Opinion Set Goldman free

But the byproduct of this very effective,Goldman-centric political strategy,is that the larger issue of the dramatic deterioration of Wall Street’s mores and ethics over the past 40 years has been all but obscured,as has a robust debate about how to change Wall Street’s behavior in the future to prevent a recurrence of the events that led to the 2008 financial crisis. Unfortunately,nothing in the 2,319-page Dodd-Frank bill addresses the dramatic change in Wall Street’s culture away from taking prudent risks with its own partners’ capital toward a culture that rewards bankers and traders for taking risks with other people’s money. This ethic is pervasive across Wall Street,and not just at Goldman Sachs,which as the last major Wall Street firm to go public — in 1999 — retains more of a partnership mentality than do its brethren.

Despite the political haymaking,the truth is that Goldman Sachs did nothing differently in the years leading up to the crisis than did other firms of its stature. Nothing has come to light in any of the very public recent assaults on the firm that also could not be discovered by looking through millions of documents at every other Wall Street firm with large trading and capital-markets businesses.

If anything,what has been revealed in all the reams of Goldman documents is that the firm was — and remains — a better risk-manager than any of its competitors,that it figured out trouble was coming in the mortgage market in 2006 and did something about it,instead of doubling-down,and that it managed to stay profitable throughout the years of the crisis while most of its competitors were out of control.

Indeed,the current political climate seems to have forced Goldman’s senior executives to pretend that they did not bet against the mortgage market — from which the firm made a $4 billion windfall in 2007 — and to claim,instead,that Goldman barely made any money from its mortgage business. Why else — other than politics — would Goldman choose to obfuscate this fact rather than boast about its prowess?

Now that a major political victory in the form of Dodd-Frank is within the grasp of Goldman’s enemies in Washington,the time has come for politicians to lay off the firm and to allow Goldman and the rest of Wall Street to return to some semblance of normalcy. The time has come to let Goldman be Goldman. The best way for that to happen is for Goldman to relinquish its status as a bank holding company and free itself of the most onerous and restrictive provisions of the new law. It can simply revert back to being a securities firm — as it was for its first 139 years before the Federal Reserve approved the applications of Goldman and Morgan Stanley on Sept. 22,2008,in a last-ditch Hail Mary to stop the firms’ death spiral (which worked).

Goldman should make the change sooner rather than later. The American people cannot be subsidising the risk-oriented Goldman business plan by providing it with billions of cheap financing through the Fed. Nor should Goldman continue to benefit from the appearance that it will get bailed out the next time things go awry.

By giving up its status as a bank holding company,Goldman can boast about how it — nearly alone — navigated the crisis by cleverly shorting the mortgage market instead of pretending it was like every other firm,just luckier. It can take calculated risks with investors’ money. It can make billions of dollars — if it is able,once it is no longer subsidised by taxpayers — and pay those billions to its lucky employees. That’s the American Way.

But the next time Goldman Sachs runs into serious trouble — and it will — let the free market determine its fate.

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