Friday, April 23, 2010
What Good is the SEC?
The Securities and Exchange Commission should be relabeled "Sycophants Exhibiting Cronyism."
We now know that before it collapsed, Lehman Brothers was manipulating its books through a mechanism called Repo 105.
Using this scam, assets were shifted off Leman's books at the end of each quarter in exchange for cash. This was done via a clever accounting maneuver that made its leverage levels look lower than they really were. Then Lehman would bring the assets back onto its balance sheet days after issuing its earnings report.
Lehman was determined to make its quarterly reports look more appealing by any means necessary.
To create the appearance that its leverage levels were within reason, Lehman would “sell” assets (typically highly liquid government securities) to another firm in exchange for cash, which it would then use to pay down its debt. The assets were typically worth 105 percent of the cash Lehman received. Several days later, after reporting its earnings, it would subsequently repurchase the assets.
Normally, this would be considered a loan, or repurchase agreement, but instead it was booked as a sale.
Massive sums of money were flowing in and out of Lehman in successive quarters.
According to the examiner’s report, “Lehman reduced its net balance sheet at quarter-end through its Repo 105 practice by approximately $38.6 billion in fourth quarter 2007, $49.1 billion in first quarter 2008, and $50.38 billion in second quarter 2008.”
The latter were the final two quarters before the investment bank's inevitable collapse.
What's even more disturbing is that a team of officials from the Securities and Exchange Commission and the Federal Reserve Bank of New York had moved into Lehman Brothers' headquarters while this scam was being perpetuated. And they were either so inept as not to notice, or they willingly looked the other way.
But that's not the only evidence of the ineptitude or complicity of the SEC, which is ostensibly a regulatory agency.
The litany of the SEC's failures is lengthy and includes missing Bernie Madoff's huge Ponzi fraud for many years.
And, according to the Wall St. Journal, the SEC suspected Texas financier R. Allen Stanford of running a Ponzi scheme as early as 1997 but took more than a decade to pursue him seriously.
A report by the SEC's inspector general says SEC examiners concluded four times between 1997 and 2004 that Stanford's businesses were fraudulent, but each time decided not to go further. The report singles out the former head of the SEC's enforcement office in Fort Worth, Texas, accusing him of repeatedly quashing Stanford probes and then trying to represent Stanford as a lawyer in private practice.
And finally, two years after the financial collapse, the SEC recently charged Goldman Sachs with fraud. The investment bank steered investors into exceptionally risky and unstable mortgage-backed securities put together by a hedge fund that was betting on their failure. Despite Goldman's conflict of interest, the SEC did nothing.
But the SEC is finally paying attention and has suddenly taken an interest in the case. Thank goodness. We can all sleep better now.
Even after being charged with fraud, Goldman announced that it is handing out another $5 billion in bonuses this month. That comes on the heels of $16.2 billion in bonuses granted to employees in January.
The reality is that there is no regulation. The SEC is either inept or complicit. Wall St. has a strangle hold on our government. They have bought and paid for it. After spending so much money, they feel entitled.
Since last year, the Wall St. banking behemoths have spent more than $500 million to derail financial reform; that's $1.4 million per day.
More than 2,500 banking lobbyists were swarming the halls of Congress this week, fighting reform. The sad truth is that the big banks now have five lobbyists for every member of Congress.
The American taxpayers have been, and continue to be, shafted. We foot the bills for failure and receive no protection.
According to the Center for Media and Democracy, the total cost to taxpayers of the Wall Street bailout was $4.6 trillion. Of that, $2 trillion is still outstanding.
And the American taxpayers remain on the hook.
Why anyone would still invest their money with Wall St. banks is a mystery. They are unscrupulous, lying, cheating, scheming and manipulative. They undermine our democracy and our economy.
The next time the crisis occurs, and you can bet it will – count on it – Wall St. should be allowed to go up in flames, whatever the alleged cost.