Goldman Sachs scandal energizes Dems' overhaul push

WASHINGTON — With the Senate to begin debate on a financial-overhaul bill this week, the fraud lawsuit against Wall Street titan Goldman Sachs has emboldened Democrats to ratchet up pressure on Republicans who oppose the Obama administration's proposal.

In a sign of Democrats' increasing confidence that they have the better of the argument in an election year defined by voter anger at big banks and bailouts, White House officials said Sunday that President Obama would take his campaign for a regulatory overhaul on the road in coming weeks.

Obama, in effect, has made the measure's fate a highly personal showdown with Senate Minority Leader Mitch McConnell, who has sought to defeat each of the Democratic president's domestic priorities over the past 15 months.

In a televised appearance Sunday, McConnell, R-Ky., asserted that Obama was "trying to politicize this issue," and stoutly defended his recent argument that the Democratic bill would institutionalize taxpayer bailouts of big banks. Obama used his weekly radio and Internet address Saturday to slam McConnell's claim as "cynical and deceptive" because "he knows that it would do just the opposite."

Republicans, Democrats and financial-industry officials were reluctant to speculate about the fallout from the government's civil case against Goldman, filed Friday.

Privately, there was widespread agreement that the Wall Street scandal would benefit Democrats' efforts to pass the most comprehensive overhaul of financial regulation since the Depression.

"I can't comment on the details of that investigation or on the merits," Treasury Secretary Timothy Geithner said on NBC's "Meet the Press."

"But I can tell you that I am very confident that we're going to have the votes for a strong package of financial reforms that will bring derivative markets out of the dark, help protect the taxpayers from having to fund future bailouts and try to make sure we're getting Americans some basic protection against fraud and abuse," Geithner said.

Before the Goldman lawsuit became public, McConnell secured 41 Senate Republicans' signatures on a letter opposing the Democrats' Senate overhaul bill — enough, in theory, to keep the bill from coming to the floor.

But the national media attention to the Goldman case has called that unanimity into question.

The accusations involve derivatives, the sort of complex financial instruments that helped to lead to the banking system's near-collapse in 2008, and which pending legislation would regulate for the first time.

Goldman is accused of creating and marketing derivatives tied to high-risk subprime mortgages, without telling investors the mortgage bonds for the portfolio had been picked by a billionaire hedge-fund manager who then bet against them and profited immensely when the bonds failed.

To be sure, the efforts by Obama and Democrats to step up pressure on Republicans could backfire and harden their position.

But industry lobbyists and administration officials suggested over the weekend that the controversy surrounding Goldman would spur continuing negotiations this week in advance of the Senate debate on a number of differences, such as those on regulating derivatives.

Republicans might remain united on the Democrats' first attempt to bring the bill to the Senate floor. But some Republicans eventually could break ranks, rather than risk filibustering tighter regulation of big financial institutions.