Rolling Stone: Is the SEC Covering Up Wall Street Crimes?

[Kathianne]

I thought I linked to this yesterday, but I sure can't find it. Of course I mentioned it in a thread today on the, 'non-fiction' thread.

http://www.rollingstone.com/politics/news/is-the-sec-covering-up-wall-street-crimes-20110817


Is the SEC Covering Up Wall Street Crimes? A whistle-blower claims that over the past two decades, the agency has destroyed records of thousands of investigations, whitewashing the files of some of the nation's worst financial criminals. by: Matt Taibbi
Imagine a world in which a man who is repeatedly investigated for a string of serious crimes, but never prosecuted, has his slate wiped clean every time the cops fail to make a case. No more Lifetime channel specials where the murderer is unveiled after police stumble upon past intrigues in some old file – "Hey, chief, didja know this guy had two wives die falling down the stairs?" No more burglary sprees cracked when some sharp cop sees the same name pop up in one too many witness statements. This is a different world, one far friendlier to lawbreakers, where even the suspicion of wrongdoing gets wiped from the record.


That, it now appears, is exactly how the Securities and Exchange Commission has been treating the Wall Street criminals who cratered the global economy a few years back. For the past two decades, according to a whistle-blower at the SEC who recently came forward to Congress, the agency has been systematically destroying records of its preliminary investigations once they are closed. By whitewashing the files of some of the nation's worst financial criminals, the SEC has kept an entire generation of federal investigators in the dark about past inquiries into insider trading, fraud and market manipulation against companies like Goldman Sachs, Deutsche Bank and AIG. With a few strokes of the keyboard, the evidence gathered during thousands of investigations – "18,000 ... including Madoff," as one high-ranking SEC official put it during a panicked meeting about the destruction – has apparently disappeared forever into the wormhole of history.


Under a deal the SEC worked out with the National Archives and Records Administration, all of the agency's records – "including case files relating to preliminary investigations" – are supposed to be maintained for at least 25 years. But the SEC, using history-altering practices that for once actually deserve the overused and usually hysterical term "Orwellian," devised an elaborate and possibly illegal system under which staffers were directed to dispose of the documents from any preliminary inquiry that did not receive approval from senior staff to become a full-blown, formal investigation. Amazingly, the wholesale destruction of the cases – known as MUIs, or "Matters Under Inquiry" – was not something done on the sly, in secret. The enforcement division of the SEC even spelled out the procedure in writing, on the commission's internal website. "After you have closed a MUI that has not become an investigation," the site advised staffers, "you should dispose of any documents obtained in connection with the MUI."


Many of the destroyed files involved companies and individuals who would later play prominent roles in the economic meltdown of 2008. Two MUIs involving con artist Bernie Madoff vanished. So did a 2002 inquiry into financial fraud at Lehman Brothers, as well as a 2005 case of insider trading at the same soon-to-be-bankrupt bank. A 2009 preliminary investigation of insider trading by Goldman Sachs was deleted, along with records for at least three cases involving the infamous hedge fund SAC Capital...




It's five pages long and your head may well explode before you finish.

As I said, I read it yesterday, so today looking a bit, found this:

http://www.thestreet.com/story/11225354/1/sec-has-finally-gone-too-far.html

[fj1200]

http://www.rollingstone.com/politics/news/is-the-sec-covering-up-wall-street-crimes-20110817


the Wall Street criminals who cratered the global economy

I see RS has not changed their base assumption.

[Kathianne]

I see RS has not changed their base assumption.

Seems to me that Wall Street had more than one hand in it, as did the government, real estate association, insurance companies, banks (big time), mortgage companies, SEC, FED (ok, the gov had even more hand in than Wall Street!), etc. People too, for taking money out of what was their major asset-their home.

[gabosaurus]

I have known this for quite some time. My husband works in the financial industry and he knows how things are manipulated. It is scarier than you ever thought imaginable.

