The WSJ is reporting that back in 2003, the SEC tried to remove the restrictions on compromised security analysts that tried to prevent them from whoring out recommendations for banking business.

Similar to the prostitution of the ratings agencies, the SEC somehow thought it was okay for iBanks to fuck their stock buying investors, just so long as they got paid enough in banking fees to justify the screwing.

WSJ:

The Securities and Exchange Commission joined 12 Wall Street firms in seeking to scrap a key portion of a landmark 2003 deal that put strict curbs on stock analysts, a move that could heighten the ongoing debate about a broad overhaul of the financial-regulatory system.

In a ruling Monday, U.S. District Judge William H. Pauley III in New York rejected a proposed change to the legal settlement put in place to end abuses on Wall Street. The proposal would have allowed employees in investment-banking and research departments at Wall Street firms to “communicate with each other…outside of the presence” of lawyers or compliance-department officials responsible for policing employee conduct—an activity strictly prohibited by the settlement.

Thank goodness for the judge. This is utterly contemptible.

Like the last scene in Spartacus, I want to see a row of heads on pikes, and crucifixions  stretching from Washington DC to Wall Street. I am beyond disgusted.

>

Source:
SEC Tried to Ease Curbs
WSJ, MARCH 17, 2010
http://online.wsj.com/article/SB10001424052748704743404575128122174622274.html

Category: Legal, Really, really bad calls, Regulation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

34 Responses to “SEC: Regulatory Capture Hard at Work”

  1. Moss says:

    Glad to see that the WSJ is reporting on the way things were/are as opposed to the way they want them. The rot lurking in the bowls of the financial sector, both private and public, is mind boggling. That it went as far as a court is further evidence of the complete contempt for the basic principle of fair play.

  2. Marcus Aurelius says:

    BR: You are apparently now where I was a year and a half ago. Prepare to be revolted. Prepare to be angry to the point of apoplexy. Prepare for things to get much worse than they are now.

    My offer stands: For anyone who wants to buy the lumber and hardware (I’ll chip in), I’ll build the gibbets. We will need them.

  3. flipspiceland says:

    Is there some reason that you do not express this sense of outrage on your TV and other appearances in the same language that you use here?

  4. Chief Tomahawk says:

    Whatever happened to spontaneous combustion? The heads on spikes thing, though intimidating, may lower property values a little too much for the rest of us still living here.

  5. torrie-amos says:

    BR,

    Since you have been on your own for what 20 years, this stuff is shocking to you, anyone in the coroprate trenches has seen this stuff first hand going back 15 years and our outrage come from the fact it is prevalent EVERYWHERE, I guess we thought, oh it’s only my company, or that one, or this organization.

    Regulatory Capture, lol, it’s get on a panel or org, say u want one thing, do another, outlast all others like lawyers do, and then get what u want because decision makers change and they trust u because you’ve been around.

    It’s not about integrity, doing the right thing, it’s about pushing the ball forward almost 100% solely for your advantage.

    All these books out about scandals, Confedercy of Fools came out in 03 or so, a 700 page tomb on Enron, there’s not one thing in that book that is not everywhere now.

    Kind of sickening. I’m with Marcus, sit here in total amazement it is the wild west everywhere. For the life of me I cannot comprehend a good outcome.

    I mean, SEC allowed 40-1 leverage, I watched my T & S the day it was enacted for two days straight every equity was on 100 mph never stopping, just constant 100-10k trades as fast as it could go. At that point I knew something was up, but not what.

  6. Trevor says:

    I presume the list of twelve firms includes the usual suspects?

  7. I can’t curse on radio/tv, but I have expressed disgust repeatedly.

    Bloomberg radio especially.

  8. Barry,

    1) In general, I support your thinking.

    2) You have a lot of influence, especially as a TV talking head (I know, that’s not a compliment)

    3) “I am beyond disgusted.”
    Can’t you do something? Can you get your Congressperson involved? Can’t you get that person excited to take action – to seek real remedies.

    I’m looking for someone who can become the next subject for ‘Profiles in Courage.’ Someone who will sacrifice a political career, if necessary, to do the right thing. And do it vociferously. And if the ideas would be as popular as I hope, there would be no career sacrifice. It could be a path to the Senate.

    Am I being naive? Can’t something be done at all levels of government. Barry: Please reply: Am I just naive?

    I wish I were able to grab an hour with Rahm Emanuel. These guys were elected to make changes, and they have failed miserably.

