The Wrongologist

What’s
Wrong Today:

At the risk of boring all readers of this blog, the Wrongologist wants to
make a few more points on the regulators of our banking system. Today, we place
the Securities
and Exchange Commission’s  (SEC) in our
sights.

Although
the SEC has stepped up its investigations of Wall Street in the last decade, it
has repeatedly granted exemptions to
laws and regulations that act as a deterrent to securities fraud.

Who benefited? JPMorgan Chase, Goldman
Sachs and Bank of America continued to receive advantages reserved for the most
dependable companies, making it easier for them to raise money from investors
and to avoid liability from lawsuits if their financial forecasts turn out to
be wrong.

An
analysis by New
York Times of S.E.C. investigations over the last decade found 350
instances where the agency has given big Wall Street institutions and other
financial companies a pass on those or other sanctions. Those instances also
include waivers permitting firms to underwrite certain stock and bond sales and
manage mutual fund portfolios.

The Times analysis found 11 instances
where non-financial companies that had settled fraud cases had actually lost
the special privilege for fast-track stock or bond offerings, versus 49 times
that the S.E.C. granted waivers from the punishment to Wall Street firms since
2005. Overall, the analysis counted 91 waivers since 2000 granting immunity
from lawsuits, and 204 waivers related to raising money for small companies and
managing mutual funds.

Only
about a dozen companies, Dell, General Electric and United Rentals among them, have
felt the full force of the law after issuing misleading information about their
businesses.

By
granting those waivers, the S.E.C. allowed Wall Street firms to have powerful
advantages, securities experts and former regulators say. The institutions
remained protected under the Private Securities Litigation Reform Act of 1995,
which makes it easier to avoid class-action shareholder lawsuits.

S.E.C. officials say
that they grant the waivers to keep stock and bond markets open to companies
with legitimate capital-raising needs. Ensuring such access is as important to
its mission as protecting investors, regulators said.

Others however, argue
that this may be a pattern in which the
government is too soft on Wall Street, as it has become a much larger
part of the economy in recent decades.

So, What’s Wrong?

Of
course there is a pattern here.
It looks like the SEC is in the business of “Selling Indulgences” to
the Wall Street financial crowd. Selling Indulgences for sins committed was one
of the symptoms of an ossified, corrupt Church. It was one reason for Martin
Luther nailing his tract on a church door at the beginning of the Protestant
Reformation.

So it is in
Washington, which could certainly use a Reformation. Now.

Fining these firms is a
tax on all of us (depositors, shareholders, citizens) by other means. The
fines, although they seem large, are not large enough to have corrected the
behavior of Wall Street, as the record shows.

The SEC and the rest of the
financial regulatory apparatus are failing in their mission. There is no power in government
that feels strong enough to face down the rampant illegal conduct in the
banking, insurance and securities industries.

The
reason for this is, of course, money and jobs. Government regulators and legislators move at will between jobs in
the private sector as lobbyists, lawyers and employees of the regulated.

Here
is what we need to do:

A final thought:

There
may finally be some evidence of backbones among the regulators.