Investors.com posted an article yesterday by Michael Barone on what is happening in the financial sector of our economy under the Obama Administration.  He reminds us of the Chrysler bailout where bankruptcy law was violated and bondholders forced to accept 33 cents on the dollar on secured debts while United Auto Worker retirees were given 50 cents on the dollar on unsecured debts.  Unfortunately, the saga continues.

Last Friday, the Securities and Exchange Commission filed a complaint against Goldman Sachs charging it violated the law in the sale of one of its financial products.  There are a few fishy things in this charge.  Fishy thing number one–the charges have to do with the fact that the company did not disclose that the product was put together by John Paulson–at that point, he was not well known, and disclosing his involvement would not have mattered.  Fishy thing number two–the Securities and Exchange Commission usually moves on a complaint only when they have a unanimous vote–in this case the vote was not unanimous and strictly along party lines.  Fishy thing number three–Democrats immediately cited the complaint as a reason to pass Chris Dodd’s financial reform package.

One of the provisions in the financial reform package:

“Politically connected creditors would have every reason to assume they’d get favorable treatment. The Dodd bill specifically authorizes the FDIC to treat “creditors similarly situated” differently.”

This is not a recipe for good financial governance.  There are a few other problems with the bill:

“…Dodd bill gives the Treasury and the FDIC authority to grant an unlimited number of loan guarantees to “too big to fail” firms. CEOs might want to have receipts for their contributions to Sen. Charles Schumer and the Obama campaign in hand when they apply.”

“Labor gets ‘proxy access’ to bring its agenda items before shareholders as well as annual ‘say on pay’ for executives. Consumer activists get a brand new agency funded directly out of the seniorage the Fed earns. No oversight by the Federal Reserve Board or by Congress on how the money is spent.”

The problem with the bill is that it encourages political favoritism.  We have that to some degree already–we don’t need to institutionalize it.