In Springsteen's song, "Wrecking Ball," the Giant's Stadium at the Meadowlands in New Jersey muses on its life. The Stadium, a long-time spectator of the epic sports events taking place within it, now faces its own contest, one it knows to be its first and last, against a wrecking ball. True to its nature the Stadium is a warrior to the end.
At about the same age as Bruce is now, W.B. Yeats, Irish revolutionary poet, wrote about visiting a children's school and asked his famous question, "How can we know the dancer from the dance?"
Likewise, at just a slightly older age than Yeats and Springsteen, I have to ask, "How can we know reforms from the reformer?"
Reformers of our day
Elizabeth Warren is a striking figure of the day because she looks and speaks like a whole lineage of earlier 19th and 20th century New England reformers who worked against slavery, intemperance (alcohol abuse), and for women's right to vote and own property. Blocked from running the new US Consumer Financial Protection Agency, she's running for the US Senate.
Sheila Bair stands out for her soft-spoken innovation in taking on the banking crisis headfirst with a bold new initiative involving liabilities purchases and sales of broken banks' assets. Essentially, Bair bailed out the FDIC, the agency that bails out bank customers when banks fail. Professor Bair, appointed by President Bush, finished her term as FDIC Chair, but still comments about banking policy.
One woman in government I can't credit with being a 21st Century American reformer, however, is Mary Shapiro. She's been Chair of the Securities and Exchange Commission (SEC) since 2009. Prior to that she was Chair of the Financial Industry Regulatory Authority (FINRA) previously known as The National Association for Securities Dealers (NASD). She also served in other federal government financial regulatory positions.
Shapiro is a career bureaucrat whose commitment to financial regulation has been tepid at best. Shapiro's response to the high-speed trading is a topic I will cover in my next post. With Shapiro at the helm of the SEC, I see nothing ahead but defeat for Dodd-Frank or any other financial reform.
The failure of the SEC
The SEC, with a budget of about $1.5 billion a year, is a revolving door for civil-law attorneys, like Shapiro, on their way into or out of investment banks, brokerages, hedge funds, or stock exchanges. If the SEC finds criminal wrongdoing, it turns over the case to the Department of Justice. That doesn't seem to happen often.
CNBC's show, "American Greed," recently featured an egregious example of SEC incompetence. After he took some hundreds of thousands of dollars from investors back in the 1980s, Martin Frankel was interviewed by the SEC. Frankel was allowed to settle with the investors he swindled.
Then the SEC socked him with its heaviest penalty - Frankel was banned from ever engaging in trading again.
But Frankel never engaged in trading in the first place! Frankel claimed he was too afraid to actually place a trade. He didn't make one single trade with his clients' money. He just spent it on himself.
And the SEC never followed up its ban. Frankel set up another brokerage. This time he collected $14 million. Panicked because he couldn't push the button at a stock exchange that said "buy," Frankel had no trouble buying a life insurance company! He looted that insurance company out of $16 million in just days.
Eight life insurance companies in six states later, state life insurance regulators caught on, but Frankel then fled to Europe. Taxpayers in six Southern states were out $100 million to make Frankel's life insurance company victims "whole" again.
You know too that the SEC interviewed, but never caught, Bernie Madoff either. Madoff turned himself in.
What should we do?
Change the SEC's mandate to that of a law enforcement agency with the ability to bring criminal charges.
Forget trivial fines and banning people from trading! Financial fraud is costing American consumers and taxpayers billions of dollars each year. Turn the SEC into a lean, mean law enforcement agency that can put financial criminals in prison!
How? Don't require the SEC to prove there was an intention to commit fraud before it can prosecute fraud. Employees at companies like Goldman Sachs can easily break the law or SEC regulations and get away with it because intention is difficult for the government to prove. (For an example, see the Abacus case).
We don't ask police to determine if a fellow caught inside a closed store intended to rob it before we prosecute him. Why give white collar criminals benefit of the doubt?
Remember the final phrase of the Pledge of Allegiance to the Flag of America - "...justice for all"? Let the SEC go after businessmen, bankers, CEOs, CIOs, and others in positions of responsibility when fraud is uncovered at their organizations - regardless of what they claim their "intentions" were.
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