Charges Against Goldman Sachs Boost Case for Financial Reform

The Obama administration's efforts to reform the financial industry is getting an unexpected boost after the Securities and Exchange Commission (S.E.C.) accused one of the largest U.S. investment bankers of fraud. Goldman Sachs denies it misled its investors by selling them mortgaged backed securities that were expected to fail. But analysts say the civil charges filed against Goldman Sachs on Friday could lead to closer scrutiny of the way financial firms do business.

Shares of Goldman Sachs fell for a second day Monday following accusations on Friday that the U.S. investment firm defrauded investors.
The Wall Street giant denies the allegations and promises to fight back.
But economist Peter Morici says the charges filed by the S.E.C. puts a harsh spotlight on the financial industry.

"The civil suit raises the level of awareness of deceit on Wall Street, the selfishness and self-serving behavior that needs to be regulated," said Peter Morici. "We might have gotten financial services reform without, but this makes it more likely."

Some economists blame a lack of oversight of the subprime mortgage industry for fueling the global financial meltdown that followed.

Analysts say the resulting probe into Goldman Sachs investment practices could help President Barack Obama, who delivers a major speech Thursday on why financial reform is needed.

"And if we don't change what led to the crisis, we'll doom ourselves to repeat it." said President Obama.

Highlights of the reform package include tougher regulations of financial derivatives and securities, along with a $50-billion bailout fund, to be paid for by banks.

It would also establish a new consumer protection agency that will look out for investors, and not banks.

Republicans don't like the bill.
Senator Mitch McConnell claims the proposed measure only opens the door for future bailouts.

"In fact, if you look at it carefully, it will lead to endless taxpayer bailouts of Wall Street banks," he said.

But retiring Democratic Senator Christopher Dodd, who introduced the bill, says that argument is nonsense.

"Our bill holds Wall Street accountable and mandates real transparency so that large banks can't gamble our money in the shadows of the financial system," he said.

The U.S. Senate is expected to begin debate on financial reforms this week.
Analysts say foreign markets will be watching closely.
The charges against Goldman Sachs have roiled markets from Asia to Europe.