Explosive Goldman exit fuels Volcker rule push

Thu Mar 15, 2012 11:57pm EDT
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By Alexandra Alper

WASHINGTON (Reuters) - The Goldman Sachs resignation letter heard around the world has increased pressure on U.S. regulators to quickly put in place a tough version of the Volcker rule, that forces Wall Street to stop betting aggressively for its own bottom line.

Greg Smith became an overnight sensation when the Goldman banker published a withering resignation letter in the New York Times on Wednesday.

Smith described his former employer as a toxic Wall Street factory that only thinks about making money, mocking clients by referring to them as "muppets."

For reform advocates, the editorial showed that Wall Street failed to learn its lesson after risky trades brought global markets to their knees in 2008.

It produced fresh calls to finalize the Volcker rule, the provision in the Dodd-Frank financial oversight law that bans banks' proprietary trading.

Public Citizen, a consumer advocacy group based in Washington, D.C., issued a statement on Wednesday saying the financial industry had succeeded in getting regulators to delay putting the ban in place, and that Smith's editorial was a wake-up call.

"Smith's firsthand account emphasizes that each day of delay prolongs the abuse of Wall Street bankers over their clients," Public Citizen said.

The Volcker rule was tucked into the 2010 Dodd-Frank law late in the legislative process. It was seen as an additional way to ensure that banks cannot load up on risky trades that don't help clients and may even put the whole financial system at risk.   Continued...

A security guard keeps watch at the entrance of King David School High School in suburban Johannesburg, March 15, 2012. Smith was a principled and competitive student, the kind of person whose strong sense of right and wrong probably pushed him to resign from Goldman Sachs in a scathing letter to an international newspaper, his former teacher and coach said. REUTERS/Siphiwe Sibeko