The SEC suit and the case against new regulation (2010)
Bob Zadek opened a segment on financial reform by noting that the Friday headline in most media was that the SEC had brought a civil lawsuit against Goldman Sachs. He described the firm as a powerhouse Wall Street investment bank and as the A-level franchise to supply leaders in Washington, with a steady stream of senior executives going to do a stint in government and then returning to the firm. He said Goldman Sachs was as much of an insider as a company can be, and that the SEC’s civil complaint alleged simply that the firm defrauded lots of its own customers and defrauded the public by selling some subprime securities The Credit Crunch (2010).
Zadek’s argument was that the suit did not justify new legislation. He compared the reaction to a headline-grabbing gun crime, when there is an immediate cry for more gun laws even though the person who committed the crime broke an entire range of gun laws. Applying that principle, he said that assuming the SEC had merit in its complaint, and that if other banks brought their own lawsuits, there would be litigation and Goldman Sachs would lose — but that this did not mean more laws were needed, because the existing laws took care of everything The Credit Crunch (2010).
He called the demonizing of Wall Street cynical and hypocritical, and cited two New York Times headlines: one of April 8th, which he quoted as “Fed reviews find errors in oversight of Citicorp,” and one of April 11th, which he quoted as saying that the two agencies that oversaw WaMu feuded so much that they could not even agree to deem the company unsafe and unsound until two days before it closed. His conclusion was that an existing series of regulations governed the financial services industry and that government did not enforce them. He asked whether the cure for breakdowns in financial regulation was to do a better job using the tools already available, and said that had the Fed, headed by Timothy Geithner, done a better job in ‘04, ‘05 and ‘06, the crisis would not have occurred and more financial regulation would not be needed The Credit Crunch (2010).
Dodd-Frank and regulatory capture (2015)
Five years later the firm returned as an example in a different argument. Bob Zadek introduced the concept of regulatory capture — a situation where the industry or entities which are regulated have obtained control over the regulator, so the regulator does the bidding of the regulated for the benefit of the regulated. He said the phrase had come up with the BP oil spill in the Gulf of Mexico, and that Dodd-Frank was the poster child for regulatory capture, in effect written to a large degree by the big financial institutions and wonderful for them because it snuffed out any danger of competition from community and local banks and smaller banks. It was, he said, an industry-drafted, industry-sponsored bill marketed as one to protect us from “too big to fail,” but in fact a boon to too-big-to-fail banks Who Wants to Buy a Politician? With Mike Munger (2015).
Mike Munger supplied the account of how the firm benefited. He said that one of the people in the US House who got year after year by far the largest contributions from Wall Street corporations and finance companies was Barney Frank, who wrote, or participated in writing along with Chris Dodd, the Dodd-Frank regulation after the housing bubble crisis of 2007–2008. Munger said Dodd-Frank does not regulate the activity of the large firms at all; what it does is impose a bunch of compliance and reporting requirements that have the effect of raising the costs of entry into the industry. It was therefore hardly surprising that the large companies — Goldman Sachs and others — benefited enormously from Dodd-Frank. Munger’s characterization was that Barney Frank wrote the legislation that protects the large financial firms and makes it more difficult for new firms to enter Who Wants to Buy a Politician? With Mike Munger (2015).
Zadek added that Elizabeth Warren worships at the altar of Dodd-Frank as if that will save us from everything. Munger generalized the point: there are two groups of value creators, existing companies and the companies that do not exist yet that would be nimble and innovative and create things much more cheaply. By definition the second group does not exist yet, so it is difficult for politicians to collect money from them, while they can collect from existing firms. Capture is therefore always to be expected, even though from consumers’ perspective it would be better to worry about the value creators of the future. Politics, he said, is always going to reward the value creators of the past; markets are focused on the future, politics is focused on the past Who Wants to Buy a Politician? With Mike Munger (2015).
A passing reference (2021)
In a 2021 episode on inequality, Goldman Sachs appeared only in a list. Edward Conard, describing what smart people do today, named Google, Facebook, Intel, McKinsey and Goldman Sachs as the employers of talented workers who do not employ any blue-collar workers and are largely working for each other, increasing their own productivity. The firm carried no argument in that episode; it served as one item in an enumeration of the destinations of skilled labor in an information-based economy Questioning Biden’s Inequality Narrative (2021).
Across episodes: what changed
The topic is touched in three episodes, and the treatment shifts with the argument each guest was making rather than developing a thesis about the firm. In 2010 Bob Zadek used the SEC’s civil suit against Goldman Sachs to argue that existing law already covered the conduct and that new financial regulation was unnecessary, naming Timothy Geithner and citing New York Times reporting on oversight of Citicorp and WaMu. In 2015 Mike Munger used the firm as the named beneficiary of Dodd-Frank’s entry costs, with Barney Frank as the legislator who received Wall Street contributions and wrote the bill; Zadek framed the same material as regulatory capture. In 2021 Edward Conard mentioned the firm once, among the employers of talent. The earlier treatment is a defense against new regulation after a lawsuit; the later treatment assumes the regulation passed and asks who profited from it.
What the sources do not cover
The excerpts do not describe the substance of the SEC’s complaint beyond the general allegation that the firm defrauded customers and the public by selling subprime securities, and they do not report the outcome of that litigation. Nothing in the sources states when Goldman Sachs was founded, where it is headquartered, or how it is organized. The excerpts do not give the terms of Dodd-Frank beyond compliance and reporting requirements said to raise entry costs, nor do they identify the bill by any name other than Dodd-Frank. No guest in these excerpts defends the firm’s conduct or disputes the allegations against it.