Breaking news: Congress, White House outdumb Goldman Sachs, which easily side-steps new restrictions on trading

Goldman Sachs  has figured out a novel approach to getting around the Volcker Rule’s restrictions on trading: it’s remaking its risk-taking traders into asset managers, and the rest of Wall Street may soon follow, FOX Business Network has learned.

The big Wall Street firm has moved about half of its “proprietary” stock-trading operations — which had made market bets using the firm’s own capital — into its asset management division, where these traders can talk to Goldman clients and then place their market bets.

The move is designed to exploit a loophole in the Volker Rule, part of the recently signed financial-reform legislation named after presidential economic adviser and former Federal Reserve chief Paul Volcker. The Volcker Rule is supposed to scale back on Wall Street risk taking by ending what’s known as proprietary trading, where firms use their own ideas and capital to make market bets.

But by having the traders work in asset management, where they will take market positions while dealing with clients, Goldman believes it can meet the rule’s mandates, avoid large-scale layoffs and preserve some of the same risk taking that has earned it enormous profits, people close to the firm say.

Washington clamps down on everyone except the wrongdoers

The 2,315 page Dodd-Frank financial regulation bill that President Obama will sign today should not be called "financial reform." Instead the bill, which passed the Senate 60-39 last week when Massachusetts Senator Scott Brown joined Maine Senators Olympia Snowe and Susan Collins to grant cloture, should be called what for what it is: pages and pages of massively costly, counterproductive and possibly unconstitutional mandates on nearly every type of business except for those government-sponsored enterprises at the root of the crisis. And while the bill claims to crack down on excesses on Wall Street, its harshest impact will likely be on Main Street businesses that had nothing to do with the meltdown.

A front-page Wall Street Journal article this week noted that "far from Wall Street, President Barack Obama's financial regulatory overhaul... will leave tracks across the wide-open landscape of American industry." The Journal notes that "the bill will touch storefront check cashiers, city governments, [and] small manufacturers."

But one thing it will leave totally untouched is the government-sponsored enterprises Fannie Mae and Freddie Mac, which new research by Congress's Financial Crisis Inquiry Commission and other bodies shows was even more of a prime factor in the subprime boom than originally assumed. The Federal Housing Finance Agency now reports that Fannie and Freddie purchased 40 percent of all private-label subprime securities in 2003 and 2004. Indeed, according to Edward Pinto, housing scholar and Fannie's former chief credit officer, millions of mortgages to borrowers with credit scores of less than 660, considered by prominent researchers to be the dividing line for subprime loans, had been labeled by Fannie and Freddie as prime going back as early as 1993.

Goldman Sachs trims donations to Democrats, but still hedges

WASHINGTON -- Goldman Sachs executives are pulling campaign cash away from congressional Democrats in the wake of their crackdown on Wall Street, and are now hedging their bets in the upcoming election, according to a Post analysis.

During the last election cycle, 64 percent of Goldman's PAC contributions went to Democrats.

Now, the cash split is an even 50-50, according to campaign data.

"They're reading the writing on the wall," said one House Democratic aide.

Goldman, which just settled a lawsuit with the feds for $550 million, is also snubbing a key Democratic Party election arm.

The firm gave $30,000 each to the top Republican campaign committees in Congress, and the same amount to Senate Democrats -- but gave House Democrats only half as much.

The $15,000 contribution represented just half the amount the Democratic Congressional Campaign Committee got in 2008.

The House crafted a more stringent bill to regulate Wall Street, prompting some execs to warn lawmakers that they would withhold cash from the party's campaign committee and give only to favored Democrats.

Examiner: New financial regs are good news for bad managers

President Obama lauded Senate passage of the Dodd-Frank financial overhaul, saying that "because of this bill, the American people will never again be asked to foot the bill for Wall Street's mistakes." That statement is untrue. Instead of ending tax-paid bailouts of politically favored corporations that are "too big to fail," Dodd-Frank makes the process permanent. The only thing Dodd-Frank has changed on bailouts is this: Before the bill was passed, bailouts had to be approved by Congress, as with the $700 billion Troubled Asset Relief Program first proposed by President Bush and then extended by Obama. But in the future, thanks to Dodd-Frank, instead of congressional votes, Treasury Department bureaucrats will unilaterally decide under the bill's "orderly liquidation process" how much of the taxpayers' money to hand out to troubled firms.

