The next big item on the Democrat's agenda is financial reform. According to some, both the fate of the Obama administration and the outcome of this year's mid-term elections may well rest on tackling Wall Street's biggest players in an attempt to prevent future fiscal meltdowns like the one that plunged the nation into its deepest economic crisis since the Great Depression. Not coincidentally, the Securities and Exchange Commission (SEC) decided this week to charge one of the top investment banking firms, Goldman Sachs, with a civil suit alleging the company fraudulently misled investors in a snaky "heads I win, tails you lose" scheme. Unfortunately, it isn't the first time Montanans have experienced this from Goldman Sachs.
The tale begins in 2007, when the enormously profitable firm was selling collateralized debt obligations (CDOs) comprised of the risky mortgage-related securities many blame for bringing the nation to its knees. Goldman Sachs, says the federal government, didn't tell investors that the CDOs were put together by a billionaire hedge fund manager in his 20s who was planning on making enormous profits by swindling clients who believed they were buying solid investments.
As most folks know, the sale of these so-called "derivatives" has been blamed for the collapse of the too-big-to-fail firms. Yet, while millions of Americans were losing their jobs and homes, the federal government bailed out the banks and investment firms with nearly a trillion taxpayer dollars. By 2008, the derivatives and sub-prime mortgage markets were in shambles, plunging the nation into recession. Goldman Sachs, however, received $10 billion from the federal government in the belief that such firms deserved being saved from the vagaries of the much-touted free market economy.
To make a long story much shorter, Goldman Sachs miraculously managed to survive. Having undoubtedly used the federal money to good purposes, it also reported a record $3.3 billion profit in the first quarter of this year and lavished billions in pay and bonuses on its employees and top executives.
Astoundingly, the leading sector in reaping that enormous sum came from trading what are termed "risky assets"—exactly the target for the financial reform legislation being pushed forward by President Obama and the Democrat-dominated Congress. And once again, Republicans are wholeheartedly against the effort as they have been almost to an issue since Obama took office.
Some observers say the move to bust Goldman Sachs is politically motivated, pointing to the 3-2 vote by the SEC. The three Democrats on the commission voted to go forward with the suit, the two Republicans opposed it. As far as timing and the guts of the issue go, it's probably safe to say the American public, including Tea Partiers, are more than weary of saving Wall Street's high-flying investment banks—and particularly their penchant for risky assets—while the general populace continues to lose homes in record foreclosures, unemployment remains at record high levels and wages remain stagnant or declining.
While reading the story in the paper this week, I just about blew coffee out my nose when Greg Palm, Goldman Sachs' co-general counsel, was quoted as saying: "We would never intentionally mislead anyone."
Perhaps in other places and other times, such a statement could be taken at face value. But not here in Montana.
For Montanans, the memory of the role Goldman Sachs played in the disastrous move to deregulate our utilities remains a very sore topic. If you weren't around back in the late '90s, here's basically what happened.
The Montana Power Company (MPC), owner of most of the hydroelectric dams on the state's largest rivers as well as Colstrip's coal-fired power plants, used to be a fully regulated, vertically integrated utility. What that means in plain language: The utility was allowed to pass its investment and maintenance costs on to Montana customers and profit was capped at about 10 percent. Montanans had the seventh lowest electricity rates in the nation and the company did just fine.
But in 1997, with Marc Racicot in the governor's office and an aggressive young CEO named Bob Gannon at its helm, MPC and the Republican-dominated Legislature decided to pass a huge utility deregulation bill in the last days of the legislative session that, they said, would offer customers "choice" in purchasing utilities.
Before the year was out, however, MPC was no longer among the "choice" Montanans had. After a century of operation as a conservative, stable corporation in which thousands of Montanans invested, the company announced it was selling its dams and coal-fired power plants to an out-of-state firm, Pennsylvania Power and Light, and reinventing itself as Touch America, a telecommunications business.
Five years later, Touch America filed for bankruptcy, MPC stockholders and pensioners were devastated and now, tragically, Montanans pay the highest electricity rates in the region.
In lawsuits filed by MPC stockholders, the truth finally came to light. As reflected in MPC's board notes: "We retained Goldman, Sachs & Co. to assist us in the sale of our oil and natural gas businesses, coal businesses, independent power production business, and utility business. Goldman, Sachs also assisted us in the restructuring plan of our Company from an energy-related business to Touch America Holdings, Inc."
Goldman Sachs made $20 million for its efforts in helping destroy MPC, devastating its investors and hosing Montana consumers. But here's the rub—while they were advising MPC on getting rid of its utilities in favor of becoming a telecom firm, Goldman Sachs was investing heavily in buying utilities.
You can judge for yourself if Goldman Sachs decided to "intentionally mislead" MPC into selling its utility assets. But the far-reaching impacts of that decision continue to plague Montanans.
Perhaps the national Republicans think opposing financial regulation is a winning position. But here in Montana, we have long memories—and it's about time we somehow got even with Goldman Sachs and the rest of the Wall Street pirates.
Helena's George Ochenski rattles the cage of the political establishment as a political analyst for the Independent. Contact Ochenski at email@example.com.