Americans are not alone in calling for a crackdown on Wall Street in the person of Goldman Sachs. Writing for one of Germany’s leading business journals, columnist Wolfgang Munchau suggests banning the shadow banking system, prohibiting toxic financial products and breaking up Goldman Sachs, because, “A hypothetical collapse of Goldman would be a cataclysmic event for the global economy’ and ‘it’s impossible to justify the fact that a financial weapon of mass destruction like the shadow banking system is in the hands of private individuals at all.’
For the Financial Times Deutschland, Wolfgang Munchau writes in part:
The two central questions that arise from the Goldman case are: should we eliminate the shadow banking system? And should we prohibit toxic financial products?
My answers to these two questions are: yes and yes. The problem with the shadow banking system is the lack of regulation. Since in the case of a larger contamination risk, the government will always be called in – in the end it has a right to be in control. It must therefore have the right to subject private banks to supervision. Shadow banks operate outside of these control structures.
Goldman Sachs is for now, still very large and powerful. Wherever large sums of money are being moved from one place to another, the American investment bank is involved. When Greece cut its deficit with opaque currency swap contracts, Goldman Sachs played the roll of emcee. The bank is omnipresent. It has access to so much insider legal knowledge that it has a natural advantage as an investor – without having to break any laws.
But Goldman isn’t only “too big,” it’s also “too big to fail” – even more so than Lehman Brothers. A hypothetical collapse of Goldman would be a cataclysmic event for the global economy. That’s more than just an argument for regulation. After all, atomic bombs aren’t “regulated” either. Basically, it’s impossible to justify the fact that a financial weapon of mass destruction like the shadow banking system is in the hands of private individuals at all.
Lehman Brothers is now gone and Bear Stearns and Merrill Lynch are divisions of other banks. Only two classic investment banks remain: Goldman Sachs and Morgan Stanley. I don’t think it’ll be possible to regulate these banks out of existence, but the air is getting thinner. Just as Al Capone was indirectly convicted and taken out of circulation because of tax evasion, the remaining investment banks will likely be attacked in a roundabout manner rather than a frontal assault. The indictment of Goldman Sachs is the symbolic beginning of this process and is therefore one of the most important moments of the entire financial crisis.
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