  9. going broke says:

    Just remember, that paycheck is not yours, it’s a loan, slips through your fingers on the way to someone else, with interest, fees, taxes, whatever, and, one way or another, they’ll find ways to take more and more as time passes.

  10. tagyoureit says:

    “I want to see a row of heads on pikes, and crucifixions stretching from Washington DC to Wall Street.”

    I guess we can hit up the highway trust fund and line them up NJ Turnpike/I95? :D

  11. torrie-amos says:

    I’ve mentioned Confedercy of Fools, it is a great read.

    Enron had 30k employee’s, Andy Fastow was the lynchpin, all the off balance sheet SPV’s were done with Wall Street and accountants approval………..not once, not twice, CONSTANTLY……………….

    There were about 20-30 insiders, managers, heads of divisions Andy let in on the deals, huge money makers for all. There were also about 20-30 top level execs who for about 3 years REPEATEDLY said stuff stinks to high heavens, they were all basically silently threatened with there 20 year careers and backed off.

    Two or three times, there were some major problems that produced minor investigations for Andy, each time he called upstairs and got Skilling or Lay to call of the dogs thru arm twisting and some political calls.

    As hard as it is too believe imho Skilling and Lay allowed everything to get too big too handle and both were big thinkers and off hand managers, thus, when things started to go south when they went to Fastow and those other 20-30 who were top level managers inside on the deals they were easily diverted because of other problems that arose.

    Now, skilling and lay might have known more, yet, with a full read u can easily see how when you are provided with unlimited amounts of credit during a bubble time………….and for them they had pipline and infrastructure deals all over 3rd world countries (kind of like swaps and derivatives) in abundance where it got too the point they needed more and more deals to get up front money, thus, they cut costs on the deals. And when you’re talking huge projects put together fast with cheap money, almost everything was mispriced and mismanged.

    Ultimately, the law of large numbers, unlimited credit, and a couple of physcopaths added up to an imlosion……………this was able to happen because so many who questioned the reality, which were many, thought of it more as spread sheet issue, no one did simple work of adding up numbers and visiting projects.

    Sad story.

    At this point, I guess we will have zero interest rates into perpatuity since it is all on everyones spread sheets worldwide, banks just want the spread………….

  12. dead hobo says:

    And you say there can’t be a Fed pump because there is no evidence.

    Agreed there is no evidence of direct or indirect but intentionally manipulative interaction with equities markets, but the bigger problem is a governmental credibility issue.

    The SEC is virtually useless. Commodity prices are hyped because hot money can bid the price up in ways not mentioned in introductory futures text books and keep the price bias upwards. We have HFT, flash trading, dark markets, massive Fed liquidity channeled towards the highest rollers, supportive and ignorant legislative and executive branches, an incompetent Fed with a never-ending flow of funds that it’s not afraid to use to purchase the worst crap on earth at the high prices, and more.

    The government would rather provide creative forms of welfare rather than fix the system.

    This is the state of the financial world and why it seems quite plausible that the Fed is the floor in the stock market and Ben Bernanke has intellectually rationalized why propping the markets is a good thing. Everyone else is just using the village idiot for profit.

  13. Thatguy says:

    Mark,

    Unless you have bag of money to give him (Rahm), you’re not likely to change his mind.
    Persasive argument = bags of money
    Logic and the well being of the country = bupkus

  14. dead hobo says:

    dead hobo Says:
    March 18th, 2010 at 9:20 am

    And you say there can’t be a Fed pump because there is no evidence.

    Agreed there is no evidence of direct or indirect but intentionally manipulative interaction with equities markets, but the bigger problem is a governmental credibility issue.

    more:
    ————
    An audit of the Fed would answer this question once and for all. Perhaps this fraud is one of the reasons why Ben Bernanke is so adamantly against a little sunshine, only he rationalizes it as protecting the credibility of the financial markets. If people knew their suspicions about the financial markets being overtly manipulated by the Fed were true and asset bubbles are a tool of monetary policy at this time, then Bernanke would be remembered forever in ways he most likely would not want. Plus there would be another old fashioned bank run on the financial markets, courtesy of B.B. and his incompetence.

  15. tradeking13 says:

    BR, don’t’ hold your breath.

