"A Shitty Deal"

In lieu of a longer post for now, I encourage readers who missed today's testimony of current and former Goldman Sachs executives in front of the Senate Subcommittee on Investigations to watch a tape of it. This was a seminal event with political and social ramifications far beyond the sometimes arcane subject matter. For those who understand those ramifications and their dangers, the highest priority should be to ensure that these people and the firms they represent are never again bailed out by doctors, teachers, cops, farmers and scientists. Wall Street employees who are truly interested in the survival of their industry and the long-term viability of their own careers should share that priority.

While the financial reforms currently being discussed are needed, especially concerning derivatives, I haven't seen anything that will prevent bailouts during the next systemic crisis -- an event that by definition involves not one Wall Street firm but many. If the Senate's reform proposals passed tomorrow, would anyone celebrate the end of Too Big To Fail and would the stocks -- and more important, the bonds -- of Wall Street firms immediately reflect that new reality? A Volcker Rule with teeth would be a good thing. But ultimately the only way to end TBTF and the explicit public backstop is to legally prohibit the Fed, Treasury, or any part of the government from providing the next bailout. Until that happens, current and future Fabulous Fabs will act accordingly.