Almost all paths of incompetence in the current crisis run through the office of the Chairman of the SEC, Chris Cox. McCain’s solution to fire Cox isn’t tough enough. Exile is better. Fortunately for Cox this isn’t the Stalinist Soviet Union or his fate could be a lot worse.
Cox’s failures are too numerous to count. However, I’ll give it a try. Below are what I think are his top 5 failings.
Failure to enforce disclosure laws and regulations.
Disclosure rules and regulations protect investors by requiring companies to disclose everything that is needed for informed investment decisions. And, CEOs and CFOs are required to sign certifications that such disclosure is materially accurate, complete, and that their companies have adequate internal controls to ensure such accuracy and completeness.
Enforcement of disclosure rules and regulations has been a joke. CEOs lie to shareholders with impunity and without fear of SEC enforcement. It is impossible to conclude that SEC filings for Freddie, Fannie, AIG, Lehman, or Bear Stearns complied with SEC rules and regulations.
However, instead of enforcement by the SEC, there is silence. While not all management actions are criminal, why hasn’t the SEC used its civil enforcement authority, i.e., assessing fines and penalties? How about protecting future investors by banning failed executives and boards of directors from serving in executive management at other public companies?
Failure to enforce accounting standards.
When Cox states that the SEC doesn’t have regulatory authority over capital adequacy of financial services companies, he isn’t telling the truth. The SEC has regulatory authority over the financial statements of ALL publicly traded companies in the U.S. which of course includes the financials. If Cox had required greater reserves and transparency of financial services companies it would have happened.
Every quarter all publicly traded companies file reports with the SEC that are provided to shareholders and the SEC has review and comment authority. If the SEC deems financial disclosure inadequate, incomplete or opaque it has the authority to force the company to amend its filings. It also has authority to establish accounting standards for publicly traded companies which means it can have different requirements than GAAP.
So when AIG filed its last quarterly report and decided that it didn’t need to have loan loss reserves against defaulting mortgages and securities, the SEC had the ability to require additional loan loss reserves. When Freddie and Fannie decided to pretend that defaulted mortgage were good assets because they changed their accounting standards, the SEC could have just said “no”. When Lehman manufactured $2.4 billion of pre-tax income by pretending that it wasn’t going to repay its debts (one of the dumber aspects of mark to market accounting), the SEC should have protected investors with disclosure.
Failure to supervise the rating agencies.
Cox wants everyone to believe that despite being the rating agencies' only regulator, the SEC has no oversight or enforcement authority and cannot influence their performance. Once again, the SEC’s statements are false. Cox assumes that no one will take the time to read the Credit Rating Agency Reform Act of 2006 which states that the SEC has the right to suspend or revoke the license of any rating agency for a wide range of reasons. Rating agency regulation and reform is Cox’s responsibility.
Failure to investigate and prevent market manipulation, i.e., naked short selling.
Free markets are supposed to be honest markets. The naked short selling issue isn’t new and the SEC’s knee-jerk emergency response is an embarrassment. The ban on short selling of 799 stocks is very similar to Putin’s actions this week to manipulate the Russian stock market. I haven’t a clue whether or not the uptick rule works, but I know that enforcing rules on naked short selling shouldn’t have required destructive and ill-thought-out emergency orders. In the middle of the 1800’s the legendary financial scoundrel, Daniel Drew, understood naked short selling was bad (as he lost his fortune covering a short squeeze) when he said, “He who sells what isn’t his’n, Must buy it back or go to prison.” Too bad Cox never took economic history in school (or googled economic trivia).
Failure to protect small investors.
It is no coincidence that according to the FT, stock ownership by individual investors is at an all-time low. The average individual investor knows that his chances in the market aren’t good. And the SEC doesn’t seem to care if the average guy is disenfranchised from the economic future of America. In addition to the above failures, Cox forgot that it was his job to make sure that brokers shouldn’t engage in deceptive sales practices (like in the sale of auction rate securities and the sale of Freddie and Fannie common and preferred stock to small investors because they were “guaranteed” by the government). Cox refuses to support private litigation by individual investors who were ripped off in the stock and bond market. If the SEC doesn’t protect the little guy, who will?
It is hard to think of how anyone could have done a worse job than Chris Cox (other than engaging in illegal conduct). But if anyone can think of things that I have missed, please feel free to tell everyone reading this by commenting. I doubt that my list is complete.
This article has 104 comments:
Fighting and passing bills for LESS Regulation.
Give me a break on the "It's the SEC's Chairman's Fault."
Who was in charge for the last 7.75 years?
What was McBush doing for more regulation over his TWO Terms with a Republican Congress?
Oh, and let's say it was Bill Clinton's fault, he's been out of office for 8 years and left us with a SURPLUS. How's that Surplus doing with the Republicans in charge?