  16. Cynic_FA says:

    While we are SEC bashing, this is a good time to look back at one of Barry’s posts on the SEC rule change to allow IBanks to leverage up 30-1.
    http://www.ritholtz.com/blog/2008/10/sec-deregulation-let-banks-leverage-up/

    What should go on the SEC Tombstone:

    1. SEC tried to let Ibank analysts lie and cheat, but did not get away with it
    2. SEC had a desk inside Lehman Brothers, but could not smell a rat
    3. SEC got a call that Madoff was a crook, but pronounced it a wrong number
    4. SEC voted to raise leverage to 30-1 and use real bullets in Russian IBank Roulette

    Considerring the repeated behavior at the SEC, I am suprised anyone could be outraged that they would let analysts return to lying and cheating, or that they seemed to be in bed with the gang of 12.

    The SEC has to go on the wall of shame with the FED, uber-libertarian Greenspan, for extreme regulatory incompetence.

    If you are offended by the gang of 12 who want the right to return to lying and cheating, this is the least that they can do, and they always tend to be the least that they can be.

  17. ashpelham2 says:

    It is amazing the information I pick up from this weblog. This is just not the kind of stuff you are going to find in mainstream print, not expressed in this way. I am grateful for it!

    However, and isn’t there always a “however”, I am coming to the conclusion that the way that things “are” is the only way things can “be”. If markets were allowed to work freely, corruption would still prevail, and the rate of failure of firms would cause so much frothiness as to be entirely disruptive. What I am saying is that a certain level of manipulation and underhandedness is appropriate to maintain a structure. It’s like putting a skeleton together. All the organs might be able to exist with the skeleton injured, but if the skeleton is broken badly enough, the body won’t function in any meaningful manner.

    We don’t have to trust, or like, the way things are, but we just don’t have the ability to make it work in a meaningful way without some “fixing” to make it right.

  18. bsneath says:

    Why is the SEC seeking to relax rules when there exists so much distrust in the markets and suspicion of insider manipulation?

    Isn’t there anyone in Washington who is looking out for the interests of the general public? It is disconcerting that the SEC proposed these actions during a Democratic Administration (once considered the party of the people).

    A balance of power no longer exists where one party represents the people’s interests and the other represents business interests. We are becoming a nation that is ruled for the benefit of special interests and governed by their lobbyists.

  19. [...] earlier post noted the regulatory capture of the SEC by Wall [...]

  20. farmera1 says:

    All I got to say is, Barry you obviously don’t understand ” Free” Market Capitalism.
    As Kenny Boy said the only rules are that there are no rules. “Free” Markets at their finest.

    I’m beyond any comprehension what is going on. I don’t see a good outcome. Morally bankrupt is the way I see it. Take what you can while you can.

    Anarchy rules. After all the government is bad, and should stay out of the way of the “Free” Markets.

  21. Mannwich says:

    B, b, but, we need LESS regulation, not MORE. CRA, Fannie, Freddie………

    What a wonderful world it would be with less, excuse me, NO regulation. We’d all sit in a big circle and play hackey-sack together singing “kumbaya” as we watch the “magic” of “the markets” do its wonders.

  22. zell says:

    Amen Barry. We badly need heads on stakes. As we enter what I expect will be a very tough period there has to be retribution to let innocent people in our country know that their financial suffering is being accounted for. China does it the easy way. They take a couple of people from the top out back and shoot them. We are in an early Weimar state with the center of the polity collapsing under the pressure of the financial burdens we face and the strengthening of the political extremes. I’m not saying we’ll deteriorate as far as Weimar but we have an economy ready to roll over and for the pall that will cast heads on stakes is all that will give people renewed faith that we can get serious. That’s the “fixing” we need now. Crimes have been committed!!

  23. Mannwich says:

    On another note (but cognos says it’s never been a better time to buy a house). Prices haven’t stopped falling. They’ll just fall more slowly as we drag this mo-fo out to exteme levels of time (see Japan)……

    http://www.calculatedriskblog.com/2010/03/first-american-corelogic-house-prices.html

  24. dead hobo says:

    Mannwich Says:
    March 18th, 2010 at 10:51 am

    What a wonderful world it would be with less, excuse me, NO regulation.

    reply:
    —————–
    Woojg Booja, Holy Bajoly, Mooka Mooka Mooka Pow! Your wish has been granted and backdated a year, but your memory of the old future has been retained. How different does the world look now that there have been no effective rules in place for a year?

  25. Mannwich says:

    @dead hobo: Not great, to be honest. But we can all pretend.

  26. Mannwich says:

    @bsneath: The “general public” don’t pay the bills.

