Goldman missive shows need for Volcker rule, Democrats say

‘Ethical Depths’

Levin told reporters yesterday that Smith’s article was further confirmation of his subcommittee’s findings of “the ethical depths to which Goldman had fallen.”

No further hearings are warranted by the panel he leads, Levin said, because Goldman Sachs is “being scrutinized by a number of entities and institutions already.”

“There still is an ongoing review by New York law enforcement folks, I don’t think the Justice Department has finished its review,” Levin said.

Goldman Sachs said when Levin’s report was released that it didn’t mislead anyone about its activities and gave truthful and accurate testimony to the committee.

Blankfein and Cohn addressed Smith’s criticism in a memo to employees on March 14, noting that in a company of Goldman Sachs’s size, “it is not shocking that some people could feel disgruntled.”

Employee Survey

A recent survey of employees found that 89% believe the firm provides ‘exceptional service’ to clients and that a similar percentage of the firm’s 12,000 vice presidents, the rank held by Smith, felt that way, according to the memo.

Employees are allowed to express concerns anonymously, according to the memo. “We are not aware that the writer of the opinion piece expressed misgivings through this avenue, however, if an individual expresses issues, we examine them carefully and we will be doing so in this case,” Blankfein and Cohn said in the memo.

Morgan Stanley Chief Executive Officer James Gorman said he told his staff not to circulate Smith’s article. “There but for the grace of God go us,” Gorman said at an event in New York hosted by Fortune magazine.

Representative Barney Frank, the top Democrat on the House Financial Services Committee, said the column serves as a rebuttal to bank arguments that restrictions in trading activities would result in increased costs for market participants such as pension and mutual funds.

Who Benefits?

“What he does is to reinforce the notion that much of the benefit from what they do goes to them and not to the broader society,” Frank, who helped draft the law that bears his name, said in a telephone interview. “It doesn’t make it criminal, but it does remove one of the arguments against the new restrictions.”

U.S. banks, asset managers and mutual funds voiced concerns in February comment letters to regulators over the impact that rule barring proprietary trading may have on markets due to the decrease in liquidity it may cause. Similar concerns have been raised about some of the new rules being drafted to regulate the derivatives market.

For other lawmakers, in part because of the hearings held by Levin, the column had less impact than it had on Wall Street.

“This is not anything that we didn’t already know,” Representative Brad Miller, a North Carolina Democrat on the Financial Services panel, said in an telephone interview.

Bloomberg News

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