How's your 401K doing?
Mine wants me to vote for Bill Clinton.
"…the events of the past year are not a mere accident, but are the results of a conscious and willful SEC decision to allow these firms to legally violate existing net capital rules that, in the past 30 years, had limited broker dealers debt-to-net capital ratio to 12-to-1.
Instead, the 2004 exemption -- given only to 5 firms -- allowed them to lever up 30 and even 40 to 1. "
www.thememoryhole.org/...
The SEC has allowed the illegal act of "Naked Short Selling" for many years. A pure violation of public trust !
This covert action was made possible by both the NASD (Finra) and DTCC (Depository Trust Corporation) The DTCC (DTC) is a private corporation whose board members are the elite of former members of both the SEC and Wall Street. DTC control 98% of all electronic clearing of all stocks in the U.S. and a good percentage worldwide. The buck stops here as DTC makes money off of every share transferred. Where a short exist, DTC creates new out of thin (electronic) air.
Finally, the money made by Hedge Firms by 'Naked Short Selling' is upward of hundreds of billions.
The American Public have be fleeced and our faithful leaders sit on their golden thumbs.
This kind of thinking is totally useless in a situation like this. One should distinguish between revenge and solutions. The writer, and supporters are defending a failed philosophy, so ingrained in the political and financial system that no small (and I mean small), retaliatory action will have any more affect than killing the mosquito that bit you.
Yes, the pervasive deregulation fervor of the Regan era continued and spread into many in the Democratic party. However it's a Neocon philosophy from start to finish, "markets will regulate themselves" has been the mantra for this entire administration. Those who pointed out that historically, the didn't, were laughed at.
Let's just admit that the idea itself was wrong, and, dare I say, Move On!
What happens next? Look at mid twenties, same over spent, living beyond your needs and means. Then the collapse of depression (is this the next step?) and then world war 2.... now what will happen? If we continue to live beyond our means and real needs, depression is on the sure path. And while we worry and squabble between us about money, another country secretly prepares for world war 3 to take over the west. No conspiracy theory. Just look at patterns what is next.
How to get out of the mess? Raise the interest rate. let those that lived beyond their means and needs join a marshal program and start real work, off the couch in front of TV! Go and build and make, not just manage service contracts that moved real jobs overseas.
Becoming just a service nation living in a dream of Hollywood may be the real issue. Stop trying to manage, get off the couch and work. Just look who is the most obese nation with the highest medical problems. Loose the sweet tooth, more exercise and sport in school.
We only have ourselves to blame for lack of discipline... and nobody will cry over America's loss. They all have their own issues to deal with and want to control us.
and on January 20th 2009, at exactly 12:00 noon, you will hear the following words......
" I Barack H. Obama, do solemnly swear as President of these United States, that I will support and defend the Constitution against all enemies, foreign and domestic; that I will bear true faith and allegiance to the same; that I take this obligation freely, without any mental reservation or purpose of evasion; and that I will well and faithfully discharge the duties of the office on which I am about to enter. So help me God."
To suggest that one political party or the other is responsible for that is a form of insanity. What we are experiencing is an economic train wreck. In a train wreck no one looks around and asks the person next to them if they are a Republican, a Democrat, or an independent.
We live in a time when political and business leaders are able to avoid being held accountable for their acts of gross negligence and wilful misconduct. Sounds like lawyer talk. Well lawyers are intricately involved in this sorry state of affairs. Lets take the Bush administration. What did all the Republican cronies like Cheney learn from the Nixon saga? Don't put yourself in weak position legally. Don't testify under oath, better yet don't testify. Don't provide information under threat of perjury and obstruction of justice, better yet don't provide information. They have artfully avoided political accountability for a litany of constitutional abuses, executive misconduct and malfeasance. They are also getting AAA legal advice.
OK, now lets consider what has happened in the financial services industry. Until recently, our securities laws forced Wall Street to worry about the way it conducts business. Don't play by regulatory rules with origins in Roosevelt's New Deal and sooner or later the SEC or Elliot Spitzer will hunt you down. You had to worry about adequate disclosure and a battery of rules designed to protect average public investors. If you misbehaved, you also had to worry about a ravenous plaintiff's bar charged with the duty of prosecuting claims on behalf of investors unable to fend for themselves (for a generous fee, of course). More AAA lawyers.
