Tuesday, August 11, 2015
Insecurities at the Securities and Exchange Commission
The government’s financial watchdog has been among the most ineffective federal agencies in recent years. This enforcement and financial supervisorial agency was part of the government’s reaction to the financial machinations that gave rise to the Great Depression that began in 1929 and raged through the 1930s. Created in 1934, the S.E.C. has promulgated rules for financial traders, public and most private offerings of securities, stock exchanges, financial advisors and broker-dealers, enforcing Congressional mandates and running administrative hearings to foster transparency, disclosure, fairness and to eliminate fraud, the power of those with inside information to manipulate the market and generally to eliminate unfairness within the financial system.
Big mandate, with both civil and criminal powers – often exercised in conjunction with the Department of Justice and its many enforcement divisions – that should have been enhanced by the 2010 Dodd–Frank Wall Street Reform and Consumer Protection Act. The Great Recession, which seems to have reset the entire global economy downwards by trillions and trillions of dollars. Experts are still struggling with calculating the cost of this financial disaster unequivocally caused by the financial “too big to fail” institutions that most of us commonly lump into a category we call “Wall Street.”
Bear Stearns and Lehman Bros. collapsed under the weight of overpriced derivatives – including the infamous bundles of subprime mortgages – and overleveraging north of 30 dollars of debt for every dollar of equity. Most of the other big bad boyz mega-institutions and insurance giants staggered and almost fell from their own abuse of the financial system, staying alive only with a massive federal bailout. They’re back and richer than ever. In 1965, in our biggest corporations, the ratio of CEO to average worker pay was 20 to 1, in 1978 it rose to 30 to 1. Today, it seems that the ratio has risen to close to 300 to 1.
The Great Recession slammed the earth with pain and lost value, millions and millions of lost jobs, many never to return. Experts have been running numbers trying to get a clear picture of the total costs for years, but it is a frustrating process. Just looking at the United States alone, the estimates are staggering. In July of 2013, the number stood at approximately $6 to $14 trillion in America alone, depending on which experts you talk to. The big boyz got their values back; the rest of us are still waiting. Look at those trying to measure the precise costs. “In July [of 2013], three economists at the Federal Reserve Bank of Dallas, Tyler Atkinson, David Luttrell and Harvey Rosenblum, gave it a shot, at least as far as the United States economy goes.
“‘It is not difficult to understand why such accounting exercises are rare,” they wrote. “They require comparing a world in which no financial crisis occurred to what actually happened and what is likely to transpire.’
“Most strikingly, their examination offers a panoramic view of the variety of ways in which the financial crisis diminished the nation’s standard of living. At a bare minimum the crisis cost nearly $20,000 for each American. Adding in broader impacts on workers’ well-being — an admittedly speculative exercise — could raise the price tag to as much as $120,000 for every man, woman and child in the United States. With this kind of money we could pay back the federal debt or pay for a top-notch college education for everyone.” New York Times, January 21, 2014. Since, we’ve had LIBOR rate manipulation, big banks working around the Iran sanctions and the evolution of the one percenters to a level of wealth and asset ownership that threatens the viability of the United States itself. Even Republicans are talking about income inequality these days!
But there have been no high profile prosecutions of senior managers of the biggest financial institutions who fomented this mess in lockstep, misleading and manipulating along the way, the ratings agencies that gave their A-stamp to debt-bundles worth a fraction of the value that traders were selling them for, or the corporate CEOs who played the game with their bankers. Zero. No one. Sure we saw Bernie Madoff go down (not part of a big bank), a bunch of third-level traders face conviction, but not a single major executive at any large “Wall Street” institution got fined, arrested, prosecuted or convicted… notwithstanding of the massive obvious fault and causation involved. Instead they got a bailout, a verbal slap on the wrist and billions and billions of new profits and upside.
So when I read in the August 8th DealB%k in the New York Times that the S.E.C. was moving somewhat away from their proclivity to stick with prosecuting the little guys and moving on up to high profile cases, I was really interested to see how this new enforcement vector was coming along. What exactly did the S.E.C. think a “high profile” prosecution looked like? Which of the biggest bankers were they going after, I wondered?
“High profile,” it seems, didn’t mean biggest bankers who wrought real damage. It was a reference to potential celebrity miscreants, allegedly including star P.G.A. golfer Phil Mickelson on an insider trading case. Oh, and they were going after legendary private equity star, Kohlberg, Kravis, Roberts & Co…. over a relatively minor allegation that they were passing on expenses from a “broken deal” to their investors. These were the “big” cases at the forefront of redefining the S.E.C. as the new tough guy on the block, willing to take on the biggest baddest boyz in the financial world. Really? Are you kidding me?
If you have a government unwilling to face down those who have done the greatest damage to each and every one of us, those who absolutely abused the system, inflicting the biggest dollar losses in the history of the United States, how in the world can you remotely grapple with curing income inequality? We have effectively rewarded and enriched those who have created the disaster without remotely holding them accountable. What do you think the message to these financial devils has been? Exactly! And we are definitely reaping what we have sown.
I’m Peter Dekom, and there really isn’t and never has been any serious effort to hold those uber-rich (read: exempt from the laws that apply to everyone else) accountable for their crass and horrific manipulation of our entire financial system.