Would you support "real" financial reform?

[donheff]

My good faith answer is that Wall Street does need some oversight- starting with an overhaul of the SEC...but not sure why the knee-jerk reaction is that we have to raise taxes and/or take a hit on our portfolios to provide it... Why would anyone assume that new regulations would automatically cost more to implement and enforce, and negatively impact the market? ....

Aha, I have not been communicating well. I actually agree with you on the above. The hit in our portfolios I am talking about is a drop in the markets when/if Wall Street freaks if the Hill passes a bill that promises effective oversight. In other words, if we do a good job regulating them will the market over-react causing a big drop?

So, as a show of good faith, are you willing to send your Bush bonus back? As another 1%'er, I'm keeping mine, by the way. It's already invested on the Street..and up 50% over last year..

No, hell no

 

[ERD50]

When you start citing extreme, and rare cases of regulatory failure like Madoff, it should not mean you throw out the SEC regulatory apparatus that failed to police Madoff because of defective SEC staff judgments; on the other hand, the absence of regulatory oversight, monitoring and enforcement in some very key financial areas does suggest we need to do something and not let the invisible hand guide us.

My Madoff example had two components to it.

1) The SEC failed to protect anyone.

2) Education and transparency would have protected anyone, regardless off the SEC. The exception would be someone who recognized it was 'too good to be true' but was hoping to get in at the top of the pyramid. I don't care if one crook loses money to another.

That is not a total condemnation of regulation, but the SEC appeared to have failed at their assigned duty. Hey, no one is perfect, we ought to learn and improve. And we better learn to protect ourselves, to the extent we can - and the Madoff investors certainly should have (esp those who had a big % of NW with him).

I'll quote Westernskies here ( I forgot to hit the multi-quote button):

Why would anyone assume that new regulations would automatically cost more to implement and enforce, and negatively impact the market?

Exactly - doing the job right doesn't automatically mean do more. Sometimes stripping down to the essence allows proper oversight of that which is really important.

I re-read ChrisC and GTG posts - two things I notice is they throw in the straw man of calls for "no regulation" and 'all government and all regulation is bad', and they ignore the idea of personal responsibility. What I'm saying is a combination of those would be more effective than just 'increased regulation'.

-ERD50

 

[ChrisC]

My Madoff example had two components to it.

1) The SEC failed to protect anyone.

2) Education and transparency would have protected anyone, regardless off the SEC. The exception would be someone who recognized it was 'too good to be true' but was hoping to get in at the top of the pyramid. I don't care if one crook loses money to another.

That is not a total condemnation of regulation, but the SEC appeared to have failed at their assigned duty. Hey, no one is perfect, we ought to learn and improve. And we better learn to protect ourselves, to the extent we can - and the Madoff investors certainly should have (esp those who had a big % of NW with him).

I'll quote Westernskies here ( I forgot to hit the multi-quote button):



Exactly - doing the job right doesn't automatically mean do more. Sometimes stripping down to the essence allows proper oversight of that which is really important.

I re-read ChrisC and GTG posts - two things I notice is they throw in the straw man of calls for "no regulation" and 'all government and all regulation is bad', and they ignore the idea of personal responsibility. What I'm saying is a combination of those would be more effective than just 'increased regulation'.

-ERD50

Well, re-read my posts; I don't discount or ignore personal responsibility; caveat emptor derives from personal responsibility and accountability. Before Madoff, the SEC consistently ranked high in the public and securities industry view as a prudent and reliable regulator; it was cost-effective too, as it is funded primarily by filing and registration fees. Yeah, it blew Madoff, but I doubt you find even the most knowledeable and sophisticated investors not thankful of the public disclosure rules the Agency promulgates for the benefit of investors!

 

[audreyh1]

Marokopolous (sp?) took five whole minutes to figure out that Madoff was running a Ponzi scheme. He gave it to the SEC 3-4 times over a decade, laying it out for them in detail the last time (he did everything but type up the indictment for them) and still they missed him completely. And while Bernie did his best to maintain a low profile, when the SEC finally did investigate they completely ignored concrete evidence that he was lying his ass off. They never bothered to verify how he cleared trades, who was on the other end of any of his trades, swallowed whole a bunch of BS about options that he claimed he was trading, and then ignored evidence that when he allegedly made some of those he trades he did not even have a position in the market. No, instead they gave at least one of the investigating attorneys the highest performance evaluation because of her ability to "understand and analyze the complex issues of the Madoff investigation."

Why didn't the SEC at least comment, if not enforce the requirement for additional reserves, when AIG, FNMA and FHLMC ignored reality, changed their accounting practices, etc. when all of those mortgages and loans started turning bad?

