The Wall Street Journal has an editorial this morning about Obama's proposed Consumer Financial Protection Agency that repeats without even a scintilla of skepticism a claim made by Goldman Sachs's CEO, Lloyd Blankfein, at a hearing of the Financial Crisis Inquiry Commission. Here is how the Journal editorial puts it:
Testifying recently before the Financial Crisis Inquiry Commission, Goldman Sachs CEO Lloyd Blankfein explained why his firm has nothing at stake here: "Because we are an institutional firm that largely focuses on corporations, governments and large public and private investing organizations, we do not have retail businesses." He added that "we agree that a more specific focus on consumer protection, whether in the context of a new agency or otherwise, is warranted."
Mr. Blankfein was under oath, and I am not accusing him here of making an intentionally false statement. But how Goldman Sachs and Mr. Blankfein define a "retail business" and how any ordinary American or government official would define it may not be the same thing. Two examples: Goldman has a mutual funds business that allows individuals to buy Goldman Sachs mutual funds with a minimum investment of as little as $1,000. Now, Goldman's position may be that because the investor has to buy the Goldman Sachs mutual fund through Charles Schwab or some other online or brick-and-mortar broker other than Goldman Sachs, that's not a "retail business." But a consumer protection agency, if it were to be worth anything at all, would have to regulate the managers of the $1,000 minimum investment Goldman Sachs mutual fund and the Goldman public Web site that advertises it, as well as the brokers that sell it.
Second, Goldman has a private banking/asset management business with managed accounts for high-net-worth individuals. Those Goldman Sachs guys out there pitching the individual who just sold his family business, or the athlete who just got his first big pro contract, to invest the $10 million proceeds in a managed account with Goldman Sachs -- and believe me, such Goldman guys are out there -- should be required to announce to those prospects that, according to the firm's CEO, Goldman "largely focuses on corporations, governments and large public and private investing organizations" and does "not have retail businesses."
It's almost worth accepting the bad idea of a new government bureaucracy just to see how it would handle the Goldman Sachs-Wall Street Journal claim that buyers of Goldman Sachs mutual funds and individual customers of its asset management business somehow don't qualify as retail customers or consumers. It's really a preposterous claim by both Mr. Blankfein and by the Journal. I say that even though in general I have a good deal of respect for both Goldman (see the long Goldman post) and the Journal editorial page.