Greg Smith’s New York Times op-ed — in which he resigned from Goldman Sachs due to its “toxic and destructive” culture that’s focused on ripping off clients — has not prompted much in the way of soul-searching on Wall Street. Instead, Goldman and the nation’s other big banks have circled the wagons and smeared Smith, aided by the conservative financial press.
As we argued, Smith’s op-ed makes the case for the Volcker Rule, the regulation included in the Dodd-Frank financial reform law that limits the amount of money big banks can use making their own risky bets. The rule is meant to push such risky trading to firms that aren’t too-big-to-fail and backstopped by the federal government. And several Congressional Democrats agree with that assessment, according to Bloomberg News:
Lawmakers including Senators Carl Levin of Michigan and Jeff Merkley of Oregon, the Democrats who authored the Volcker rule’s ban on proprietary trading and conflicts of interest in the Dodd-Frank Act said the piece strengthened the case for restrictions on Wall Street trading.
Congress can’t “legislate the culture but I think the heart of this goes to why we needed the Merkley-Levin amendment,” Merkley, a member of the Senate Banking Committee, said in an interview. [...]
Representative Barney Frank, the top Democrat on the House Financial Services Committee, said the column serves as a rebuttal to bank arguments that restrictions in trading activities would result in increased costs for market participants such as pension and mutual funds.
‘‘What he does is to reinforce the notion that much of the benefit from what they do goes to them and not to the broader society,’’ Frank, who helped draft the law that bears his name, said in a telephone interview. ‘‘It doesn’t make it criminal, but it does remove one of the arguments against the new restrictions.’’
The Merkley-Levin amendment referenced by Sen. Jeff Merkley (D-OR) was an even stronger version of the Volcker Rule that never even received a vote during the Dodd-Frank debate. Not only was the Volcker rule watered down before Dodd-Frank was passed — thanks in large part to Sen. Scott Brown (R-MA) — but the financial services industry has been trying to weaken it by hammering the regulators crafting its final version. But Smith’s op-ed shows how vital it is that banks engaging in this sort of activity not receive federal backing, so that they can’t go right back to business if their risky behavior causes them to fail.