(JEWEL SAMAD/AFP/Getty Images)
President Obama used a fundraiser in California to mock Republican links to Wall Street and said he would veto a Bill that did not regulate derivatives
Goldman Sachs was at the centre of a political storm last night as senior Republicans began an investigation into the possibility that the White House colluded with Wall Street’s regulator over the decision to sue the bank for alleged fraud.
They are demanding proof that the Securities and Exchange Commission (SEC) did not communicate improperly with the White House, the Democratic Party or any Democrats in Congress before suing the bank last Friday for allegedly withholding vital information from investors in the build-up to the crash of 2008.
Wall Street and its allies have claimed with increasing anger that the Goldman suit was timed to help the Obama Administration to force Republicans into backing a financial regulatory reform Bill designed to prevent banking crises in the future.
However, a letter addressed to the SEC’s chairman yesterday, and seen by The Times, is the first formal accusation of wrongdoing by the commission or complicity by the US Administration.
The timing of the lawsuit “has created serious questions about the commission’s independence and impartiality”, the letter states. It was drafted by Darrell Issa, the ranking Republican on the House Committee on Oversight and Government Reform, and signed by seven other Republican members of the committee.
The letter adds that subsequent revelations — including details of a vote along party lines within the SEC to approve the lawsuit — have fuelled “legitimate suspicion” that the commission was trying to help the White House, breaching its own ethics guidelines in the process.
Mary Schapiro, the SEC’s chairman, who was appointed by President Obama, joined two Democrats on a five-member panel within the commission to approve the decision to sue the Wall Street powerhouse instead of seeking to settle out of court — a more normal practice in such cases. In another break with convention, the bank says that it was given “no clue” of the impending litigation.
Democrats have seized on claims of fraud at Goldman, which announced yesterday a year-on-year increase of 91 per cent in quarterly profits to $3.46 billion (£2.25 billion). They are struggling to pass a financial reform Bill stalled in the Senate because of Republican threats to defeat it by filibuster.
At the same time a separate Bill that would regulate the trading of complex derivatives for the first time came under attack yesterday from hundreds of lobbyists who descended on Washington to argue that an unregulated derivatives industry is vital for farms and manufacturers that use it to hedge against market downturns.
Mr Obama has said he will veto any financial reform Bill that does not regulate derivatives. He mocked Republicans’ closeness to Wall Street lobbyists at a fundraiser for Senator Barbara Boxer in California on Monday. Confident that voters support him even if Republicans refuse to, he will travel to New York tomorrow to press his case for an overhaul of the system that led the US economy to the brink of collapse in 2008.
A senior administration official has described financial reform as a “win-win-win” proposition for Mr Obama on the ground that it will take only one Republican defector to ensure passage of a Bill. If all 41 Republican senators oppose it they will only help Democrats who want to brand them the party of “no” in the months leading to November’s midterm elections.
Timothy Geithner, the Treasury Secretary, held meetings with Republican moderates on Monday, hoping to prise them away from their party with an offer to drop a provision in the reform Bill for a $50 billion fund for winding up troubled financial firms. Republicans argue that the fund amounts to a continued commitment to support institutions deemed “too big to fail”.
Senator Susan Collins, from Maine, emerged from her meeting with Mr Geithner unpersuaded but two other moderate conservatives — senators Olympia Snowe and Bob Corker — have hinted that they will back the Bill.
That would give new protections against mis-sold mortgages for consumers and new authority for the Treasury and the Federal Reserve to step in and dismantle failing banks. A victory on financial reform would also give Mr Obama his second historic victory on Capitol Hill in as many months — a scenario that Republicans dread.
Mr Issa has given the SEC until Tuesday to provide the names of anyone at the commission who communicated with congressional Democrats or administration officials on the subject of the Goldman suit before it was filed. The White House has denied any advance knowledge.
Even so, as Mr Issa noted: “It must be nice for Democrats that the SEC’s filing . . . so conveniently fits into their political agenda.”
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