  27. torrie-amos says:

    ash,

    when u have artificially low rates and unlimited credit stupid investments are made en mass, for every govt building built you need to maintain it and staff it, it does not stop

    mfg retools en mass every 30 years, going back to the 70′s they moved south for cheaper land, tax credits and cheap land…………30 years pass, ship it down to mexico or over too china, en mass, period end of story

    now, you can only move a plant and many of them en mass if can justify it on a spread sheet with what, oh me, oh my, low interest rates

    at the same time u got japan that ratherr than retoo alot, also shipped en mass to china

    china had cheap everything, thus, now all hear hear is currency valuations, blah blah blah

    china just went thru a massive restructuring of steel plants, now with all new equipment and cheap labor and government support how do you think they will do? they built enough steel capacity to supply the wrold, do they have a problem now

    all this stuff is so basic yet our regulators, politicians listen to who????

    with no job growht, now u got klugman leading the charge, of course no one saw this coming, except auto workers 20 years ago

  28. bsneath says:

    What a Country!

    Boehner Tells Bankers To Fight Financial Reform: ‘Don’t Let Those Little Punk Staffers Take Advantage Of You’
    http://thinkprogress.org/2010/03/17/boehner-punk/

  29. blueoysterjoe says:

    I am late to the show on this, but I think this shows why we can’t rely on regulation to solve our financial problems. Regulation relies too much on enforcement and enforcement relies too much on the ideological whims of the executive branch. I am not sure where the solution lies, but mere regulation won’t cut it alone.

  30. “…All these books out about scandals, Confedercy of Fools came out in 03 or so, a 700 page tomb on Enron, there’s not one thing in that book that is not everywhere now…”–torrie-amos, above

    Enron, like LTCM *before it, were the Trial-runs of the schema(Corporate-Financial-facet) that was the Agenda for the 21st C.-Chapter of the U.S. FIRE Economy..(FIRE Economy h/t E. Jansen ww w.itulip.com )

    LSS: We’ve been hi-jacked..at every critical junction throughout our Poli-Sci-Fi Landscape/thought construct..
    ~~
    “..I think this shows why we can’t rely on regulation to solve our financial problems. Regulation relies too much on enforcement( by an external entity-ed.)–blueoysterjoe, above

    see: “An enlightened citizenry is indispensable for the proper functioning of a republic. Self-government is not possible unless the citizens are educated sufficiently to enable them to exercise oversight. It is therefore imperative that the nation see to it that a suitable education be provided for all its citizens. It should be noted, that when Jefferson speaks of “science,” he is often referring to knowledge or learning in general.”
    http://etext.virginia.edu/jefferson/quotations/jeff1350.htm

    “”I know no safe depositary of the ultimate powers of the society but the people themselves; and if we think them not enlightened enough to exercise their control with a wholesome discretion, the remedy is not to take it from them, but to inform their discretion by education. This is the true corrective of abuses of constitutional power.” –Thomas Jefferson to William C. Jarvis, 1820. ME 15:278
    “Every government degenerates when trusted to the rulers of the people alone. The people themselves, therefore, are its only safe depositories. And to render even them safe, their minds must be improved to a certain degree.” –Thomas Jefferson: Notes on Virginia Q.XIV, 1782. ME 2:207

    “The most effectual means of preventing [the perversion of power into tyranny are] to illuminate, as far as practicable, the minds of the people at large, and more especially to give them knowledge of those facts which history exhibits, that possessed thereby of the experience of other ages and countries, they may be enabled to know ambition under all its shapes, and prompt to exert their natural powers to defeat its purposes.” –Thomas Jefferson: Diffusion of Knowledge Bill, 1779. FE 2:221, Papers 2:526

    “The information of the people at large can alone make them the safe as they are the sole depositary of our political and religious freedom.” –Thomas Jefferson to William Duane, 1810. ME 12:417

    “The diffusion of information and the arraignment of all abuses at the bar of public reason, I deem [one of] the essential principles of our government, and consequently [one of] those which ought to shape its administration.” –Thomas Jefferson: 1st Inaugural Address, 1801. ME 3:322

    “Though [the people] may acquiesce, they cannot approve what they do not understand.” –Thomas Jefferson: Opinion on Apportionment Bill, 1792. ME 3:211″–from, above, link
    ~~

    merely, to ask: “Who’ll do, for You, that which you are unwilling to do for your Self?”

    and, “When has Stupid, ever, Paid?”
    ~~

    That We’ve been Lied to, is a Given, that We remain Ignorant is Our Choice.

