Goldman Sachs CEO: 'Responsibility' to Challenge Dodd-Frank
Business + Economy

Goldman Sachs CEO: 'Responsibility' to Challenge Dodd-Frank

REUTERS/Pascal Lauener

Goldman Sachs CEO and Chairman Lloyd Blankfein doesn’t hate the 2010 overhaul of financial regulations known as Dodd-Frank. He just thinks the rules could benefit from his advice.

The investment banker said Thursday that the high-profile lobbying efforts by Wall Street are an exercise of democratic rights and, more tellingly, their professional expertise into how the markets work.

“We just make a contribution of ideas and what we think are facts,” Blankfein said at a breakfast discussion hosted by POLITICO. “The idea that we shouldn’t state our view [is] … not only inappropriate, but an abdication of responsibility.”

The Goldman honcho said the authority for deciding the law rests with Congress, not his firm and colleagues on Wall Street. The Center for Responsive Politics ranks Goldman as the sixth biggest “heavy hitter” in political donations over the past dozen election cycles.

The only other for-profit business to have wielded as much influence during the same period is AT&T, according to the campaign finance watchdog.

Blankfein actually likes some of the reforms introduced three years ago in the law sponsored by then Rep. Barney Frank (D-MA) and then Sen. Chris Dodd (D-CT), both of whom have since retired. He welcomes the higher capital requirements and stress tests the government has started to apply to bank balance sheets, since he wants to ensure that his counterparties and trading partners are financially sound. Of the rules that have been finalized, and most haven’t, Goldman has been able to adapt, Blankfein said.

But the Volcker Rule is a different matter.

This element of Dodd-Frank puts limits on proprietary trading by banks with access to federal deposit insurance and the Federal Reserve. The rule has yet to be finalized, as regulators have struggled to determine the difference between legitimate market making — trades that increase liquidity — and bets for the house account.

Blankfein said it is impossible to regulate a “state of mind” as the Volcker Rule would.

Wall Street’s alpha dog suggested that “Too Big To Fail” banks do not receive a government subsidy, noting that all big firms tend to be able to finance themselves at cheaper rates than smaller rivals.

“There are advantages for big companies in an industry versus small companies in an industry,” he said. “Whether that’s chemicals, oil, or finance.”

Blankfein said there is no “political will” to rescue failing financial institutions with taxpayer funds, as happened during the 2008 crisis. He views the new regulations for an orderly liquidation of those firms, as opposed to an “immediate vaporization,” as important but uncertain.

“It won’t be tested until it’s tested,” he said. “I’m not dying to test it.”

During a relatively congenial conversation onstage with POLITICO’s Ben White, Blankfein touched on other subjects such as income inequality, noting that the country had done a better job over the past three decades of delivering wealth than allocating it.

He views the U.S. economy as improving, but suggested that a change in public tone was essential for further growth. “Have less negativity” and ending “the gotcha mentality” in the media and public forum would boost morale and the economy, Blankfein said. “Sentiment is more negative than the facts command.”