Those New Deal rules are still there. However, Wall Street has managed to water everything down to the point where a manmade Katrina hits the financial markets and there is little or no means to hold the perpetrators accountable. Don't hold your breath waiting for the SEC to chase the bankers that designed, peddled and later lied about their exposure to toxic jackass backed securities. What about Credit Default Swaps? Oh, those so called financial weapons of mass destruction are not securities within the meaning of the securities laws. Those are cutting edge risk management tools. How about victims like poor old AIG banding together to sue those who set them up with these improvised financial explosive devices. Never mind, those were sold to "sophisticated" and "accredited" investors able to fend for themselves. Sales to these financial sophisticates are not subject to the same legal regime. We now see that "sophisticated investor" means one who expects to be bailed out by Uncle Sam. Finally, you won't be seeing any widows and orphans starting class action suits, because no one sold them any securities. Instead, they are accused of being financially culpable in this mess because they fell prey to the army of mortgage brokers who aggressively peddled shadow bank loans. Mortgage brokers owned by who else? Wall Street investment banks like Merrill, Lehman and Bear Stearns. Shadow bank loans? Yep, more AAA legal advice.
Let the markets regulate themselves! That is the fundamentalist mantra of the lords of the Street. Well, that is what the market was actually doing until this past Friday. Self regulation came in the surprising form of punishment by the shorts. After all, it was the hedge fund industry, Messrs Einhorn et al, and not the SEC that called Lehman and AIG to the carpet. Not to worry, Mr. Cox, a Wall Street lawyer who runs the SEC, has fixed the short problem for his former clients/masters. Trading bets against financial institutions are now banned. In a comic twist, the SEC is planning to force hedge fund managers to testify under oath. Something more than you can expect from the likes of Harriet Myers, Esq. and Alberto Gonzalez, Esq. Ultimately, the reckless bets that the investment banks made with shareholder capital will go unpunished. Still more AAA legal advice.
Well you begin to see how what seems like one big scam is actually a legally airtight apparatus for screwing Grandma, Grandpa and Joe public in an indirect manner without being held legally accountable. Time to throw out all of the New Deal regulatory assumptions and start all over again. Wall Street, like the Bush administration, has managed to innovate its way out of corporate accountability-- the old fashioned way: hire innovative AAA lawyers.
One hundred years ago a man named Franklin Keyes, Esq. (you guessed it, a Wall Street lawyer) published a tract titled: "Wall Street Speculation, Its Tricks and Its Tragedies". In it he says: "Wall Street is dominated by some of the brainiest and shrewdest men in the country, natural born sharpers and schemers, and before the average man can get the better of them, except through the merest chance, he will have to eat brain food for a long time." Well said Mr. Keyes. Nothing seems to have changed, particularly the need to hire AAA lawyers.
WilliamBanzai7
September 2008
The sound you hear are the chickens coming home to roost.
If you bought the free-market mantra that underpinned the hands-off approach (hear no evil, see no evil, speak no evil) you also bought the free-market related securities that come with it....
In other words, you bought into the Hobson's choice of collapse vs nationalization that was bound to come with it.
own house, not only people with the money and income to do so. This populist Democratic
concept was backed by President Bush. Various programs were enacted to lower down payments and the income criteria required to buy a house. There were ARMS (temporary reduced interest mortgages), interest only mortgages which never reduced and then those that added interest to the mortgage so they increased each year. Income requirements were ignored for the greater good of equalizing home ownership and Fanny Mae and Freddy Mac authorized to issue these garbage loans with government guarantees.
Then there were the fees, points to the originating broker, points to Fanny and Freddy and the the the Brokerage Houses who pooled the garbage and sold it to Banks, the public and other financial institutions where because of the Government guarantee it counted as capital.
Bush as well as McCain tried in the last 2 years to rein in Freddy and Fanny but the Democratic Congress would not consider it since the were receiving such large contributions not to change the rules, especially Obama. Nor were other Republicans joining either Bush or McCain.
Building boomed to meet the demand as the builders were paid even if the buyer could not pay the mortgage, that was the Banks problem. The Mortgage brokers made out like bandits writing loans to people who had no income, no job and or no assets. They called them Ninja Loans.
The builders supported this program with everyone acting for greed.
The Brokerage houses then took some of these subprime loans and broke them up into various parts and sold these parts like commercial paper. CMO and their ilk which were given investment grade ratings by the rating agencies even though they were sub sub prime loans due to a" purported computer error" and large fees paid to the agencies.
Hundreds of millions of dollars were paid to these "crooks" in fees, bonuses and salary and the parties who bought these investment rated or government guaranteed paper were left with the huge losses as the losses began. The basic premise that began this fiasco also doomed it to failure.
You cannot sell houses to people who cannot afford to carry them.
You cannot have loans originated except by parties who have an economic interest in the future payments made on loans.
The Democratic Congress was in a panic and said they were leaving. Bush forced them to face this disaster under threat of dire political fallout from their prior and current failure to act to correct these problems. Bush's position was the future of the USA outweighed any political advantage to him or the Republican party. There would be no finger pointing and the Democtatic Congress agreed to act.
