Friday, May 6, 2011

Goldman Sachs (GS) Lobbying Hard to Weaken Volcker Rule

With Paul Volcker having given up and riding off into the sunset, Goldman Sachs (GS) and its army of lobbyists is busy doing "God's work" in weakening any impact he might have, according to this Reuters report.   Again, in America the BEST return on investment for large corporations is lobbying - it makes the ROI on their actual businesses look like peanuts.  For a relatively few millions, oodles of tax breaks, protections, or new contracts can be secured.  For an investment bank the sums to buy up politicians direct policy is relatively tiny - effectively for the salary of a handful of vice presidents per quarter, the world is their oyster. $5M annually for Goldman is not even a rounding error.  I am pleased to report the more things change, the more they remain the same.

  • Goldman Sachs Group Inc has just a few more months to put its stamp on the Volcker rule, and it is not wasting any time.  The rule, designed to limit banks from speculating with their own money, will cost Goldman at least $3.7 billion in annual revenue, by one estimate. And billions more could be at stake if regulations now being drawn up are extra-tough. 
  • The Volcker rule was one of the main topics on the agenda when Chief Executive Lloyd Blankfein met recently with U.S. Securities and Exchange Commission Chairman Mary Schapiro.  Wall Street chiefs do not often lobby top regulators directly, but this issue is unusually important to Goldman. 
  • "They're totally freaked out about Volcker," said a Goldman lobbyist who declined to speak on the record for fear of losing the contract. "People are working on that a lot, with agency staff, with lawmakers, you name it."  Indeed, lobbying disclosures show Goldman representatives have been working both sides of the political aisle and meeting with top officials in the White House and regulatory agencies.  
  • One big area of concern for Goldman is that regulators who are interpreting the Volcker rule will severely limit the amount of time a bank can hold a security or derivative. Positions held long term can be backstairs bets on markets.
  • The Volcker rule is not the only element of financial reform that Goldman is resisting. Important issues on its lobbying docket also include derivatives reform, capital requirements and bonus restrictions. 
  • Other bank heads, including Morgan Stanley's James Gorman, have met Schapiro about the Volcker rule. But the provision is most important for Goldman, whose business is far more weighted towards trading, three lobbying sources said.
  • Goldman has hired an all-star team of lobbyists and former government officials, leveraging powerful connections to get its message across to regulatory and political leaders.  Michael Paese, former deputy staff director for the U.S. House Financial Services Committee, heads its internal lobbying group. His team includes former staffers from the U.S. Senate Banking Committee, the White House and regulatory agencies.
  • Outside of its own payroll, Goldman also has several high-profile legislative veterans working on its behalf in Washington, hailing from both sides of the political aisle. Among them are former Republican lawmakers Trent Lott and John Breaux and former Democratic House Majority Leader Dick Gephardt.
  • "....Goldman is everywhere." 
  • Under last year's Dodd-Frank law, regulators have until July to come up with specific rules for implementing the Volcker provision, meaning banks have limited time to try to shape the regulations.  Adding to the complexity of lobbying efforts is the number of parties involved.  The SEC and four other regulators are in the process of writing separate versions of the Volcker rule, which must then be reconciled and shaped into a single set of regulations.
  • "Volcker is the subject of a very quiet, closed-door battle right now, not just between us and Wall Street, but among the agencies as well," said Bart Naylor, who has lobbied regulators for consumer-rights coalition Americans for Financial Reform.

    • Lawmakers say the Volcker rule will ensure that big banks are not gambling in markets, and that taxpayers will not be left on the hook when their bets backfire.  Implementing the Volcker rule will be tricky, though. When a bank buys a security from a client, it is difficult for a regulator to determine whether the bank is serving the client or betting on the market itself.  Limiting holding periods could be a simple way to ensure that banks are not making secret bets under the guise of helping clients 
    • Goldman argues that holding on to securities for a long period of time can be a crucial part of trading on behalf of customers because assets trade infrequently in some markets.  A substantial amount of the securities that Goldman trades seems to fall into the longer-term category. In a February presentation, Goldman said it held about a third of the securities and listed derivatives on its trading books for three months or more, and 8 percent for more than a year.  The bank did not disclose how long it holds unlisted derivatives positions, where it also has significant exposure.

    • The intensity of its efforts is evident in at least one concrete way: the amount of money it is spending on lobbying. That figure totaled $1.32 million in the first quarter of 2011. That's 15 percent higher than the same period a year ago, putting the bank on course to break its annual record for lobbying expenditure of $4.61 million, set in 2010. 
    • For Wall Street, where a bank can earn billions of dollars a year, a $5 million lobbying budget may seem paltry.  But in Washington it's a lot of money. And relative to revenue, Goldman's spending is exponentially higher than that of its competitors.
    • It is common for large companies to seek influence in government, but old hands in Washington say Goldman stands out both in its wide network of high-level contacts and its ability to leverage those relationships to its advantage.
    • "The individuals at Goldman have been incredibly powerful over time," says Hillary Sale, a law professor at Washington University in St. Louis who specializes in Wall Street regulation. "When you're a consumer, it gives you the creeps thinking about that kind of influence over regulation. But from the bank's side, it's a perfectly smart strategy."

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