But if you really want to find why you shouldn't feel all warm and fuzzy about the SEC walking the beat on the street, just look at their record on the uptick rule and naked shorts.

Yes, the SEC can be staffed with people who decide that enforcing regulations are best ignored or slowed down to a bare trickle. It is the president who appoints these folks, and if the president or his advisors believe that financial regulation is bad, then it's just a matter of appointing a top SEC regulator who has that same point of view, sits on his/her hands, and repeals rules that have regulated markets in the past. The SEC is not some independent agency with consistent enforcement and continuity across administrations.

Audrey

 

[ERD50]

Yeah, it blew Madoff, but I doubt you find even the most knowledeable and sophisticated investors not thankful of the public disclosure rules the Agency promulgates for the benefit of investors!

But it isn't one or the other. We can have good regulatory overview, and we should have transparency and educated investors.

We are back to where we started - I don't care how good the regulators are, the snake oil people will find a hole in the system. Transparency helps and education helps where the regulators might fail. I'd like to see increased emphasis put on education and transparency. There is a point where relying on regulators to protect us is just abdicating our own responsibility to the regulators.

It isn't binary - it is all matter of degree.

-ERD50

 

[donheff]

2) Education and transparency would have protected anyone, regardless off the SEC. The exception would be someone who recognized it was 'too good to be true' but was hoping to get in at the top of the pyramid. I don't care if one crook loses money to another.

...doing the job right doesn't automatically mean do more. Sometimes stripping down to the essence allows proper oversight of that which is really important.

Sounds right to me. But transparency will require regulation. Wall Street demanded dark space to run its derivatives market and got it. I am reading The Quants and it is amazing to see how the lack of transparency made it impossible for the hedge fund managers who were causing it to know what was happening in the initial meltdown in August of 2007. All they could do was call their counterparts but the responses were like pocker table conversations - "is it you dumping," "no, not me, must be Goldman."

 

[clifp]

Well, re-read my posts; I don't discount or ignore personal responsibility; caveat emptor derives from personal responsibility and accountability. Before Madoff, the SEC consistently ranked high in the public and securities industry view as a prudent and reliable regulator; it was cost-effective too, as it is funded primarily by filing and registration fees. Yeah, it blew Madoff, but I doubt you find even the most knowledeable and sophisticated investors not thankful of the public disclosure rules the Agency promulgates for the benefit of investors!

The SEC reputation may have been good once but I not sure it was deserved or even true this last decade.

The dot com bubble, with unholy alliance between analyst who were really just shills, and the IPO side of brokerages.
The Enron, and WorldCom accounting and trading scandals.
Eliminating the uptick rule and failure to enforce naked shorts.


These are all example of significant SEC failures. It isn't that we need new regulations but simply enforcing the ones that existing ones would be great new start.


I read Sorkin's To Big to Fail and Cohen's House of Cards. In both books Cox comes across as passive player completely out of his league and competence level. All of the major players are Paulson, Bernake, Geitner, Jamie Dimon, and many others are begging the SEC to do their jobs. The SEC is failing miserably.

Now Elliot Spitzer, may be grandstanding arrogant SOB, as well as a philanderer, but the NY Attorney General office did more to "regulate" Wall St. than the SEC did this last decade.

I think John McCain was right Bush should have fired Cox early on. I also believe that country would be much better off, if we shut down regulating agency that fail miserably, much like Reagan did with the Air Traffic Controllers, and we are doing failing public schools.

Fire everybody and let them the reapply for their jobs. The SEC and the agencies that "regulated" Fannie and Freddie are at the top of my list to get the axe.

 

[audreyh1]

I read Sorkin's To Big to Fail and Cohen's House of Cards. In both books Cox comes across as passive player completely out of his league and competence level. All of the major players are Paulson, Bernake, Geitner, Jamie Dimon, and many others are begging the SEC to do their jobs. The SEC is failing miserably.

I believe it was stronger than incompetence from Cox. I believe it was a deliberate strategy to make the SEC as weak as possible and slow down enforcement as much as possible.

Audrey

 

[FinanceDude]

Now Elliot Spitzer, may be grandstanding arrogant SOB, as well as a philanderer, but the NY Attorney General office did more to "regulate" Wall St. than the SEC did this last decade.

Yes, and no. While he did prove market timing was going on by the big mutual fund companies, he used the big fines to get noticed and get elected Governor, so political aspirations were the motive, not "doing what's right".

I think John McCain was right Bush should have fired Cox early on. I also believe that country would be much better off, if we shut down regulating agency that fail miserably, much like Reagan did with the Air Traffic Controllers, and we are doing failing public schools.