They scared you enough to give away your liberty, they sacred you enough to give away some of your money to the military industrial complex, they exploited the American Dream to take away most of what you had left, an now they are trying to scare you enough to give away your children's money by threatening you with the disaster you already have if you don't do it. It's time to call their bluff.
All these people had to do was renegotiate loans to ones that could be paid. They would rather die than lose one penny of profit. There is no way to make this good but there is a way to make it not as bad and give your children a fighting chance.
Many market makers have said major shorts positions came out of Europe not the US. Major US shorts deny involvement. Russia was seeing a massive capital outflow post B.P./TNK dispute and Georgia invasion. While I doubt they initiated the run our market turmoil gave them room to halt trading and make a massive domestic intervention. This intervention was focused on target companies in strategic segments further consolidating state control. It would have been easy to foresee our response leading to a weaker dollar and long term inflationary pressures. Both very helpful to their resource based economy. Also a nice way to weaken the momentum the hawkish McCain developed after the convention. Seems like the type of strategy a judo master like Putin would embrace.
"Wow, those were some very insightful comments made by Obama's trained monkeys. "
Trying to avoid responsibility by name-calling directed at Obama supporters, or claiming that McCain could be at all effective in repairing it after his Keating Five outrage is just the height of insanity.
It would be at least a sign that Republicans had a shred of honor and decency left if people like you people would just own your complicity in this mess, apologize and step aside while you take a long, hard look at yourself and you facist party..
By the way, there hasn't been a bigger threat to national security since 9/11, if not the Great Depression. Where are the calls to charge some of these entities with treason? Does the Patriot Act not have any provision for economic treason? Or is it just structured to benefit non-wealthy, non-connected Americans?
Finally - DO NOT give Paulson unlimited power. He should be indicted, not rewarded with dictatorial powers. The Republican culture of corruption is alive and well in Washington. Throw them all out.
The root cause of financial crisis is originated by bad mortgage ,collaterized debt obligation,credit default swap etc
All these securities instruments have been invisible to layman investors or financial regulators all over the world.
The Bush administration asked Congress to eliminate the power of the president to appoint directors to the companies.
Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis,'' said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee.”
You liberals may not want to believe it but the following link is to your own liberal NYT article that acknowledges it.
query.nytimes.com/gst/...
If the link won’t work than search the NYT for the following article:
“New Agency Proposed to Oversee Freddie Mac and Fannie Mae”
We talk about accountability. How about accountability for each one of us? Those who are ranting probably lost a lot of money. Did you ever consider the fact that there is risk involved in the market? I bet not. Most people are too risk averse to actually be in the market. There was nothing wrong with the financials that Freedie or Fannie or AIG or anyone else presented. At that time, it was an accurate reflection of their company, which is the point of financial statements. It is easy to say in hindsight, they should have not purchased asset xyz, or should have allowed for a larger margin of cushion. However, at the time of the filings there was nothing wrong. Let me repeat that. AT THE TIME THERE WAS NOTHING WRONG. It is possible that the correct decision does not mean that you won't lose. Look at poker for an example. Poker, if you have the best hand showing on the table, you should bet. But if a new card arises that means you lose, it doesnt mean you shouldn't have bet, because at the time, it was the correct move to bet.
Why should Cox, or anyone, "protect" the small time investor? So we should help those who don't take the time to properly analyze things. Everyone wants all reward and no risk. Be accountable for yourself. More regulation is BAD! That leads to the true value of things being distorted. When things are distorted for too long, it will hurt when it reverts to the true value.
2) No less a conservative authority than the WaPo (!) indicates that according to its Web site, the Commerce Committee oversees 13 areas, beginning with the Coast Guard, and continuing through "regulation of consumer products and services ... except for credit, financial services, and housing" -- the very areas now in crisis.
The full list of Commerce Committee oversight areas follows:
1. Coast Guard.
2. Coastal zone management.
3. Communications.
4. Highway safety.
5. Inland waterways, except construction.
6. Interstate commerce.
7. Marine and ocean navigation, safety, and transportation, including
navigational aspects of deepwater ports.
8. Marine fisheries.
9. Merchant marine and navigation.
10. Nonmilitary aeronautical and space sciences.
11. Oceans, weather, and atmospheric activities.
12. Panama Canal and interoceanic canals generally, except as provided
in subparagraph (c).
13. Regulation of consumer products and services, including testing
related to toxic substances, other than pesticides, and except for
credit, financial services, and housing.
14. Regulation of interstate common carriers, including railroads,
buses, trucks, vessels, pipelines, and civil aviation.
15. Science, engineering, and technology research and development and
policy.
16. Sports.
17. Standards and measurement.
18. Transportation.
19. Transportation and commerce aspects of Outer Continental Shelf
lands.
