And now David Rosenberg of Gluskin-Sheff chimes in on the Goldman Sachs news, and what it means for the sector:
The fact that the GS revelation came at a time when bank earnings are being
reported and showing that these guys are now making money hand-over-fist
(mostly via trading and recoveries) thanks to Uncle Sam’s help, on top of the fact
that financial reforms in Congress are front and centre right now, is potentially
huge from a political standpoint.
Sorry, but Obama is not the poster boy for Wall Street. And as for Congress, look
now for the GoP to jump on the pre-election bandwagon of getting tough with the
banks – they will no longer be seen as the party of “no”. This is a huge
opportunity for the Republicans, especially with so many Dems wanting to water
down the Volcker recommendations.
This may indeed be a small part of GS biz but that misses the overriding point. In
the aftermath of every bubble, the rot still surfaces after the worst part of the
crisis – as we saw with the Enron and Worldcom shenanigans following the tech
wreck 8 years ago. I would not underestimate what the political implications will
be – and this is not happening a year ago when the politicians were worried
about bank insolvencies and a depression.
My take on the situation is this: a more aggressive push towards financial sector
regulation is going to follow this news (and after the latest on LEH’s bad
behaviour), just as we saw with the Sarbanes-Oxley accounting rule changes in
2002. I wouldn’t be expecting any political pushback on the SEC at all from this
– it will add fodder for those who want to make sure that full disclosure and
transparency return to Wall Street. behaviour is revealed and we see who is standing naked on the shore as the tide rolls in. We may be able to debate the veracity of current banking sector
profitability, but this diatribe is more aimed at thinking what the re-rating
possibilities are for the sector given how this plays out in the legislative arena.
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