South African economic policy-makers have much to learn from the fraud charges levelled against Goldman Sachs.

The first lesson is that governments should be prepared for events in the financial sector, and not be shocked by them. It would not have taken much research to realise that dishonesty and fraud were so widespread in the financial sector that they had come to be considered part of normal operating procedure.

The crash of the dotcom bubble and the fraud by Enron and other large corporations exposed fraudulent activities by large, well-known global financial institutions. I believe part of the shock about the charges against Goldman Sachs is that the Securities and Exchange Commission was willing to press charges against the company in the first place.

The response by Goldman Sachs to the charges against the company was to deny any wrongdoing and to say that all the company was doing was hedging risk. The second lesson for policymakers is that prudential regulation of financial institutions and markets is not enough. Mainstream academics in economics and finance argue that government regulation of finance does not work because financial markets are too sophisticated. They say that financial institutions are able to respond very quickly to regulations and to leave regulation ineffective.

These arguments are dubious and seem to stem from a laissez faire ideological perspective. Government has to show leadership that is based on evidence. The evidence shows that regulation laws like the US Glass-Steagall Act, of 1932, introduced to limit financial speculation and to separate bank types according to their business, worked. Merely asking financial institutions to be prudent is nothing less than idiotic.

The amount of money financial institutions spend on lobbying and different forms of bribery could probably end world hunger or finance a project to fly humans to Mars.

The third lesson is that financial institutions have become politically powerful around the world because they have the ability to buy support and influence. Thousands of lobbyists from financial institutions are active in Washington DC. Over the past decade, Wall Street has had its people in some of the most powerful economic positions in government. It seems that many of the media have bought into the idea that people who run financial institutions that make billions in profits could run governments success- fully. The result in the US was catastrophic deregulation of finance and grossly inadequ-ate regulation of new financial instruments.

Widespread deregulation saw the US and large parts of global financial markets becoming akin to the Wild West. The world has experienced ongoing financial crises since the drive for deregulation of financial markets intensified during the 1980s. There were hardly any financial crises during the period before that – after World War II – when financial markets were tightly controlled and regu- lated.

We usually think about the US eco-nomy when the subjects of lobbying and influence by finance over government and the thinking of senior government officials come up. We have to realise that finance has significant influence over politicians and economic policy globally, including in South Africa.

It was recently reported that former South African Reserve Bank (SARB) governor Tito Mboweni would be working for Goldman Sachs. The company has reported that it trained a number of senior African National Congress (ANC) people in New York before the 1994 elections. The current director-general of the National Treasury, Lesetja Kganyago, and his predecessor, Maria Ramos, attended the Goldman Sachs ANC senior economists training programme.

Ramos is now CEO of Absa and the current Reserve Bank governor was chairperson of the Absa group and Absa Bank.

These are smart, independent people who may not be easily influenced by the banks, bank economics training courses or even when they are running banks. However, I believe that the revolving door between finance and government should be shut. Short cooling-off periods are not enough. Government should do more to ensure that senior economics policymakers and Treasury and SARB officials are shielded from the possibility of undue influence from financial institutions. The health of our economy depends on it.