These were longterm holdings that don't always have a price, ges what Sherlock, this is the problem. No one can predict when the market evaporates,when it does the wall comes crashing down.
Regualtors were the cause of the problem, stop calling for more of a failed system.
In response to these concerns, the SEC issued new guides to the DTC saying, in effect, that a naked short position not covered within THIRTY DAYS should be reported to the SEC/ What a complete laugh: the LAW requires covering a short sale in 3 days - not 30!!!
As a follow up to public concerns, the SEC dropped the uptick rule on short sales!!!!!
A consequence of all this is:
1. The small investor has been creamed. Many retirement accounts have been decimated by naked short sellers.
2. Capital formation is being devastated. No small entrepreneur wants to do an IPO in America with the strong probability that hedge funds/dealers will attack any slight error made during the early years of a company like a mad dog with massive short selling, delisting and bankruptcy of even the most promising company. Better to do an IPO in India or other markets where short selling is controlled and naked short selling completely illegal.
The article was completely right. The hedge funds/broker-dealers have the SEC in their pocket. The miscreants/law breakers/ fraudsters are controlling the SEC. If you are a small investor, better to put your money in a mattress, since the SEC enforces only the rules that subsidize the hedge funds.
It should be based on *NOL* If financial co has NOL from last year 2007, that is what the maximum bailout should be.
This way we protect the tax payer interest and no one get *FREE* bailout and run away and plus a conditions attached such as long as bailout is not paid back to govt no *BONUS* should be paid to CEO.
In this way bailout with *NOL* be secured capital of tax payer, i.e If the company is profitable in future they can write this bailout with the *NOL* refund they expect to get in later years.
"Bad Timing for a Bad Idea"
seekingalpha.com/artic...
"Bad Timing for a Bad Idea"
seekingalpha.com/artic...
We are a third world nation.
Major export is debt. Bad debt that will never be repaid!
Hit the reset button.
Vote them out of office.
We're short of money - why not??
So far the Fed Decision Makers Policy is "Only UNWILLING Americans are Allowed to Fund the Bailout. Willing Americans that want to buy the stock are prohibited".
This is the typical insane thiking that got us ito this.
Email Your Senator - Email List
www.senate.gov/general...
"I'm from the government and I'm here to help you" They kill the shares, then they're surprized people don't want to put money in the market - then they're like "Now for some reason the marketis crashing" AND hence the financial system.
Put boy scouts in their place - we'd be better off.
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When the FBI investigates serial killers, they always look to the earliest cases where the killer was still learning his craft. Perhaps they should look into MBIA's situation since it has all the same characteristics as the more recent cases with naked short selling, suspicious activity in credit default swaps, and false rumors being circulated.
Dumbocrats and Rebooblicans have done little to help the middle class folks and aren't about to start no matter what they or the Socialistic media care to tell you. Until the age of the " Me Firsters" is over we will continue on down the current path of gimme, gimme, gimme. We got out of the market just ahead of it's precipitous fall and probably won't return. We were just lucky. Not informed. My prayers are for all the millions of middle class people who struggle to get by. The rich get richer and the poor are entitled. God help the working class.
Vote No.
No to bailouts of rich bankers
No to Pelosi. No to Reed.
No to Obama and his cronies.
1. Fanatical behavior to provide housing to all regardless of affordability...a left democratic socialistic principle
2. Lack of enforcement of existing SEC oversight and regulatory power
3.Buyers taking on more than they could afford betting on the come....
4. Wall street analysts infatuation with quarterly earnings that drove a management short term thinking culture. I have been a Senior Executive in several F500 companies, and I can attest that the short term thinking that existed. It was all about keeping the market analysts happy to keep the stock up and our options, and to make sure we received the very nice and large short term bonuses. By the way, most of the analysts that I met were very academically smart young kids with not a trace of real experience...you could easily pull the wool over their eyes....this speaks very significantly to the experience factor...you just cannot study or bye or get experience by osmosis...sorry its got to happen to you....ask a teenager!!!
Bill Clinton destroyed America.
Failed to capture Osama=7000 american deaths
Signed repeal of Glass= Banks Lie about assets.
Changed CPI calculations=wal street lies.
WASHINGTON, DC – Senators Chris Dodd (D-CT) and Richard Shelby (R-AL), Chairman and Ranking Member of the Senate Committee on Banking, Housing and Urban Affairs, today sent a letter to the heads of the U.S. Treasury Department, Federal Reserve Board, and Securities and Exchange Commission regarding reports that the agencies are working on an agreement to reform the regulation of U.S. financial institutions. In the letter, Dodd and Shelby recognize the agencies’ efforts to improve and streamline our regulatory structure, but at the same time advise that any formal agreement among the agencies must not interfere with Congressional efforts to examine the issue.
