decrease overall market volatility. It is clear that short-selling did exacerbate many of the problems Wall Street faced during the financial crisis. Responsible reform was necessary.
But regardless of what an impact derivatives trading ultimately has on our economy over the long-term (be it positive or negative), we should not be relying on Congress to make the final determination.
Just days after the highly publicized Congressional hearing, The Wall Street Journal revealed that 13 members of Congress took short positions against the American market during 2008 — effectively making money off the market collapse.
I guess one thing is for certain: Washington isn’t short on hypocrisy.
Overall, it was a bipartisan breach of the public trust. Johnny Isakson (R., Ga.), Kirsten Gillibrand (D., N.Y.) and Spencer Bachus (R., Ala.) were just a few of the public servants who aggressively traded derivatives during the financial meltdown.
Perhaps the most shocking display of dishonesty, however, came from Nevada Representative Shelley Berkeley. An outspoken critic of Wall Street, Congresswoman Berkeley occupies on a seat on the House Ways and Means Committee. Earlier this year, Berkeley gave an impassioned speech regarding financial regulatory reform. She said, “Representing Las Vegas — let me assure you — no casino on the planet behaves as irresponsibly and recklessly as Wall Street does. Wall Street ought to be ashamed, and take a lesson from the casino industry.”
As it turns out, it is Congresswoman Berkeley (and her constituents) who should be ashamed.
The Wall Street Journal found that an account owned by Shelley Berkeley’s family made 57 trades in ETFs that earned $2 for every $1 the market lost. Further, between July 25 and July 28, 2008, (four months after the fall of Bear Sterns) that same account made four trades in and out of Proshares UltraShort Financial Fund. Shortly thereafter, by Sept. 16, 2008, Berkeley was at it again. Yes, the day after Lehman Bros. filed for bankruptcy, the Congresswoman added another interesting ETF to her portfolio: ProShares UltraShort S&P 500, a fund that profits when blue-chip stocks (like Lehman Bros.) deteriorate.
When asked about the apparent discrepancy between her words and her actions, Berkeley was terse: “(My money manager) operated wholly within existing regulations.”
Well, Ms. Berkeley, so did Goldman Sachs, but that didnít stop you from investigating them, did it? Let me assure you, Congresswoman. No institution on the planet behaves as irresponsibly and recklessly as Washington does. With the financial industry in decline, short-sellers are an obvious scapegoat. Still, holding them accountable for the market failure is as misguided as blaming capitalism itself.
Short-selling, like capitalism, did not destroy our economy. The wanton negligence of representatives like Shelley Berkeley destroyed our economy. Financial institutions like Goldman Sachs need to play by the rules written by Congress. When the rules are rigged (see: Community Reinvestment Act), the integrity of the entire game is compromised.