[fj1200]

Seems to me that Wall Street had more than one hand in it, as did the government, real estate association, insurance companies, banks (big time), mortgage companies, SEC, FED (ok, the gov had even more hand in than Wall Street!), etc. People too, for taking money out of what was their major asset-their home.

IF you meant the Federal Reserve then... ding, ding, ding... You don't need to look any further past cheap money and too much money. Everyone else is merely doing their daily business in a world where Fed policy ruled the day.

Besides if you start blaming EVERYONE then you need to look elsewhere for the real culprit. Oh, and mark-to-market started to pop the bubble.

[fj1200]

... My husband works in the financial industry...

And what does he do in the :eek: financial industry. :eek:

[Kathianne]

IF you meant the Federal Reserve then... ding, ding, ding... You don't need to look any further past cheap money and too much money. Everyone else is merely doing their daily business in a world where Fed policy ruled the day.

Besides if you start blaming EVERYONE then you need to look elsewhere for the real culprit. Oh, and mark-to-market started to pop the bubble.

The whole idea 'that everyone should own a house' was a too good to be true moment. What may have started with the best of intentions, (the way to hell, btw), became a huge money maker for related industries. The 'deregulations' indeed the push by the government through Fannie and Freddie to put a mortgage in every pot has created this economy. When people saw the 'worth of their home' doubling in less than 7 years, bells should have been going off! Instead they took out 'equity' based upon market value-often when they had no real skin in the game. Balloon mortgages, reverse mortgages, no money down mortgages? All result of government and 'everyone should have the American Dream.' Criminal to say the least.

The question now is how to turn it around? Real estate has yet to hit bottom, even though interests rates really can't go lower. While I hold Obama responsible for many issues, this isn't one of them. Nor was it GW's fault, though through his administration they certainly tried to pump the water from the sinking boat, instead of repairing it.

[fj1200]

The whole idea 'that everyone should own a house' was a too good to be true moment. What may have started with the best of intentions, (the way to hell, btw), became a huge money maker for related industries. The 'deregulations' indeed the push by the government through Fannie and Freddie to put a mortgage in every pot has created this economy. When people saw the 'worth of their home' doubling in less than 7 years, bells should have been going off! Instead they took out 'equity' based upon market value-often when they had no real skin in the game. Balloon mortgages, reverse mortgages, no money down mortgages? All result of government and 'everyone should have the American Dream.' Criminal to say the least.

The question now is how to turn it around? Real estate has yet to hit bottom, even though interests rates really can't go lower. While I hold Obama responsible for many issues, this isn't one of them. Nor was it GW's fault, though through his administration they certainly tried to pump the water from the sinking boat, instead of repairing it.

Criminal? Who?

I'll certainly agree that there was a whole ethos built up around home ownership being a good thing and rising values obviously helped that but what was the primary cause of the "bubble"? Too much money chasing too few goods (property).

As far as the lack of a bottom goes... well of course, there is no demand side driver of property because we have rampant unemployment and underemployment. There is no magic wand to just pump up housing prices, there has to be demand and there won't be any anytime soon.

[Kathianne]

Criminal? Who? Fannie, Freddie, those in Congress who supported them in favors rendered in their districts, not to mention those members that were friends of Angelo and got sweet Countryside mortgages. SEC for not checking out, though there were several 'warnings' that those toxic assets were being rated AAA when in fact they were sub-prime. Which brings up the rating industry-but they've really taken the brunt of the fallout as far as blame laying goes. Then the banks that also bought those assets and profited off their sales, until the music ended and there were no chairs left. The list goes on.

I'll certainly agree that there was a whole ethos built up around home ownership being a good thing and rising values obviously helped that but what was the primary cause of the "bubble"? Too much money chasing too few goods (property). The rising values was caused by the mortgages given, overbuilding too. That is the bubble, there was never a shortage of properties, even with all the flipping.

As far as the lack of a bottom goes... well of course, there is no demand side driver of property because we have rampant unemployment and underemployment. There is no magic wand to just pump up housing prices, there has to be demand and there won't be any anytime soon.