“Given the limited authority of the Fed and the SEC to regulate investment banks with primary dealer status, and Congress’s ultimate responsibility for formulating financial regulatory policy, we ask that no action regarding implementation of the [Memorandum of Understanding] be taken before we can determine that it is in the best interests of our nation’s economy and the well being of its citizens,” the letter states.
Here are responses to the GSE1461 in 2005: www.aei.org/publicatio...
A google news search did (to my surprise) result in ONE news outlet mention of the fate of 1461, in the WaPo!
www.washingtonpost.com...
banking.senate.gov/pub...
Giving him total control of the USA is crazy.
Call your Congressmen NOW.
You can scapegoat Cox all you want and, who knows, maybe he liked this level of regulation, too. But the fundamental buck stops with Congress and the Bush administration who have been only too willing to do the bidding of Wall Street. Put the blame where it belongs.
He is only reacting to the current crisis.
Bill Clinton destroyed America.
Democrats should resign in mass.
The first should be Obama.
The second largest recipient of lobbiest from fma/fmc.
Yeah, it didn't have anything to do with the companies going under being worthless pieces of paper (up to neck in liabilities), it was those darned short sellers...I bet you work for the gov't since you are obviously intentionally blind when it comes to facts.
As for Clinton, the Rep. extremists will probably blame Clinton for the next world war as well when it unavoidably happens in 2020.
repo: why didn't Bush Sr. capture Bin Laden? He had plenty of time to do it.
I am not sure how anyone can say that I am an "Obama Monkey" when I am agreeing with the position of the McCain Campaign.
Also, I think that this is an apolitical issue. It is a failure of the technocrates to do their job and enforce the laws and regulations on the books.
Commenters that point out that the deriviatives markets are unregulated are correct. They obviously are. However, disclosure requirements of public companies that are participants in those markets, i.e., the obligation of employees to tell the owners of the businesses that are players in the markets what they are up to, is regulated. There is 80+ years of SEC regulation and enforcement for us to look at and decide if what has been disclosed is materially complete or accurate. I maintain that it hasn't been and that the SEC has been MIA on enforcement.
I believe in the freedom of individuals to enter into what ever business relationships and contracts they want to. However, I don't believe that employees are allowed to mislead and at times just lie to owners about what they are doing. The SEC has sanctioned bad disclosure and lack of transparency.
I don't believe that this is a Democratic or Republican issue but rather an American issue. Anyone that interpreted this as an endorsement of either candidates position is reflecting their own biases.
Thank you for reading the blog and taking the time to comment.
Screaching about which candidate or party is at fault makes no sense. That is just the distraction that keeps Americans from looking at the truth. This whole meltdown was orchestrated. Don't let Paulson become the Czar with his fear tactics. Letting the banks lever so high.. and who was at GS when this was permitted? Who is Paulson blaming? What makes GS books sound and the others who were taken out not sound? Maybe puts on their competitors?
This is a classic bear raid. Get someone highly leveraged, manipulated the price of their assets and call in the margin loan.
The short answer is that there is enough blame to go around starting with Greenspan "the genius", most of Capitol Hill, Chris Cox, Raines and Johnson, and a host of shady CEOs.
Anyways, this is what brought me out of my apathy, getting turned on to an amazing man fighting for us, Karl Denninger who put up this 10 min video that lays out what happened to our financial system from banks down to us these past 5 yrs in a comprehensive, logical manner;
www.youtube.com/watch?...
Here is the SOLUTION he posted today, September 21, 2008. Very important - Watch this:
www.youtube.com/watch?...
Again this solution is a document you can read through and has been submitted to the senate this weekend. It has been hand-signed and distributed to each member of the Senate Banking Committee and hopefully is considered there.
This is the solution & the best, realistic shot at starting to address & fix the problems we are facing today. All I ask of you is to check out the videos, consider it, think about it, discuss it, share it with others, distribute it please. At the very least this will create much needed discussion amongst us for a realistic solution today or at the very best it will lead to the first step in many to halt a finacial collapse & stop a government shutdown on the people, preserve our ability to financial prosperity and ability to get a job (a good paying one in this country), and provide an example for others to follow. It can lead to a much brighter future for our ourselves, our families, and friends.
Please tell me what you think and copy/paste this to others you know.
Thank You,
Pete
(I had not had any communications with Karl Denninger, however since he moved me to get out of my seat & do this, I copied and pasted this message to him and I hope he appreciates this message as a token of respect to the message he is fighting to get out to the rest of us).
Your analysis is perverted, as are many of the comments appearing herein. The bum should should be sharing a cell with Jim Johnson, Barney Frank and Chris Dodd. Now, THERE is an image.
It was a wise man who noted that the only corporate structure more insidious than a government-sponsored monopoly is a government-sponsored and investor-owned monopoly. In the end, as Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) have now so painfully proved, trying to serve the master of public policy while generating returns for investors will lead to disaster.
