Did you hear the news that Oliver Stone and Michael Douglas are revisiting Wall Street for their next movie? It's a timely move because conspiracy theories have stepped up as of late, especially when it comes to Goldman Sachs. It used to be something taken lightly: Goldman Sachs is bent on inter-galactic domination! Now, it seems that more people are taking the idea that Goldman Sachs runs the economy--or at least wields inordinate influence over Wall Street--more seriously. Right now, you are either rolling your eyes or nodding. Everyone has an opinion on this. 

I think it's fair to say that more people who are not on some kind of lunatic fringe are buying in. A commentary in MarketWatch now holds that "with all their people, programs, lobbyists and connections left behind like landmines inside Washington's new administration, the power of the 'Goldman Conspiracy' may now be absolute, as in Lord Acton's historic warning that 'power corrupts and absolute power corrupts absolutely.'" At first, I thought it might be parody, but it is real. When you boil away the rhetoric, however, you are left with some legitimate issues. I've long been skeptical of the revolving-door approach to regulation. More agencies have been co-opted by the industries they are supposed to be regulating. Industries invest billions in securing industry-favorable regulations. In many cases, it's the mere perception that is wrong. 

I think many would agree that you can't put bankers in regulatory positions and expect them to all of a sudden take a hard line against the industry. They will likely be predisposed to protect what, to them, is wonderful and good and pro-American. Of course, they will say all the right things to get the job--"public service," "giving back"--but in their hearts they will always be pro-Wall Street. I'm not saying that's bad, but that's the way it is because they're human.   

The Wall Street Journal picked up on this theme with its article about former Goldman Sachs alum Stephen Friedman, who ran the bank in the early 1990s. While Goldman Sachs was being handed $10 billion in TARP funds, Friedman, who sat on Goldman's board, was the chairman of the New York Fed. The bank got expedited clearance to convert to a bank holding company, which put Friedman, with his large stock holdings, in violation of the rules. This was no problem, because the fed granted him a waiver so he could keep his Goldman share and remain a regulator. He also participated in the search for a new president of the New York Fed, which went to another Goldman alum. 

Friedman tells the Journal that there was never any conflict in owning so much Goldman stock and that he's planning to step down from the Fed anyway. Others think he should have stepped down earlier, to avoid the appearance of a regulator standing to profit from one of the banks he regulates. 

What do you think? Does Goldman Sachs wield too much regulatory power? - Jim