Posts filed under “Regulation”
Its this morning’s must read piece . . .
“OUR financial catastrophe, like Bernard Madoff’s pyramid scheme, required all sorts of important, plugged-in people to sacrifice our collective long-term interests for short-term gain. The pressure to do this in today’s financial markets is immense. Obviously the greater the market pressure to excel in the short term, the greater the need for pressure from outside the market to consider the longer term. But that’s the problem: there is no longer any serious pressure from outside the market. The tyranny of the short term has extended itself with frightening ease into the entities that were meant to, one way or another, discipline Wall Street, and force it to consider its enlightened self-interest…
The instinct to avoid short-term political heat is part of the problem; anything the S.E.C. does to roil the markets, or reduce the share price of any given company, also roils the careers of the people who run the S.E.C. Thus it seldom penalizes serious corporate and management malfeasance — out of some misguided notion that to do so would cause stock prices to fall, shareholders to suffer and confidence to be undermined. Preserving confidence, even when that confidence is false, has been near the top of the S.E.C.’s agenda…
The commission’s most recent director of enforcement is the general counsel at JPMorgan Chase; the enforcement chief before him became general counsel at Deutsche Bank; and one of his predecessors became a managing director for Credit Suisse before moving on to Morgan Stanley. A casual observer could be forgiven for thinking that the whole point of landing the job as the S.E.C.’s director of enforcement is to position oneself for the better paying one on Wall Street.”
I would add to this the contributory factor of the disastrous rein of Harvey Pitt as S.E.C. chairman. He took an SEC that had some serious problems and damaged it enormously.
A Bailout Nation excerpt:
“In an era of corporate accounting scandals, Pitt had close ties to the accounting industry. And for inexplicable reasons, Pitt met with the heads of companies under active SEC investigation. As a Wall Street lawyer, Pitt had “recommended that clients destroy sensitive documents before they could be used against them – advice that seemed to find echoes in the SEC’s investigations into Enron and its shredder-happy auditor, Arthur Andersen.” Pitt had to recuse himself from many of the SEC’s votes — they were frequently about the clients he had represented as a defense attorney. By July of 2002, Senator (and future GOP presidential candidate) John McCain was calling for Pitt’s resignation.” Pitt, not surprisingly, demoralized the agency. To investor advocacy groups, having Pitt as SEC chief was like putting Osama bin Laden in charge of Homeland Security.
The End of the Financial World As We Know It
MICHAEL LEWIS and DAVID EINHORN
NYT, January 3, 2009
How to Repair a Broken Financial World
MICHAEL LEWIS and DAVID EINHORN
NYT, January 3, 2009
I’m fascinated by this huge article in the Washington Post called The Beautiful Machine. Its about AIG’s Financial Products divisions, a hugely profitable operation specializing in derivatives, with roots in Drexel Burnham, that traces its AIG affiliation all the back to 1987. Its the first of three parts, and I’ll pull excerpts from each. Here’s…Read More
Some toothless watchdog: This year, the S.E.C. has brought the fewest number of securities fraud prosecutions since 1991. That’s according to the data that the Transactional Records Access Clearinghouse (TRAC), a research group at Syracuse University, has amassed. Soft on White Collar Crime, by the Numbers: • 2008 had 133 prosecutions for securities fraud (thru…Read More
I am trying to figure out who is the biggest jerk in this story. It is a challenge, given the collection of utter clowns and ne’er-do-wells that run that office.
First, you have some moron who helped cost the taxpayers a hundred large ($100B) back in the 1980s. How this idiot ever ended up in a position of responsibility in any regulatory agency again is beyond my comprehension. There are some who would point to all government regulation as the root cause, but crony capitalism and the disbelief in and and all regulations is what leads to putting someone so unsuitable in this position of authority.
Second, you have to wonder about just how frickin’ dumb the idiots who run the office of Thrift Supervision have been the past 8 years. These were the clowns that blamed Schumer for the collapse of Indy Mac, after backdating their capital levels. As you will see below, if the OTS weren’t incompetant boobs, Indy Mac should have been shut down months before their run!
That the OTS is run by such half-wits and morons, that they blamed a US Senator — for having the temerity to ask how much money the criminally incompetant managers running Indy Mac were going to cost the taxpayer — rather than their own inadequate supervision. (BTW, the answer to Schumer’s question was about $9 billion).
Recall that when James Gilleran took over the Office of Thrift Supervision, he took a chainsaw to a stack of regulations to symbolize how his agency was going to “cut red tape” for thrifts (a.k.a. S&Ls), which were heavily involved in mortgage lending. The ideologue in him declared: “Our goal is to allow thrifts to operate with a wide breadth of freedom from regulatory intrusion,” Gilleran said in a 2004 speech.
This wasn’t mere malfeasance by Gilleran — as we have been repeatedly noting, it was nonfeasance — the intentional failure to perform a required legal duty or obligation.
As for the FBI, the division in charge of enforcement, after sounding the warning bell, subsequently made a “strategic alliance” in 2007 with the Mortgage Bankers Association (MBA) the trade association for (then) major industry players like IndyMac and Countrywide Financial. Imagine if the FBI division in charge of organized crime set up a joint venture with the Cosa Nostra. That’s what this was the equivalent of at the FBI.
It all comes back to the radical deregulatory philosophy we discussed Sunday: Appoint cabinet level people who share that same belief system, who think government can never work — and voila! – this is what you get.
Anyone who thinks that really bad behavior in the corporate world needs no proscribing should not be put in charge of Regulatory agencies.
Excerpts after the jump . . .
Won’t be the last one, either: Thierry Magon de La Villehuchet, who ran a fund that invested with Bernard Madoff, was found dead at his Madison Avenue office today, a New York City police officer at the scene said. The death appeared to be a suicide, he said. De la Villehuchet, 65, was a founding…Read More
Here’s one of the simple truisms that gets lost in the political (i.e., bumper sticker) discussions. Don’t regulate the free markets! Don’t interfere with innovation! Don’t stifle incentives! What bullshit. One of the best ways to win a debate is to control the language used. This was one of the elements George Orwell was discussing…Read More
In 2001, reporter Erin Arvedlund wrote an article for the financial weekly Barrons that was skeptical of Bernard Madoff’s strategy and performance on Wall Street. She questioned how Madoff was able to offer good returns. She talks with Steve Inskeep about the impetus for her story and what she learned in the process.
Morning Edition, December 18, 2008
Columbia Journalism Review interviews the Miami Herald reporter whose series we have highlighted here many times. JD: I expected there would be some criminal histories. There’s gonna be a few pot possessions and stuff like that. The law said that they were supposed to screen brokers for crimes involving fraud, dishonesty, and “moral turpitude”, which…Read More