Capitol Hill Bureau Chief
Quick -- who said, "Clearly, the world needs more regulation" at Tuesday's Senate hearing on Goldman Sachs?
That comments came not from a Democrat on the panel, but from Goldman CEO Lloyd Blankfein, and he may get what he wants when Sen. Carl Levin (D-Mich.), the chairman of the panel, finishes amending the Wall Street regulation bill that the Senate could begin debating this week.
Following the hearing of the Permanent Subcommittee on Investigations, which featured testimony from seven Goldman Sachs executives, Levin said he wants the bill strengthened in several ways in response to that testimony. Levin pointed to repeated refusals from Goldman's leadership to acknowledge any conflict of interest in selling securities to clients, who expect the investments to increase in value, while also taking a short position on behalf of the firm -- meaning Goldman would profit if the securities fell in value.
"Mr. Blankfein and others didn't seem to be troubled by that, they didn't seem to understand that that's a conflict of interest," Levin said after the hearing.
To address the situation, Levin said he will introduce an amendment to the Wall Street reform bill that would prevent similar conflicts like the ones on display during the Goldman testimony, and would significantly restrict proprietary trading that is now widespread on Wall Street.
On conflicts of interest, Levin's amendment will prevent underwriters of asset-backed securities from selling those securities if there is a material conflict with their firm's financial larger interests.
On proprietary trading, Levin's amendment would bar depository banks from trading securities on their own behalf, and would also prohibit banks from investing in or sponsoring hedge funds or private equity funds. It would also impose capital requirements on systemically critical institutions that aren't banks, like AIG, to rein in the amount of risk they can take.
Levin warned after the hearing that investing had become a "buyer beware" scenario, where consumers cannot trust that the people selling them securities are not also betting on that same security to fail in the future.
"Unless we can shift this back and have some consumer protection and have some conflict of interest language in this bill, it's going to stay right where it's at, with the Goldman Sachs of the world putting the burden on people they sell these securities to. That burden should not be on the consumer, it should be on Goldman Sachs."
Before Levin can amend the bill, however, it must first be debated in the Senate, and Levin blasted Republicans for filibustering the measure as a way of negotiating changes to it before the debate.
"It's not acceptable," he said. "I think the American people want us to make significant reform of the financial industry . We've been burnt by them. For heaven's sake, don't thwart a legislative process totally, which is what they're now doing."