It's a shame noone listens to McCain. He's a whole lot smarter than 99% of the folks in Washington.........

 

[Gone4Good]

Yes, the SEC can be staffed with people who decide that enforcing regulations are best ignored or slowed down to a bare trickle. It is the president who appoints these folks, and if the president or his advisors believe that financial regulation is bad, then it's just a matter of appointing a top SEC regulator who has that same point of view, sits on his/her hands, and repeals rules that have regulated markets in the past. The SEC is not some independent agency with consistent enforcement and continuity across administrations.

Audrey

Funny how that works. You start with an ideological view that regulation is universally bad. You then systematically implement that view by deregulating the system through legislation where you can and elsewhere by lax oversight and enforcement. And then when things fall apart you point to the regulatory failures you enabled as proof that the government is incompetent and then use that claim of incompetence to advocate . . . even less regulation.

 

[M Paquette]

Yes, the SEC can be staffed with people who decide that enforcing regulations are best ignored or slowed down to a bare trickle.

It's not even that. The SEC enforcement unit is staffed with junior lawyers, who can learn and try to enforce the regulations, but who don't understand the methods used to evade regulations. They could really use folks who understand statistical analysis (what Markopolos used to spot Madoff) and related quant disciplines. They currently have no positions for quants on staff.

A quant would be handy for spotting things that are unlikely to occur in the real world, for more in-depth investigation by the SEC enforcers. The IRS uses a strategy something like this for picking audit candidates, looking for improbable numbers in tax returns.

 

[audreyh1]

It's not even that. The SEC enforcement unit is staffed with junior lawyers, who can learn and try to enforce the regulations, but who don't understand the methods used to evade regulations. They could really use folks who understand statistical analysis (what Markopolos used to spot Madoff) and related quant disciplines. They currently have no positions for quants on staff.

A quant would be handy for spotting things that are unlikely to occur in the real world, for more in-depth investigation by the SEC enforcers. The IRS uses a strategy something like this for picking audit candidates, looking for improbable numbers in tax returns.

That may be true to some extent, but that wasn't the problem during Cox's tenure. The problem then was that the process was changed whereby Cox required enforcement lawyers to obtain the consent of commissioners before moving to resolve major cases. This really slowed things down.

Demoralized staff members had been watering down proposed settlements in enforcement cases out of fear that the commission would reject them.

http://www.nytimes.com/2009/02/23/business/23schapiro.html

The SEC has been much more effective in the past. It depends on each administration and SEC head.

Audrey

 

[clifp]

Funny how that works. You start with an ideological view that regulation is universally bad. You then systematically implement that view by deregulating the system through legislation where you can and elsewhere by lax oversight and enforcement. And then when things fall apart you point to the regulatory failures you enabled as proof that the government is incompetent and then use that claim of incompetence to advocate . . . even less regulation.

That would be a good theory except that their have been systemic failures by the SEC for at least as long as I have been investing (1982) and probably well before that. This covers both Republican and Democrat administrations and various attitudes toward deregulation. I suspect Paquette is right the staffing of the SEC by lawyers instead of investment guys is part of the problem. I certainly wouldn't argue that Cox was particularly bad and the SEC failed spectacularly this last decade.

I think that US stock exchanges have enjoyed a good reputation as fair place to do business has at least as much to do with transparency of US financial reporting as SEC enforcement. The FASB (a private organization) require a level of disclosure on quarterly and annually, which is AFAIK more detailed than any other country.

I am not against regulation or regulatory agency. For instance I think the FDIC does a good job. I am against saying XYZ happened and concluding therefore we need more laws to prevent it from happening in the future. I think we generally need more effective regulation not just more.

 

[Gone4Good]

That would be a good theory except that their have been systemic failures by the SEC for at least as long as I have been investing (1982)

And over that time we've have one party control the executive branch for 20 out of the last 30 years. All during a time when the conventional wisdom was "less is more" when it comes to government involvement in the private sector.

Well this is what "less" eventually looks like.

 

[Westernskies]

And over that time we've have one party control the executive branch for 20 out of the last 30 years. All during a time when the conventional wisdom was "less is more" when it comes to government involvement in the private sector.

Well this is what "less" eventually looks like.

Fascinating reading regarding separation of powers under the US Constitution:
http://en.wikipedia.org/wiki/Separation_of_powers#United_States:_three_branches

Review the duties of the legislative branch (especially the first item listed ) and the executive branch a little more carefully. Overlay those responsibilities and the partisan timeline against your favorite failures; you might be surprised by who was supposed to be minding the store.