The unemployment and underemployment, the economy crashing, was/is being fueled by the burst bubble, it's not the other way around. We often hear today about how banks are not lending and not so frequently hear that many aren't trying to borrow either. Sales of existing homes last month was forced down because so many backed out of contracts. That is not only bad news for the sellers, but for realtors, banks, retailers, those in construction, utilities, etc.

[fj1200]

Fannie, Freddie, those in Congress who supported them in favors rendered in their districts, not to mention those members that were friends of Angelo and got sweet Countryside mortgages. SEC for not checking out, though there were several 'warnings' that those toxic assets were being rated AAA when in fact they were sub-prime. Which brings up the rating industry-but they've really taken the brunt of the fallout as far as blame laying goes. Then the banks that also bought those assets and profited off their sales, until the music ended and there were no chairs left. The list goes on.

Your quoting skills are lacking or are you trying to get around the unwritten quote F'ing rule? :laugh:

Fannie and Freddie exec.s committed crimes, were charged, and assessed penalties. Congress is just being Congress so I'm not sure you can call that criminal. FoA's should have been checked out and the SEC has some culpability but any "warning" is merely 20/20 hindsight. All of those things boil down to one thing...


The rising values was caused by the mortgages given, overbuilding too. That is the bubble, there was never a shortage of properties, even with all the flipping.

Where does money come from to fund mortgages? Subprime becomes "toxic" because no one wants it and why didn't anyone want it? Because they couldn't sell it due to MTM, it was more of a self fulfilling prophecy that snowballed IMO. Sensible banking rules would have been far superior to what we got.


The unemployment and underemployment, the economy crashing, was/is being fueled by the burst bubble, it's not the other way around. We often hear today about how banks are not lending and not so frequently hear that many aren't trying to borrow either. Sales of existing homes last month was forced down because so many backed out of contracts. That is not only bad news for the sellers, but for realtors, banks, retailers, those in construction, utilities, etc.

That may have been the initial problem that led to a steep decline but the POTUS we got was exactly the POTUS we didn't need to bring the economy out the crisis. Higher tax rates, higher regulations, DC uncertainties are economic drags that exacerbate the unemployment problem. IIRC we normally come out of recessions in a similar manner to how we come out; a steep decline should have led to a steep recovery but we didn't get it because of abysmal fiscal policy.

[Kathianne]

Your quoting skills are lacking or are you trying to get around the unwritten quote F'ing rule? :laugh:

Fannie and Freddie exec.s committed crimes, were charged, and assessed penalties. Congress is just being Congress so I'm not sure you can call that criminal. FoA's should have been checked out and the SEC has some culpability but any "warning" is merely 20/20 hindsight. All of those things boil down to one thing...

[COLOR=#FF0000]

Where does money come from to fund mortgages? Subprime becomes "toxic" because no one wants it and why didn't anyone want it? Because they couldn't sell it due to MTM, it was more of a self fulfilling prophecy that snowballed IMO. Sensible banking rules would have been far superior to what we got.



That may have been the initial problem that led to a steep decline but the POTUS we got was exactly the POTUS we didn't need to bring the economy out the crisis. Higher tax rates, higher regulations, DC uncertainties are economic drags that exacerbate the unemployment problem. IIRC we normally come out of recessions in a similar manner to how we come out; a steep decline should have led to a steep recovery but we didn't get it because of abysmal fiscal policy.

Not lacking skills, didn't want to keep breaking down your post to answer all the questions and fool with the quotes. Chalk it up to exhaustion. I went to bed at 7am, up at 10:30. Last night was prepping 4 dishes for daughter's pre-wedding party of longest time friends and relatives. Guests came in the main at 1, last left around 10pm. Too tired to fill dishwasher.