Fannie and Freddie collapsed because they were part and parcel of the widespread gross financial misconduct that has taken place in the United States over the past decade. It's easy to miss this fact, but the reality is that too many people were making too much money pumping up the housing market. In 2005, the Office of Federal Housing Enterprise Oversight (OFHEO), the erstwhile regulator of the two, attempted to limit their use of off-balance sheet entities to groom earnings. In the end, it didn't, because, as one reform-minded politician admitted, Congress was afraid of undermining the housing boom.
Some are more culpable than others
As part of the conservatorship, the Department of the Treasury has demanded that Daniel Mudd and Richard Syron, the CEOs of Fannie and Freddie, respectively, step down. Certainly, at the time of a corporate collapse, those in charge have to bear some responsibility. But Mudd and Syron came into their roles when the great pillaging was well in process.
At some point not too long from now, the nation's attention is going to turn from the immediate players to those who benefitted the most, shouted down the skeptics, and/or stood by as Fannie and Freddie deviated from their core business in the name of growth and/or mission. These people are keeping a low profile right now, until the taxpaying public starts paying attention to something else. As taxpayers, we don't particularly enjoy our role in this relationship, and we're hopeful over the longer term that the following folks cease to enjoy theirs.
Franklin Raines
Fannie Mae was always a political beast, but it reached its elbow-swinging heights during the time when former Clinton administration budget director Franklin Raines sat in the CEO chair. Under Raines' leadership, Fannie overstated earnings by a stunning $10.6 billion, all the while paying Raines and his senior management team massive bonuses.
It was under Raines' management that Fannie morphed from being a company in a sleepy business -- issuing debt to buy mortgages from lenders -- into a far more risky and exciting one: buying up mortgages and holding them, thus capturing the spread between its borrowing costs (which were lower than anyone's other than the federal government's) and the interest rate received. It was a great business, except that it had nothing to do with Fannie's charter. According to a May 2006 report from OFHEO, Raines became obsessed with keeping earnings per share as high as possible and motivated management to achieve that goal by setting up a bonus system that rewarded increasing earnings per share (EPS).
The thing is: Any company can hit an EPS number if it doesn't worry about little things like accounting rules, debt levels, and risk factors. All told, Raines pulled in some $90 million between 1998 and 2003, the majority from bonuses. And when OFHEO began to ask uncomfortable questions, Raines actively lobbied Congress to cut its funding. In April, Raines agreed to disburse $24 million for his role in the accounting "errors."
Timothy Howard
Former Fannie Mae CFO Timothy Howard is another major player who is probably cowering in a corner somewhere. For all of the expletives and derogatory names thrown at former Enron CFO Andrew Fastow, he at least stayed around to take his punishment. Inmate No. 14343-179 pleaded guilty to fraud and is serving a six-year prison term. Howard, on the other hand, saw the writing on the wall -- largely because he was the author -- and got out of Dodge.
As Fannie's CFO from 1990 to 2005, Howard signed off on the financials that overstated the company's earnings by $10.6 billion from 1998 to 2004. His reward? A cool $14 million in salary and $16.8 million in bonuses during the period -- bonuses based on the earnings plan that Raines set up.
While Howard was not the only person at Fannie guilty of constructing fraudulent financial statements quarter after quarter, as CFO he is most responsible for the integrity of said statements. Whether he left early enough to avoid culpability remains to be seen. However, we've heard through the low-security-prison grapevine that Fastow is lonely these days and wouldn't mind talking shop with a fellow former CFO.
Barney Frank
The House Financial Services Committee chairman and Democratic congressman from Massachusetts has long been a proponent of both Fannie and Freddie, assuring the public that their mission to encourage home ownership outweighed the distortive risks they brought to the market, and that the federal government was not, in fact, on the hook for their liabilities. In fact, it seems clear now that Frank had no idea of just how poor a grasp Fannie and Freddie had on their lines of business. As recently as Aug. 25 he told Money magazine, "Fannie and Freddie are better off than the market thinks. ... Part of the problem is rumormongering by short-sellers."
What's more, though Frank will blame past political opponents for failing to further regulate the mortgage market by banning products such as subprime loans, the fact of the matter is that the very presence of Fannie and Freddie incentivized brokers to overstate the creditworthiness of borrowers and then pass on that risk to the federal government, all while being cheered for helping more people "realize the American Dream." While we can all agree (I hope) that mortgage markets only function when -- as Frank told Money, banks "do not lend money to people who can't pay it back" -- Frank's ideology in this case blinded him for decades to the realities of the marketplace and the operations at these companies, leading him to stonewall realistic reform efforts that might have helped us avoid the current calamity.