    “”If a nation expects to be ignorant and free, in a state of civilization, it expects what never was and never will be.” –guess who?
    http://quotes.liberty-tree.ca/quote_blog/Thomas.Jefferson.Quote.1BDE

    and, lest the NEA believe this to be a meta-pean to their, gross, inadequacy, see: “Perhaps the greatest of school’s illusions is that the institution was launched by a group of kindly men and women who wanted to help the children of ordinary families—to level the playing field, so to speak..”
    http://www.johntaylorgatto.com/

    sorry, for the long post, some people don’t understand the utilization of Hyperlinks, and, especially, in this Context–the SEC w/ XBRL..

  31. FrancoisT says:

    From the lucid and incisive Andy Xie:

    In previous financial crises, big shots who contributed to bubbles went to jail; Americans expect heads on pikes after a financial crisis. Jailing even a few crooks is extremely important because it resets the system with a new psychology. For example, after the junk bond bubble burst in the 1980s, junk bond king Michael Milken and top executives at many bankrupt savings and loans went to jail. And after the IT bubble burst in 2000, jail terms were ordered for top guys at Enron, Tyco and even some Wall Street analysts.

    The bubble that just burst was bigger than any in the past, yet none of the big shots went to jail. Instead, the president has dined with them and begged them to support his financial reforms. Americans see this as a farce. And if the Obama administration is unwilling to change, voters will choose someone else.

    In addressing the financial crisis, Obama’s team continued a Bush administration policy aimed at protecting the status quo. Obama didn’t have to, but the government needed a financial system to protect the economy. It could have let the system go down before nationalizing it, leaving a clean sheet for a new system without the flaws that led to the bubble. Instead, the Obama administration created an enemy to its own financial reforms by bailing out the existing system wholesale. No one could expect the same people who benefited from the system’s flaws to support abolishing them.

  32. FrancoisT says:

    Rereading my previous post,

    The bubble that just burst was bigger than any in the past, yet none of the big shots went to jail. Instead, the president has dined with them and begged them to support his financial reforms.

    I realized how right Yves Smith was when she wrote that deep down, Obama is a coward. He just won’t fight head on, even for what is right.

  33. torrie-amos says:

    IMHO, obie had a very tough choice, first off it was all set up by bush and folks tarp, to think they did not have a complete plan of action imho is foolish

    any huge business owner has 30 major projects on the board with short, intermiediate, long term goals, and he had the most important one handed to him at the last minute, along with his campaign promises and what he thought needed to done correctly

    one thing imho different with him and us is with 15 years in politics he has a different time frame of moving the ball forward, which affects thinking

    i’m sure in his think tank they decided on the safe tried and true route, we hate tarp but we will deal with it, and no one can disagree with stimulus, worldwide every government is doing it, that was on one hand

    on the other, i’m sure there main concern was social unrest and rioting if he nationalized the banks, which he probably wanted to do

    imho, he misses out on the fact as a leader u need to put the hammer down on your own sometime to keep people in line, show major domo balls, by nature he is a concensus builder, and i don’t think there is anything he misses or understands for the most part, except some ticky tack stuff that shouldn’t be there, some of his arguements are too long, he says very silly shit sometimes, like falling into the trap of commenting on the cop in cambridge, etc. and overall consistency in messages, and agendas

    i also think he misses one of the major things that got him here, the internet, also has some pitfalls if you don’t address them, more folks then ever are concerned with politics, there are passionate bloggers that know everything about all they tell me the common person information, yet, he doesn’t use it to his advantage

    the big thing of late, “It is the ugliness of the healthcare bill PROCESS” , which i don’t disagree with yet no dem is using that as a POSITIVE……..ie, like, this is important issue and finally with the help of inet, cable show american people get to see and hear how we do it, and since it is there govt. it is a good starting point for action, some of the weak things in this process were xyz, we’d like to address them in the future this way, that is what any great ceo would do, u can’t change if u are not aware

    as a PS, yes, they should also be let’s see 1,000 folks went to jail, we should shoot for 5,000, hell make it a jobs bill, lol, build a damned new prison for wall street felongs, send em all too somao or something in a gitmo like facility, okay, part silly idea, yet, putting fear of god into the criminals works wonders

    the justice system is designed for “no touchy, no foul”, ie, for the most part if u do not threaten life during a crime, u get wrist slapped, as opposed to armed robbery

  34. [...] is the end result of an ideology that believes regulation is unwanted, corporations  should be unfettered, and that the SEC should be starved of funding and personnel. It is not an accident, but it [...]