As for the 'warnings' there were more than a few:

http://www.forbes.com/2008/12/31/housing-bubble-crash-oped-cx_bb_0102bartlett.html

http://topics.nytimes.com/top/news/business/series/the_reckoning/index.html

http://blogs.reuters.com/justinfox/2010/10/27/what-gretchen-morgenson-is-good-for/

Today there are lots of people in higher education warning of a bubble there. Who's listening? Who disagrees? The administration of said universities, the government, etc.

[Kathianne]

Related:

http://www.bloomberg.com/news/2011-08-21/wall-street-aristocracy-got-1-2-trillion-in-fed-s-secret-loans.html


Wall Street Aristocracy Got $1.2T in Loans <cite class="byline"> By Bradley Keoun and Phil ****z - Aug 21, 2011 </cite>
Citigroup Inc. (C) (http://www.bloomberg.com/apps/quote?ticker=C:US) and Bank of America Corp. (BAC) (http://www.bloomberg.com/apps/quote?ticker=BAC:US) were the reigning champions of finance in 2006 as home prices peaked, leading the 10 biggest U.S. banks and brokerage firms to their best year ever with $104 billion of profits.


By 2008, the housing market’s collapse forced those companies to take more than six times as much, $669 billion, in emergency loans from the U.S. Federal Reserve (http://topics.bloomberg.com/federal-reserve/). The loans dwarfed the $160 billion in public bailouts the top 10 got from the U.S. Treasury, yet until now (http://www.bloomberg.com/data-visualization/federal-reserve-emergency-lending/) the full amounts have remained secret.


Fed Chairman Ben S. Bernanke’s unprecedented effort to keep the economy from plunging into depression included lending banks and other companies as much as $1.2 trillion of public money, about the same amount U.S. homeowners currently owe on 6.5 million delinquent and foreclosed mortgages. The largest borrower, Morgan Stanley (MS) (http://www.bloomberg.com/apps/quote?ticker=MS:US), got as much as $107.3 billion, while Citigroup took $99.5 billion and Bank of America $91.4 billion, according to a Bloomberg News compilation of data obtained through Freedom of Information Act requests, months of litigation and an act of Congress.


“These are all whopping numbers,” said Robert Litan (http://topics.bloomberg.com/robert-litan/), a former Justice Department official who in the 1990s served on a commission probing the causes of the savings and loan crisis (http://www.fdic.gov/bank/historical/history/167_188.pdf). “You’re talking about the aristocracy of American finance going down the tubes without the federal money.” ...

[fj1200]

As for the 'warnings' there were more than a few:

http://www.forbes.com/2008/12/31/housing-bubble-crash-oped-cx_bb_0102bartlett.html

http://topics.nytimes.com/top/news/business/series/the_reckoning/index.html

http://blogs.reuters.com/justinfox/2010/10/27/what-gretchen-morgenson-is-good-for/

Today there are lots of people in higher education warning of a bubble there. Who's listening? Who disagrees? The administration of said universities, the government, etc.

Hope the party went well. People make warnings all the time and sometimes they're right. I remember Elaine Garzarelli (I think that's her name) "calling" the '87 crash and the idiots who follow the markets kept asking her when the next big crash was going to come like she had any great prescience. There are plenty of people who blame anyone involved in building a house for the bubble but bubble's, I don't like the word, are generally created by monetary policy. Even the left's favorite capitalist bubble was in fact created by a change in government policy, can you guess which one? I know you're a fan of history. :)

I'm not sure what higher education bubble to which you are referring but suffice it to say you can probably trace it back to government involvement.

[fj1200]

Related:

http://www.bloomberg.com/news/2011-08-21/wall-street-aristocracy-got-1-2-trillion-in-fed-s-secret-loans.html

Is that based on the same audit that rev posted a couple of weeks ago? It's not uncommon to see outsized profits while riding a bubble up, see oil, and it's also not uncommon for the Fed to act as lender of last resort.

