Goldman missive shows need for Volcker rule, Democrats say

March 16 (Bloomberg) -- The Goldman Sachs Group Inc. employee who criticized the company’s culture in a newspaper column bolsters the case for Wall Street restrictions like the Volcker rule, congressional Democrats said.

While the March 14 New York Times opinion piece by former executive director Greg Smith drew no requests for hearings or investigations, lawmakers including Senators Carl Levin of Michigan and Jeff Merkley said the article showed why the U.S. needs tighter restrictions on Wall Street practices. The two Democrats authored the Volcker rule’s ban on proprietary trading and conflicts of interest in the Dodd-Frank Act.

Congress can’t “legislate the culture but I think the heart of this goes to why we needed the Merkley-Levin amendment,” Merkley, a member of the Senate Banking Committee, said in an interview.

Lawmakers on Capitol Hill yesterday said the piece, which has ricocheted through Wall Street firms, has had less of an impact in Washington, where New York-based Goldman Sachs’ business practices and Chief Executive Officer Lloyd C. Blankfein were the targets of congressional hearings in 2010.

‘A Little Research’

“Doing a little research before you call for hearings is important to understand the totality of the story,” Senator Robert Menendez, a New Jersey Democrat on the Banking Committee, said yesterday in an interview on Bloomberg Television.

Senator Jack Reed, a Rhode Island Democrat who sits on the Banking Committee, said Smith’s comments deserve greater scrutiny. He was skeptical there was much Congress could do.

“The biggest factor of change won’t be frankly because of a statute or an investigation,” Reed said in an interview. “It will be the clients will come in and say we want a better deal, we want assurances that our best interests are your sole thing.”

Smith’s column questioned the firm’s culture and said “the interests of clients continue to be sidelined in the way the firm operates and thinks about making money.”

Goldman Sachs has been concerned about reaction to the article from members of the House and Senate banking panels, as well as Levin, who led a Senate investigation that produced a 639-page report that blamed the firm’s trading practices for contributing to the financial crisis, according to a person familiar with the firm’s thinking.

Defending the Firm

The bank’s Washington office has been fielding calls about the op-ed from congressional staff, administration officials and other policy makers, the person said. In their conversations, the in-house lobbyists are relaying a defense of the firm that was included in a companywide memo from Blankfein and Gary Cohn, the president and chief operating officer.

David Wells, a spokesman for Goldman Sachs in New York, declined to comment. Goldman Sachs shares fell 1.1% to $121.72 at 11:27 a.m. in New York.

The investigation panel’s report came less than a year after Goldman Sachs paid $550 million to resolve Securities and Exchange Commission claims that it failed to disclose that hedge fund Paulson & Co. was betting against, and influenced the selection of, collateralized debt obligations the company was packaging and selling.

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