 

[Gone4Good]

Fascinating reading regarding separation of powers under the US Constitution:

Did you happen to notice who appoints the head of regulatory bodies? Lets start with the Federal Reserve, the SEC, the FDIC, and the CCC. I'll give you one guess and it isn't the Senate, the House, or the Judiciary.

Besides are you arguing that we haven't been deregulating for the past 30 years? Or are you arguing that deregulation was something that Democratic congress members forced on hapless Republic presidents?

 

[Westernskies]

Did you happen to notice who appoints the head of regulatory bodies? Lets start with the Federal Reserve, the SEC, the FDIC, and the CCC.

...who enforce laws passed by the legislative branch, who like to hold sensational hearings and rat out malfeasance whenever it finds them and presents a media opportunity.....

Obviously were are polar opposites on what we want from our government. Agree to disagree going forward?

 

[Gone4Good]

...who enforce laws passed by the legislative branch, who like to hold sensational hearings and rat out malfeasance whenever it finds them and presents a media opportunity.....

Obviously were are polar opposites on what we want from our government. Agree to disagree going forward?

Certainly agree to disagree.

But I'm still curious . . . who's responsible for deregulation? You seem to want to lay it off on a presumably Democratic Congress. That's not how I remember history unfolding.

 

[ERD50]

Any chance we could stop the partisan blame-game and discuss the OP's questions, which I think have merit?

Would you support "real" financial reform?

But what would real financial reform look like?

And how would it effect aging retirees like us?

Would transparency and effective oversight have beneficial results in time to help us out? Or are we (from a purely self interested point of view) better off letting the Street keep gambling with our futures until we can quietly move on to our final rewards?

Thanks - ERD50

 

[FinanceDude]

Moderators, feel free to close this thread also...........

 

[FinanceDude]

And over that time we've have one party control the executive branch for 20 out of the last 30 years. All during a time when the conventional wisdom was "less is more" when it comes to government involvement in the private sector.

Well this is what "less" eventually looks like.

 

[Gone4Good]

Any chance we could stop the partisan blame-game and discuss the OP's questions, which I think have merit

here's a start

1) Much higher capital requirements for financial institutions
2) All institutions that effectively lend money (including non-bank institutions, like hedge funds and captive finance co's) would be subject to banking regulations and reserve requirements
3) Lenders of all kinds would have to retain a certain amount of net exposure to their loans.
4) Penalty or tax for derivative transactions not cleared through an exchange
5) Anti-trust type authority to break up institutions deemed too big and risky to succeed
6) FDIC type resolution authority for all companies that are subject to banking regulation (see point 2)
7) Unlimited personal liability for CEO's, directors and senior management of financial institutions that require a government bailout

That's a good start.

 

[FinanceDude]

here's a start

1) Much higher capital requirements for financial institutions
2) All institutions that effectively lend money (including non-bank institutions, like hedge funds) would be subject to banking regulations and reserve requirements
3) Lenders of all kinds would have to retain a certain amount of net exposure to their loans.
4) Penalty or tax for derivative transactions not cleared through an exchange
5) Anti-trust type authority to break up institutions deemed too big and risky to succeed
6) FDIC type resolution authority for all companies that are subject to banking regulation (see point 2)
7) Unlimited personal liability for CEO's, directors and senior management of financial institutions that require a government bailout

That's a good start.

Number 5 is funny to me.......didn't work well for Standard Oil or Ma Bell................

 

[Gone4Good]

Number 5 is funny to me.......didn't work well for Standard Oil or Ma Bell................

Yup, number 5 is weak and has all kinds of potential problems. It is also probably unnecessary if all of the other stuff is implemented, especially #7.

 

[FinanceDude]

Yup, number 5 is weak and has all kinds of potential problems. It is also probably unnecessary if all of the other stuff is implemented, especially #7.

Number 7 would be unneccesary if there were NO govt bailouts.

I don't buy that the financial markets were hours away from insolvency in September of 2008............talk about a bunch of hooey..........

TARP worked well. JP Morgan was forced by the Treasury to take $25 billion in TARP even though they said they didn't need it. They have paid it all back with interest and are out of TARP. How about that stimulus program? Let's see, JP Morgan buys WAMU for $1.9 billion in 2008, because jamie Dimon is a buddy of the Treasury. Now, under the stimulus plan, he files for a $1.4 billion tax credit, which he'll probably get most but not all of. SO he ends up with what was a top 6 bank in the US for less than a billion dollars. Maybe Buffett should ask Jamie which companies to buy.........

Until Congress writes better legislation, smart guys like Jamie will use it as a whipping stick on Congress..........