Worse yet, according to the Judicial Conference of the United States, Dodd-Frank makes tax-paid bailouts of selected corporations permanent in a manner that overrides the bankruptcy process established by the U.S. Constitution. "This is a substantial change from the bankruptcy law because it would create a new structure within bankruptcy court and remove a class of cases from the jurisdiction of the bankruptcy code," the conference said in a recent letter to Senate Judiciary Committee Chairman Patrick Leahy. To paraphrase Mark Twain, despite consuming more than 2,300 pages, Dodd-Frank bears the same relationship to reform as "lightning" does to "lightning bug." The terms sound like they are connected but in reality are entirely different.

So Dodd-Frank does not remedy the fundamental cause of the economic meltdown of 2008, which was the government's decision to shift the costs of bad investment decisions from corporate executives to taxpayers. Nor does the bill do anything to remove the elephant in the living room, the Fannie Mae/Freddie Mac bailout. The costs of this will reach nearly $400 billion, according to the Congressional Budget Office, and could approach $1 trillion before all is said and done. Roughly 70 percent of all U.S. mortgages are held by Fannie and Freddie, which between them hold $5 trillion in their investment portfolios. Fannie and Freddie are still losing billions by the month on bad mortgage investments and taxpayers are still on the hook. This means the housing crisis is far from being resolved, and, thanks to the continuing high rate of foreclosures, could plunge the economy back into recession at any time. No wonder four out of five Americans, according to a recent Bloomberg News survey, believe the reform bill Obama hailed as historic is anything but.

Massive minority and gender hiring rules buried in finance bill

Buried deep in the bowels of the massive financial-regulation bill the Senate passed Thursday are massive race- and gender-employment provisions that will cost countless millions to enforce and appear to duplicate other civil-rights initiatives already in place.

More importantly, all private financial institutions doing business with the federal government will be affected by them, sources tell Newsmax.

Opponents say the provision was put in the bill to help garner political support for its passage. They object that it was inserted with almost no discussion or debate, and call it a "power grab."

Diana Furchtgott-Roth, a senior fellow at the Hudson Institute who served as chief of staff for former President George W. Bush's Council of Economic Advisers, tells Newsmax that the rules represent a "dramatic change in employment legislation."

Four members of the U.S. Commission on Civil Rights recently penned a letter to Vice President Joe Biden, Majority Leader Harry Reid, and several other leading senators, objecting to the new fair-employment regime in the Dodd-Frank legislation now headed to the president's desk.

"The likelihood that it will in fact promote discrimination is overwhelming," the letter states.

Section 342 of the bill calls for an "Office of Minority and Women Inclusion" to be established in each of 29 federal bureaus and offices.

The regulations appear to go beyond ensuring that discrimination in hiring decisions does not occur. Instead, they require assurance of "fair inclusion." Furchtgott-Roth says it will pressure companies to find and hire minorities even if one hasn't applied for a specific job.

The bill's affirmative action provisions — some suggest they are de facto quotas — would apply not only to the 29 federal agencies but also to all "financial institutions, investment banking firms, mortgage banking firms, asset management firms, brokers, dealers, financial services entities, underwriters, accountants, investment consultants, and providers of legal services" who do business with them.

Moreover, the law also applies to those firms' sub-contractors "as applicable."

Given the EPA's new powers, "This was the day freedom died"

The Senate just claimed the title of the world's most delusional body by refusing to strip unelected EPA bureaucrats of the power to regulate carbon dioxide as a pollutant. This was the day freedom died.

One wonders why we have a Congress at all. The 53 profiles in cowardice that could not get a cap-and-tax bill through the U.S. Senate voted Thursday to let the Environmental Protection Agency keep the unprecedented power Congress did not expressly give it. It is power that the EPA arrogated to itself through regulation to control every aspect of the American economy and our very lives.

This country was born over anger at taxation without representation. Regulation without representation may spark another revolt come November. The Tea Party movement began precisely because of such arrogant disregard for the wishes of the American people. Unlike health care reform, this time the cowardly lions of the Senate couldn't even do it themselves and ceded their authority to the EPA.

