OLEAN -- America's small investors appear to have dodged a rocket late last week, but they shouldn't relax. Another salvo is coming. Sponsors of an incredibly bad bill that would strip attorneys general in all the states of their powers to regulate stock brokers and investment bankers -- two notably corrupt sub-classes of our financial culture in recent years -- backed off the hideous proposal in House committee meetings.
But betting they will return is a safer investment than almost anything on Wall Street these days.
In thumbnail terms, H.R. 2179 would make the Securities and Exchange Commission all-powerful in terms of statutory tools for tracking down and punishing corrupt brokers, financial advisers, stock touts and investment bankers. At the same time, it would preempt an important state government power by prohibiting state attorneys general from using court orders to negotiate settlements and force remedial actions upon crooked firms or individuals.
So what's wrong with that, you ask? In terms of protecting you, the small investor, here's a metaphorical answer.
The SEC is a warm, fuzzy puppy that often piddles itself when Wall Street hollers.
The state attorneys general, some of them, are snarling, ravenous pit bulls who are about the only critters keeping you from getting fleeced of your pitiful pittances by the pinstriped greedballs.
Especially Eliot Spitzer, perhaps the meanest watchdog of them all, and the New York State attorney general who was described in this space recently.
It was his determined crusade against Wall Street chicanery that led to last spring's record $1.4 billion settlement by 10 major investment banks and their stock-selling arms. (See box.)
It was Spitzer's action that drew the wrath of Wall Street banker bigwigs for two prime reasons:
One, despite their blithe statements that the aggregate settlement was a mere bagatelle -- why, hardly a couple days' revenue, they shrugged -- $1.4 billion is $1.4 billion.
Two, the huge broker-banking houses are terrified that Spitzer will drop the next trunk full of shoes: criminal indictments.
H.R. 2179 started out as a fairly routine piece of legislation upgrading some SEC enforcement powers, even though it was grossly misnamed with the boastful title "Securities Fraud Deterrence and Investor Restitution Act."
As drafted, maybe.
But once the big Wall Street lobbyists and influence peddlers started slipping their oily amendments in as retaliation on Spitzer, it became an odious potential law that wouldn't deter anything except financial justice, and wouldn't restore anything except millions of ill-gotten dollars to fat-cat pockets.
Here are some other things state attorneys general would be stopped from doing under the slimy amendments, most of them in Section 8(b) of the bill:
A key subcommittee of the Republican-dominated House Financial Services Committee approved all this in mid-July, but Spitzer and some other regulators started raising holy hell in order to forestall the avaricious proposal from going to the House floor.
Not clear enough?
| Below are the 10 Wall Street firms that recently agreed to settle with New York State after the state attorney general negotiated $1.4 billion in civil suit settlement payments for various investment, stock sales and banking infractions he claimed they were involved in. (They never admitted it, even though they were willing to pay the money.) |
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Citigroup-Salomon Smith Barney: $400 million
Credit Suisse First Boston: $200 million Merrill Lynch: $200 million Morgan Stanley: $125 million Goldman Sachs: $110 million Lehman Brothers: $80 million J.P. Morgan Chase: $80 million Bear Stearns: $80 million UBS Warburg: $80 million U.S. Bancorp Piper Jaffray: $32.5 million |
Here is what the shadier investment bankers and stock brokers want to do: Muzzle the only effective watchdogs so it will be easier to defraud the nation's 85 million everyday investors.
You may remember Spitzer is the public servant who only recently brought to heel the egregious stock touts -- paid off by the investment bankers -- who would go on television, radio, the Internet and in print, and describe as can't-miss stock buys issues that were bona fide losers. And they knew it. Their research showed it. And Spitzer, through a tedious examination of their boastful e-mails, caught them at it.
"Putting lipstick on the pig," they called it in their own insider jargon.
To offer this bill with its fake title is to insult the American public. It's like trotting out a mean old Rottweiler for the front yard in a tough neighborhood -- then pulling its teeth and giving it Thorazine.
The bill belongs to Rep. Richard Baker, a Republican real estate agent from Baton Rouge, La. He's been hesitant to talk about it.
Spitzer has been campaigning furiously against it.
"This action shreds one of the most basic protections investors have" against fraudulent banking behavior, Spitzer said.
When he called downstate Rep. Sue Kelly, another Republican real estate agent from Katonah, N.Y., who's co-sponsoring this turkey, an insult-fest ensued. Spitzer says he merely asked her whose side she was on, and why she was backing investment bankers over investors.
Her spokesman publicly called the attorney general a "thug" and "just another nasty politician."
So?
That's precisely the kind of public servant I'd want in that office -- someone who can stand up to immense Wall Street pressure.
The White House has remained mostly mum on this, probably because the president's friend and substantial contributor Ken Lay, former Enron chairman, and Enron's ex-CEO, Jeffrey Skilling, both remain embarrassingly uncharged despite being at the helm during mammoth accounting scandals at the Houston firm.
Were Spitzer investigating them, he might have had them headed for the hoosegow by now.
The Bush administration instead last week trotted out SEC Chairman William Donaldson to brag about the president's Corporate Fraud Task Force and how it has "restored investor confidence."
Riiiiight.
What a joke.
SEC poohbah Donaldson said, "In terms of corporate acts from here on out, I think that the country and the nation and the business community is well-informed of the risks of doing this."
Besides not being able to parse a decent English sentence, Donaldson possesses the dubious distinction of having his predecessor, Harvey Pitt -- a man widely viewed as a lapdog of cowboy accounting firms caught in various misdeeds -- come out against H.R. 2179 himself. If Harvey Pitt doesn't like this bill, it's really baaaaad.
This bill even says that if Wall Street adopts a rule policing itself in connection with the New York Stock Exchange -- the "self-regulation" that big companies and certain sectors of the economy always pine for -- no state can enforce a tougher rule, even if the SEC doesn't have one on the particular subject.
So, let Wall Street make up the playbook as it goes along.
Let the glacial and well-known federal bureaucracy be the only entity that can require brokerage and banking reforms.
Nothing can go wrong, right? Well, what can go wrong already is.
A tenacious three-year recession, much of it based upon investor lack of confidence in the stock market, hangs on like cancer. That lack of confidence comes from precisely the congressional attitudes described above -- taking Americans for complete fools.
Make no mistake about it. H.R. 2179 and its egregious Section 8(b) may be asleep for the August recess, but the bankers will be back, oinking and snuffling at the congressional trough with another attack upon state powers. It only means more money in the campaign coffers, not permanent defeat.
One hundred years ago, in 1903, there was another Republican president in charge. This one didn't hide when obvious violations of financial responsibility occurred. His name was Teddy Roosevelt, and right about this time exactly a century ago he was unlimbering a dusty old piece of legislation called the Sherman Anti-Trust Act and making the word "trustbusting" a household utterance.
The first company he took on was J.P. Morgan's western railroad monopoly, Northern Securities Co. (Ironically, you may find J.P. Morgan's name in the box associated with this story.) Roosevelt won that anti-trust case, and 43 more.
Teddy Roosevelt, where are you when we really need you?
| Niagara Falls Reporter | www.niagarafallsreporter.com | July 29 2003 |