An Inside Look at How Goldman Sachs Lobbies the Senate

From Matt Taibbi:

The SEC is holding a public round table Tuesday to explore several issues around securities lending, which has expanded into a big moneymaker for Wall Street firms and pension funds.

Regulation hasn’t kept pace, some industry participants contend.Securities lending is central to the practice of short selling, in which investors borrow shares and sell them in a bet that the price will decline. Short sellers later hope to buy back the shares at a lower price and return them to the securities lender, booking a profit. Lending and borrowing also help market makers keep stock trading functioning smoothly.
via SEC Weighs New Rules for Lending of Securities – WSJ.com.

In advance of this panel and in advance of proposed changes to the financial regulatory system, these players have been stepping up their lobbying efforts of late. Goldman Sachs in particular has been making its presence felt.

Last Friday I got a call from a Senate staffer who said that Goldman had just been in his boss’s office, lobbying against restrictions on naked short-selling. The aide said Goldman had passed out a fact sheet about the issue that was so ridiculous that one of the other staffers immediately thought to send it to me. When I went to actually get the document, though, the aide had had a change of heart.

Which was weird, and I thought the matter had ended there. But the exact same situation then repeated itself with another congressional staffer, who then actually passed me Goldman’s fact sheet.

Now, the mere fact that two different congressional aides were so disgusted by Goldman’s performance that they both called me on the same day — and I don’t have a relationship with either of these people — tells you how nauseated they were.

I would later hear that Senate aides between themselves had discussed Goldman’s lobbying efforts and concluded that it was one of the most shameless performances they’d ever seen from any group of lobbyists, and that the “fact sheet” the company had had the balls to hand to sitting U.S. Senators was, to quote one person familiar with the situation, “disgraceful” and “hilarious.”

I’m including the Goldman fact sheets here. They will not make a whole lot of sense to people outside of the finance world, but if you can fight through them, what you’ll find is the statistical equivalent of a non-sequitur. Goldman here is lobbying against restrictions to naked short-selling, and in arguing that point they include a graph showing the levels of “short interest” during two time periods, September-October 2008 (when there was a temporary ban on all short-selling, naked or otherwise) and January-March 2009.

Goldman’s point seems to be that short-selling declined during a period when the market fell sharply, and short-selling went up when the market rallied. I guess on some planet, perhaps not on earth but some other spherical space-boulder, this is supposed to indicate that short-selling is good for the market overall.