As Congress mulls new financial firm regulations, Wall Street bails out a green Chicago bank with ties to Obama; why?

The Central Illinois 9/12 Project became one of the first to expose — beginning this past March on BigGovernment.com – Shorebank’s extensive green and microfinancing agendas, in anticipation of that bank’s impending bailout. Shorebank, a Chicago-based, community-based investment bank, is focused on domestic and foreign microfinancing, is heavily engaged in the financing of “green” projects and “green” jobs, and has a host of ties to the Obama and Clinton administrations. Most recently, we wrote in April about Shorebank seeking a “bailout” from larger financial firms that have previously received bailout money from the federal government. Congresswoman Jan Schakowsky had previously proposed that the bank receive funds from the State of Illinois to help cover its loss of capital since the beginning of the nation’s economic downturn in 2008.

As we previously wrote, Shorebank would potentially be eligible for TARP funds if it were to be recognized as a “Community Development Financial Institution.” In order to to receive needed federal TARP money and prevent seizure by the FDIC, Shorebank needed to receive appropriate matching funds from private sources. News stories have been released over the past several days indicating that Shorebank has potentially received such funding.

Shorebank has reportedly received $20 million from General Electric, $20 million from Goldman Sachs, and $20 million from Citigroup – with additional large funds being promised by J.P.Morgan Chase, Bank of America, and Morgan Stanley. Shorebank also has received funds from the Northern Trust Corporation, State Farm, and Harris N.A. It has been reported that the bank could also receive funds from Wells-Fargo and PNC Financial Services. Assistance from these financial institutions puts Shorebank’s raised capital from private sources within the range needed to make it eligible for TARP funds.

As we reported previously, Citigroup, Bank of America, and Chase all received tens of billions of dollars in taxpayer money from TARP. Does this then mean that Shorebank is being bailed out by bailout money?

While Washington ponders new regulations for Wall Street, big firms rush to bail out an Obama-friendly Chicago bank

Some of the nation's largest banks have agreed to contribute enough money to save Chicago-based ShoreBank, the community lender with strong ties to the Obama administration, FOX Business has learned.

The banks have agreed to contribute $140 million to bail out the bank, while the federal government will donate tens of millions more, according to people close to the talks. In addition to major Wall Street firms like Goldman Sachs (GS: 137.81, 0.4, 0.29%), which agreed to contribute $20 million to the bailout effort, as well as Citigroup (C: 3.7693, 0.0493, 1.33%) and JPMorgan (JPM: 39.35, 0.33, 0.85%), General Electric's (GE: 17.2001, -0.0299, -0.17%) GE Capital will also contribute $20 million to the rescue effort. All the firms have either received massive government assistance during the financial crisis or, in the case of Goldman Sachs, are facing multiple regulatory investigations into their business practices.

The bailout has been controversial. Senior Obama adviser Valerie Jarrett served on a Chicago civic organization with a director of the bank, and President Obama himself has singled out the bank for praise in lending to low-income communities.

But the bank has made its share of bad bets, and some of the Wall Street firms that have given money have said they've received political pressure to contribute to the bailout of a business that under normal circumstances would have been left to fail.

Obama's financial oversight reofrms would enable him to pick the winners before the game starts

"Designating particular financial firms for this kind of special regulatory treatment clearly signals to the markets that these institutions are too big to fail. It will reduce the perceived risk of lending to them, enabling them to raise funds at lower cost than their smaller competitors.

In other words, the administration's plan would create what are essentially government-sponsored enterprises like Fannie Mae and Freddie Mac in every sector of the financial economy -- insurers, securities firms, finance companies, bank holding companies, and hedge funds -- where these specially regulated firms are to be designated. The result will be devastating for competition. Larger firms will squeeze out smaller ones and aggressive small companies will have less opportunity to overcome the government-backed winners."

(snip)

"In AIG, GM, Chrysler, Fannie Mae and Freddie Mac we can see the future that the administration envisions for our economy -- a sclerotic and unchanging structure of big companies working with, protected by, and relying on big government."

http://online.wsj.com/article/SB124528373595925623.html