Wall Street’s Repeat Violations, Despite Repeated Promises
nytimes.com
nytimes.com
Even as Judge Jed S. Rakoff of Federal District Court in
Manhattan rejected the Securities and Exchange
Commission‘s proposed settlement with Citigroup because he
did not find it in the public interest, the agency’s
chairwoman, Mary S. Schapiro, sought to enhance the
S.E.C.’s authority to impose higher financial penalties to
deter securities violations. An important part of her
proposal would allow the S.E.C. to seek the increased
penalties in administrative proceedings, a move that may
allow the commission to avoid having to pursue its cases
in federal courts in the future, skirting the kind of
scrutiny Judge Rakoff applied.
The SEC's fines have about as much to do with preventing a financial meltdown as local police traffic fines have to do with preventing a murder. It's just safety theater.
That is, everyone is familiar with the local/state government phenomenon of cops who ticket to make quota at the end of the month. Whether you are "breaking the law" today depends in large part on whether state/local government needs to make money off you. Tickets for expired registration are profit centers, robbery investigations are cost centers.
The federal government is subject to many of the same dynamics, except that it isn't called on the carpet in the same way because federal agencies can intimidate those with knowledge of the situation into silence. Once in a while data comes out on the corruption and malfeasance of (e.g.) FDA[3] or EPA[4] or SEC[5] bureaucrats, but for the most part they have the guns so they are dishing out the punishment.
The NYT's role in all this is to act as stenographer. There is no summary of how much the SEC sought to earn in fines from pursuing these prosecutions, nor how many of them were overturned or thrown out of court.
[0] http://dealbook.nytimes.com/2011/12/05/s-e-c-seeks-more-powe...
[1] http://www.paulgraham.com/submarine.html
[2] http://www.sec.gov/news/press.shtml
[3] http://www.washingtonpost.com/business/economy/fda-chemist-p...
[4] http://epw.senate.gov/public/index.cfm?FuseAction=Minority.B...
[5] http://abcnews.go.com/GMA/sec-pornography-employees-spent-ho...
The real problem is that people just don't care enough about white collar crime. When someone mugs you for $5 you want vigilante justice, but when billions (trillions?) of dollars are on the line, we are happy to just shrug our shoulders.
I think you're underestimating the degree of bloodthirstiness. I sometimes wonder if Occupy Wall Street wouldn't play better with Middle America if they dropped the whole Gandhi-worship PR schtick (which Middle America seems, by and large, to despise rather than admire) and more openly advocated violence against investment bankers, specifically.
"Middle America" seems to know that it wasn't investment bankers that gave govt money to banks. And, they're reasonably receptive to the accounting that shows that financial TARP was break-even to modestly profitable.
However, they're incensed about the bailouts that are costing money. For example, bailing out GM pensions isn't popular and largish govt worker pensions are even less popular. And then there are the Fannie and Freddie money-pits.
I've heard actual humans say it. I didn't quiz them as to why.
As to Fox, do you actually listen to/watch Fox or are you just guessing/getting it second hand? (I ask because several months ago, I watched enough to discover that most people who talk about what's on Fox get it wrong.)
I really doubt that most people know this. I've had to explain this to many red-state folks. Actually, I've had to explain it to a lot of blue-state folks too. And draw a comparison to the RTC in the 80s.
Conclusion: not many people have a clue about this.
I didn't say that they knew it. I said that they were open to the possibility and explanation.
Thanks for the RTC reference.
Then they're not very well educated because that's exactly who it was. Did you miss Paulson and co coming over from Wall street right into the White house saying the world was going to end if we didn't bail out these bankers?
As far as PR and lobbying, I think it's pretty clear that the SEC's outgunned. I'm not approving of the job they're doing by a longshot, but as far as sucking money out of the system they're nothing compared to the banks themselves.
The right comparison to make is gains vs losses due to fraud. Take ABACUS as an example. According to the SEC GS lost $70m when they committed against themselves, and paid another $500m in fines for a total loss of $570m.
