Are You Outraged?

Earlier this month, a coalition of 78 groups, led by the National Taxpayers Union and Openthegovernment.org, sent a letter to Congress calling on representatives to make the financial-industry bailout program more transparent. The letter noted that nearly half of the funds approved for the Troubled Asset Relief Program have been allocated "with very little transparency and almost no oversight.'' The groups urged Congress to require the Treasury Department, the Federal Reserve and other agencies to collect information on how the bailout money is being spent by the recipients and to make their findings available to the public.

The groups said in their joint letter that the Federal Reserve -- which does not require Congressional approval to provide money to banks and other financial institutions -- has provided at least $800 billion in aid without providing any specifics. "The public deserves vigorous, timely and easily accessible disclosure of all details surrounding any government decisions regarding financial market problems,'' the groups wrote.”We ask that you honor this by making sure that robust and effective oversight occurs and that all relevant records are collected and publicly available.''

Earlier this month, Bloomberg News filed a lawsuit against the Federal government using the Freedom of Information Act. The Fed said the U.S. is facing "an unprecedented crisis" in which "loss in confidence in and between financial institutions can occur with lightning speed and devastating effects." The Fed supplied copies of three e-mails in response to a request that it disclose the identities of those supplying data on collateral as well as their contracts. The Bloomberg lawsuit said the collateral lists "are central to understanding and assessing the government’s response to the most cataclysmic financial crisis in America since the Great Depression." In response, the Fed argued that the trade-secret exemption could be expanded to include potential harm to any of the central bank’s customers, said Bruce Johnson, a lawyer at Davis Wright Tremaine LLP in Seattle. That expansion is not contained in the freedom-of-information law, Johnson said.

As we all are aware, Congress wanted to guarantee that the financial bailout would limit the compensation of Wall Street executives, so a mechanism for reviewing executive compensation and penalizing firms that break the rules was included. But at the last minute, the Bush administration insisted on a one-sentence change to the provision. The change stipulated that the penalty would apply only to firms that received bailout funds by selling troubled assets to the government in an auction, which was the way the Treasury Department had said it planned to use the money. Now, however, the small change looks more like a giant loophole. In a reversal, the Bush administration has not used auctions for any of the funds committed so far from the rescue package, nor does it plan to use them in the future. Lawmakers and legal experts say the change has effectively repealed the only enforcement mechanism in the law dealing with lavish pay for top executives.

Are we once again going to depend on the financial industry to ‘regulate’ themselves? Do they truly believe that by now calling a ‘bonus’ payment a ‘retention’ payment going to fool the public? Were we not told there would be transparency in detailing where our tax-payer money is going? Will our democratic representatives who claim to be the ‘middle class party’ now get a backbone and stop this ‘business as usual’?

This is our money – are you outraged?

Fox Watching the Hen House - But Who Watches The Fox

When President Franklin D. Roosevelt was asked in 1934 why he appointed Joseph P. Kennedy, a spectacularly successful stock speculator, as the SEC’s first chairman, Roosevelt replied: “Set a thief to catch a thief.”

At a brief meeting on April 28, 2004, five members of the Securities and Exchange Commission met in a basement hearing room to consider an urgent plea by the big investment banks. Bear Stearns, Goldman Sachs, Merrill Lynch, Lehman Brothers and Morgan Stanley. This meeting was attended by just a few members, lasted less than an hour and had no media coverage.

In letters to the commissioners, senior executives at the Big 5 had complained about what they thought were unnecessary regulation and oversight by both American and European authorities. They primarily wanted an exemption from the S.E.C Net Capital Rule (Rule 15c3-1).

Rule 15c3-1:

• 
  focused on liquidity and was designed to protect securities customers, counterparties, and creditors by requiring that broker-dealers or companies that trade securities for customers as well as their own accounts, have sufficient liquid resources on hand at all times to satisfy claims promptly;
• 
  had firms value all of their tradable assets at market prices, and then apply a discount to account for the assets' market risk; and
• 
  required that broker dealers limit their debt-to-net capital ratio to 12-to-1 limit (meaning that for every $12 of debt, the banks were required to have $1 of equity). although they must issue an early warning if they begin approaching this limit, and are forced to stop trading if they exceed it.

If the Big 5 were given an exemption to Rule 15c3-1 it would free up billions of dollars held in reserve as a cushion against losses on their investments. Those funds could then go to the parent company, enabling it to invest in the fast-growing world of mortgage-backed securities; credit derivatives and other securities.

However, a few months before this meeting, a two-page letter of opposition came from Leonard D. Bole, a software consultant from Valparaiso, Indiana who said the computer models run by the firms — which the regulators would be relying on — could not anticipate moments of severe market turbulence. Mr. Bole, who earned a master’s degree in business administration at the University of Chicago, helps write computer programs that financial institutions use to meet capital requirements.