Angelo Mozilo
There's good reason for Angelo Mozilo to hide under a desk these days. Few, if any, extracted more personal profit from the credit bubble than the CEO and founder of Countrywide Financial. Mozilo's talking points always borrowed heavily from the propaganda of our government-sponsored enterprises (GSEs). Countrywide liked to pretend that it was performing some kind of public service -- "breaking down barriers" -- by making homes more "affordable" to the average (or subaverage) wage earner. Unfortunately, as speculation drove home prices to ridiculous levels across the U.S., "affordability" came to be the code word for gimmicky, high-interest subprime loans lavished on the riskiest of borrowers in order to get them into a mortgage that would soon be bundled and shipped off to the suckers on Wall Street.
Unfortunately for borrowers and investors in Countrywide's mortgage paper, the American Dream of home ownership quickly morphed into a nightmare. Default rates surged, followed by the inevitable foreclosures, and mortgage paper backed by Countrywide loans became as valuable as post-bubble, dot-com stock options. Countrywide was only spared the ignominy of bankruptcy when its longtime sugar daddy, Bank of America (NYSE: BAC), stepped in to take it out.
As captain of this sinking ship, CEO and founder Mozilo was, for a time, very vocal in defending his company's legacy. But like so many others in America's great housing bubble, talk was one thing, and actions were another. As the housing bubble began peaking in 2003 and 2004, through the period when Countrywide's risky lending fell apart, Mozilo engaged in one of history's greatest stock dumps, selling more than $480 million worth of shares, according to the tally of insider filings on secform4.com. This graph tells the tale.
Alan Greenspan
If not the boldest of the group, then at least the most public, Greenspan, the man many are now blaming for the housing bubble (there were a brave few that piped up years ago), has refused to go quietly into his well-padded retirement. The man charged with providing the country with a financial voice of reason fell far short, so much so that it might be comical if it weren't so tragic.
Greenspan's denial of the possibility of a housing bubble has been widely derided in the past year, but a single statement could be excused as human error. However, a quick scan shows that this wasn't a single event. He also promoted the adoption and expansion of adjustable-rate mortgage (ARM) products in early 2004, when short-term rates were at or near historic lows. That same year he claimed, "securitization by Fannie and Freddie allows mortgage originators to separate themselves from almost all aspects of risk associated with mortgage lending." And separate themselves they did, ceasing to perform any kind of due diligence as to the ability of borrowers to pay for the homes they were buying.
Now retired from his role as the nation's monetary conscience, Greenspan continues to espouse his, er, theories on the financial crisis through editorials in which he denies any culpability for the events of the past three years. He is also applying his experience and insight as an advisor for Paulson & Company, a hedge fund which cashed in on billions of dollars by calling the collapse of the subprime mortgage market that Greenspan helped create.
Is Seeking Alpha being trolled?
Bush said keep the laws at bay while my rich friends steal everything they can from the markets. HE DID WHAT HIS BOSS TOLD HIM TO DO
I hope all you folls out there get it. But I that is most likely not going to happen.
You just don't get it do you? This is why America is doomed. The people do not understand the problem. As in every other post I have made recently I will break it down for everyone again.
1) The FED!!!! This unconstitutional, corporation with no oversight or auditing which has looted the public treasury long ago, has been printing money out of *thin air* since its creation. In order to break the US economy and control the country. Central banks are the enemy of free republics. Once they control your currency you are doomed. This is not insane ranting it's simple history. You don't need armies to control a nation if you control the currency. The FED is illegal and MUST be abolished. Fractional reserve banking does NOT work and was never created to work. It is used to artificially manipulate the market and control the currency.
2) Fiat currencies == FAIL. Debt based fiat currencies like the US Dollar are utterly, completely, and totally worthless. No debate. Period.
The FED has been printing USD non stop since they were created. Reducing the value of the dollar to less than 0. The dollar is not even worth the paper it's printed on anymore. It's a negative sum game. I beg the people to realize this so that we can move on already! And create a solid value based currency again bringing the dollar back to its rightful place as a meaningful currency with *value*. Then BAN the FED and all Central Banks *forever*. Bringing prosperity back to the United States.
Once these two items are accomplished and the US is back on solid footing then we can move on to getting rid of the illegal institutions that have helped worsen the problem. The FDIC, the SEC, etc have all played a roll in manipulating and and corrupting the free market. But this is only debatable when people come to realize 1 & 2 have been the destruction of the United States. And looking at the comments above it appears the people still don't understand, and will continue to allow the country to be brought to it's knees and beheaded by the FED and a fiat currency. Which is truly sad.
Any Republican who won't take the blame for his party driving this country into the ditch isn't worth talking to.
Stand up. Be a man (or a woman). You guys blew it - badly.
Now go to your room and let Obama/Biden restore the dignity to this country.
gene