I don't know what world you live in where losing $570m is a "great business deal".
WOW!!!!
Maybe you didn't mean it the way it sounds. But the way I'm reading this, you seem to be saying, "there's no reason for a trial. If you were innocent, the police wouldn't have arrested you". Saying that is a great way to get out jury duty, but it's no way to run a judicial system.
That being said, if the SEC believes that stiffer penalties need to be put in place because the leadership there honestly believes that the financial system is out of control, is that really so bad? So what if it's in the context of a press hit? Isn't that how organizations all talk to the public today, anyway?
I do agree with you that judicial oversight is most certainly necessary. If you get a traffic ticket you can take it to a traffic court, even. Why should it be so different in the case of securities violations?
On face value that wouldn't seem bad, but I'm personally not interested in exploring that case, because as it stands the SEC doesn't seem to believe that the financial system is out of control. If they did do so, they would make use of the tools they already have.
Take a look at the case SEC v. Citygroup, the judge refused a Consent Judgement and the opinion outlines the ways in which the SEC's is really dropping the ball with the authority they do have, and just giving City a slap on the wrist, it even goes as far as to say that:
As for common experience, a consent judgment that does not involve any admissions [of wrongdoing on the part of Citygroup] and that results in only very modest penalties is just as frequently viewed, particularly in the business community, as a cost of doing business imposed by having to maintain a working relationship with a regulatory agency, rather than as any indication of where the real truth lies. This, indeed, is Citigroup's position in this very case
From: http://www.nysd.uscourts.gov/cases/show.php?db=special&i...
As little as admission of wrongdoing (or taking this to go to court and City losing) would make it possible for those people wronged by Citygroup to peruse them in civil court (they technically always could, but read the opinion to see why it makes a huge difference). If the S.E.C cared about getting the financial system under control, this would be an easy step for them to take.
Also, they're looking to be able to impose their new fines without judicial review which is completely different issue from the size of the fines.
The part I'm disagreeing with is that the criminal misdeeds of the financial institutions are so enormous that even with these "power-upped" fines, the fines are a trivial mosquito bite to the companies.
The SEC is routinely in bed with the financial institutions that they regulate and I see these fines as a corrupt action that fines the institutions less than 1% of the damage the institutions did to the US, and then exempt the institution from further civil and criminal penalties. This is exactly like the "fifty states attorney general" settlement with the banks is doing.
I read the ruling on the Citygroup case you mentioned (I linked to the opinion elsewhere in this thread for anyone interested), it seems like the way the SEC chooses to issue the fines is the bigger contributor to their ineffectiveness than the fines themselves.
I do agree that after-the-fact fines won't necessarily fix anything, and even if they do function as a deterrent their effect does have bounds, but to me it looks like the SEC is more interested in slapping banks on the wrist than actually carrying out their mission. They could cause more punishment to come to the banks then they do now, so I am confused as to why they would possibly want to be able to impose bigger fines. The way I see it, it seems to be all about running around the judiciary and nothing about the size of the fines.
It seems silly to equate organization "power" with "how much does the top guy make".
For example, Obama makes less than the president of GM. (Heck - Obama makes less than the president of the UAW.)
To go to the complete extreme, you could employ someone to shadow every one of your current employees, and report to you if they break any of these rules.
At the other extreme, you could issue a memo saying "Don't let me catch you doing any of this stuff, which will make you more profitable and earn you a bigger bonus, hint hint."
In between turning a blind eye and adding ridiculous amounts of oversight, the CEO can make very clear what is and what isn't acceptable, what the penalties are for employees who break these rules. S/he can also instigate appropriate oversight to make it more likely to catch offenders.
Like I said at the start, this can never be 100% reliable, but it can cut down the rate of offence a lot.
[edit] tl;dr : If it is important enough to you, you'll find a way to ensure it doesn't happen.