He was never called by anyone from the commission.

One commissioner, Harvey J. Goldschmid, questioned the proposed exemption. It would only be available for the largest firms, he was told — those with assets greater than $5 billion. “We’ve said these are the big guys,” Mr. Goldschmid said, “but that means if anything goes wrong, it’s going to be an awfully big mess.”

The vote at the meeting was unanimous to allow the exemption.

The Consolidated Supervised Entities (CSE) program was now alive and would eventually affect the lives of many Americans.

The CSE stipulated that participating banks allow their broker-dealer operations and holding companies to be subject to oversight. Yet like many government regulations, this program had a flaw to it, it allowed investment bank holding companies to withdraw from this oversight at their discretion.

The next part of this creation was having the oversight done by the S.E.C. Because it is a relatively small agency, the S.E.C. relies heavily on self-regulation by stock exchanges, mutual funds, brokerage firms and publicly traded corporations. The CSE program now required substantial S.E.C resources for complex oversight. SEC supervision would include recordkeeping, reporting and examination requirements.

Christopher Cox, the head of the Securities and Exchange Commission, was a longtime proponent of deregulation. (Note that in 2004 the S.E.C. Commissioner was William H. Donaldson.) Cox had been a close ally of business groups in his 17 years as a House. He had led the effort to rewrite securities laws to make investor lawsuits harder to file. He also fought against accounting rules that would give less favorable treatment to executive stock options. Under Mr. Cox, the commission responded to complaints by some businesses by making it more difficult for the enforcement staff to investigate and bring cases against companies. The commission has repeatedly reversed or reduced proposed settlements that companies had tentatively agreed upon. While the number of enforcement cases has risen, the number of cases involving significant players or large amounts of money has declined.

Supervision of the CSE program under was a low priority for Cox. Seven people were assigned by the S.E.C. to examine the parent companies. Since March 2007, the office had not had a director. And as of October 2008, the office had not completed a single inspection since it was rearranged by Mr. Cox in 2006.

In essence the banks were now regulating themselves.

Should Joe Go?

The on-going issue of Senator Lieberman’s position in the Senate needs to be concluded soon. It’s my opinion that Senator Lieberman does not deserve to retain his chairmanships. He sided with the Republicans when his party needed him most. Do the Democrats want their Homeland Security and Governmental Affairs Committee Chair to be a person who constantly belittled Democrats and accused Senator Obama of anti-American tendencies, "Marxism," surrender, and defeatism. Senator Lieberman also went before the Republican National Convention to attack President-Elect Obama and the entire Democratic Party (after promising Reid he would not do so). At other times:

He said that "Obama has not always put country first."
He thought it was a "good question" to inquire whether Obama is a Marxist.
He misleadingly accused Obama of having "voted to cut off funding for our troops."
He repeated the claim that "Hamas endorsed Obama" and said it "suggests the difference between these two candidates."

Of course, Senator Lieberman was entitled to his opinion of his friend John McCain being qualified to be President but it was not necessary for him to publicly criticize Senator Obama’s policies.

However Senator Lieberman has suggested to Majority Leader Harry Reid that if his chairs are taken away, he will caucus will Republicans. Senator Lieberman will not accept the chair of a subcommittee in return for agreeing to continue to caucus with Democrats.

So what will Senator Lieberman do? If he were to caucus with the GOP, he doesn't gain votes home in Connecticut. He narrowly won election as an Independent, after losing the Democratic nomination in a blue state. If Lieberman were to join the Republicans there’s not much Minority Leader Mitch McConnell could offer him. Virtually every ranking position is already spoken for, and Republican senators who have spent years moving up the ranks might not look kindly upon Lieberman getting them if he switches parties.

As Homeland Security Chair, Lieberman wasn’t even effective. No investigations were made of Katrina, Blackwater shootings, Halliburton subsidiary KBR and nothing done about wrongdoing in the Bush administration. On these facts alone, he doesn’t deserve to continue in the position.

But the real danger Joe Lieberman presents - subpoena power to investigate the Obama administration. Allowing him to have the subpoena power that comes with a committee chairmanship (and especially on a committee whose role is broad executive investigations) is crazy.

I whole-heartedly agree with this statement by Senator Bernie Sanders of Vermont:

"To reward Senator Lieberman with a major committee chairmanship would be a slap in the face of millions of Americans who worked tirelessly for Barack Obama and who want to see real change in our country."

In the end, I think Lieberman will grumble about any action being unacceptable, and then he'll accept it.