By Bloomberg contributor William D. Cohan
An enterprising piece of investigative reporting by Bloomberg News’s Max Abelson, about a“ secret” team inside Goldman Sachs Group Inc. (GS) charged with investing $1bn of the firm’s money, raised eyebrows on Wall Street.
More important, the story raises major questions about whether the so-called Volcker rule - still being written in Washington’s halls of power - will put too fine a point on the kinds of risks Wall Street banks are permitted to take.
Former Federal Reserve Chairman Paul Volcker has been trying to solve a real problem: reducing the 'heads I win, tails you lose' kind of risk-taking that Wall Street bankers and traders relish and that almost brought down the house in 2007. But that will not be accomplished by his eponymous rule. Not even close.
The only way to properly regulate the collective behavior of bankers, traders and executives is age-old: through their pocketbooks. Unless, and until, they are again held financially accountable for their bad behavior - as they were during the long era of private partnerships on Wall Street - there is no hope for meaningful change. The Volcker rule won’t change it. The entire Dodd-Frank financial overhaul won’t change it.
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William D. Cohan is the author of the recently released Money and Power: How Goldman Sachs Came to Rule the World and the New York Times bestsellers House of Cards and The Last Tycoons.
Cohan is a contributing editor at Vanity Fair and writes frequently for Financial Times, Fortune, The Atlantic and The Washington Post. He worked on Wall Street as a senior mergers and acquisitions banker for 15 years. He also worked for two years at G.E. Capital. Cohan is a graduate of Duke University, Columbia University School of Journalism and Columbia University Graduate School of Business. The Last Tycoons won the 2007 Financial Times/Goldman Sachs Business Book of the Year Award.