Thursday, August 19, 2010


The Sarbanes-Oxley Act of 2002 was enacted by Congress as a result of blatant corporate malfeasance such as that connected with the Enron and Worldcom meltdowns, which cost investors billions of dollars, caused primarily by executive arrogance and greed, and a shocking lack of federal regulation placing those executives responsible for the lies they told to maintain the mirage of a healthy company when they were anything but (despite the obvious need for this type of oversight exampled by Enron, Adelphia, and others, the Republican detractors of the Act cried as they always do when new regulations are enacted that it reduced America's international competitive edge against foreign financial service providers, was a job killer, and claiming Sarbanes-Oxley had introduced an overly complex regulatory environment into U.S. financial markets (whatever that means. Overly complex for who?), thereby attempting to protect corporation's right to pillage the American economy unhindered).
Sarbanes-Oxley is a law that provides criminal penalties, meaning those who do not adhere to it's sections could face serious jail time, and one of those eleven sections holds upper level management responsible for the information their companies put out to their investors and the public.
In 2007 executives at Citibank mislead their investors by hiding the fact that it had 40 billion dollars in bad subprime mortgage exposure more that the 13 billion investors did know about. That is fraud, also a criminal offense, and one that all of Citi's top brass were culpable of. Yet late last month the SEC (Security Exchange Commission), headed by Chairperson Mary L. Schapiro, decided to let these executives off the hook, fining the company $75 million (which is of course paid for by the company's shareholders, the very people who got screwed by the executives actions, putting them in the truly ironic... and annoying position of having to pay to be ripped off). It also fined two top management figures, the largest penalty going to CFO (Chief Financial Officer) Gary Crittenden $100,000, who was paid 19.4 million that year, making his fine one half of one percent of his income. That's it! For allegations most others would go to prison for (remember, more than 1,100 bankers went to jail for fraud during the savings and loan crisis of the 1970s), no jail time for top bankers, just non punitive fines that do nothing to stop encouraging more of the same behavior in the future.
Why is the SEC, who is charged as the countries enforcement entity over the securities industry, letting Citibank execs off with less than a hand slap? Only Mary knows and she's not talking. And it's not the only instance. The SEC charged Goldman, Sachs & Co, with similar fraud accusations, and wound up letting the top management off, fining the company (shareholders) $550 million. Same thing with Bank of America, no management figures held responsible (they don't even have to admit to wrongdoing), and the shareholders fined $33 million.
This state of affairs, the SEC actively identify and investigating corporate wrongdoing, and then not imposing punishment for those responsible, leads many to ask what do lying, fraudulent top bank executives have to do to get busted and go to jail?!
Fortunately, federal Judge Ellen Segal Huvelle can't make much sense out of the SEC's actions regarding Citibank either, and is refusing to sign-off on the deal without further documentation. We shall see.
This lack of enforcement for breaking serious laws is a troubling trend, and a potent reminder of the hold these corporate entities have over the government which is entrusted to make those very laws.
The new financial reform laws recently passed by President Obama and the Democrats in Congress contain something the troubles those corporate entities very much, the introduction of a Consumer Financial Protection Bureau, a part of the government independently empowered to actually look out for consumers like you and me instead of those on Wall Street, from outrageous credit card rates, fees, and practices, to bank loans, home mortgages, etc. The big banks fought tooth and nail to stop the formation of the Bureau, but the President stuck to his guns and promises and did not allow Congress to strip it from becoming law.
But will it work? Will it really work, or just be another big bureaucratic muddle displayed by the SEC?
One of the factors deciding the answer to that question is who will be tapped to run it, thereby setting it's tone and precedents.
I've written about Elizabeth Warren before (see, The Warning series of posts from last October and November). She is currently serving as the Chairperson of the Congressional Oversight Panel created to oversee the implementation of the Emergency Economic Stabilization Act, formally known as the Troubled Assets Relief Program, or TARP, the program designed to bailout the nation's financial sector due to the financial crisis of 2008.
Elizabeth is the reason the Consumer Financial Protection Bureau will exist. She came up with the idea for the bureau, and has been it's consistent champion. Everybody wants her to be the head of the bureau, except the banking industry and Timothy Geithner, the former Wall Street flunky and current Secretary of the Treasury. Indeed, if President Obama does not nominate her for the position it would raise serious doubts as to his sincerity in reigning in banking industry chicanery, and how frightened he is of that industry's power.
I want her to head the bureau. My neighbor Lester wants her to. And Janice. Hell, even my invisible cat Herkimer wants her to, and he's a Republican!
The following is a speech given by Elizabeth Warren last July 24th at the Netroots Nation conference in Las Vegas. Reading it may give you an idea why she would be the best one for the job:

To be continued.

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