[KartRacerBoy]

Your quoting skills are lacking or are you trying to get around the unwritten quote F'ing rule? :laugh:



I am PROUD to have created and added the term "quote f*cker" to benefit the debatepolicy lexicon. :beer:

[Kathianne]

I'm not going to pretend to understand the intricacies of banking, including the Fed. I've only the most basic understanding of how the system is supposed to work. I do know that banks, insurance companies, mortgage underwriting, etc., all have a fiduciary responsibility to clients and investors. They are not to act recklessly with their positions. They are to collect enough collateral and/or enough information to assess the risk of any loan, with long-term loans theoretically being the most risky and potentially profitable. The SEC exists to ensure that they actually perform the due diligence needed to assess the risk and do so fairly and honestly.

Starting with Fannie, then Freddie, then mortgage brokers, then banks the mania for giving loans for mortgages resulted in vast numbers of of borrowers with little understand and less means of what they were getting into. While touted by politicians and those businesses involved as helping 'all realize the American Dream,' the truth of the matter was those with the fiduciary responsibility were abdicating it, for huge profits and bonuses. In order to keep those coming, they had to write more and more of these toxic mortgages setting those unable to afford them to financial ruin. Those involved in the financial ends of these problems, as well as the regulators and legislators, should have and in some cases as you noted earlier, it was proven they did know that they were creating a bubble in the real estate market. The politicians could say they were helping their constituents, the regulators didn't want to be seen as preventing the rise of wealth, and those in the financial ends were growing richer and lobbying ever more for less regulations, less oversight, and more products that could be used to put unqualified buyers into homes with little chance they could be repaid.

This wasn't done by unintended consequences, this was done by design. That the bursting would cause what is now economic reality may well have been unintended, that doesn't excuse the recklessness (http://www.forbes.com/feeds/ap/2011/08/05/general-financials-us-earns-fannie-mae_8602960.html) however. There seems to have been little done to prevent a repeat of the same in the future. Many of those involved are still in the same milieu of government, banks, lobbyists, and related financial industries. That the name 'Dodd-Frank' (http://en.wikipedia.org/wiki/Dodd%E2%80%93Frank_Wall_Street_Reform_and_Consumer _Protection_Act) is on the new 'regulations' speaks volumes, since Dodd was one of the legislative members involved with being on the receiving end of the 'payoffs,' and Frank benefited and protected Fannie-Freddie from oversite. That Tim Geithner sits as Treasury Secretary speaks volumes. That Alan Greenspan still enjoys the respect of Wall Street and government. It's easiest to keep tabs on those prominent in government, much more difficult to those sitting on bank boards collecting millions, whose names aren't household names for most of us.

Now that my rant is over, if you have some reading that might help me or someone else interested please provide. As I admit from the get go, I don't understand much of what transpired but am willing to learn.

[Kathianne]

Great:

http://www.csmonitor.com/Business/2010/0817/Fannie-Mae-and-Freddie-Mac-reform-Would-it-add-5-trillion-to-US-debt


Fannie Mae and Freddie Mac reform: Would it add $5 trillion to US debt?

The Obama administration held a conference Tuesday about how to reform mortgage giants Fannie Mae and Freddie Mac. Reform could involve adding Fannie and Freddie's roughly $5 trillion in obligations, in effect, to the federal balance sheet...





Perhaps I'm missing something here, but isn't this already a done deal? US government basically has taken receivership of these two, no?

[fj1200]

I am PROUD to have created and added the term "quote f*cker" to benefit the debatepolicy lexicon. :beer:

And your most important contribution too. :laugh:

[fj1200]

Perhaps I'm missing something here, but isn't this already a done deal? US government basically has taken receivership of these two, no?

There are still future losses to be considered which are now in play because the government guaranteed the debt.

[fj1200]

... They are not to act recklessly with their positions. ... assess the risk and do so fairly and honestly.

... those with the fiduciary responsibility were abdicating it... ... it was proven they did know that they were creating a bubble in the real estate market. ... put unqualified buyers into homes with little chance they could be repaid.

... this was done by design. ... the recklessness (http://www.forbes.com/feeds/ap/2011/08/05/general-financials-us-earns-fannie-mae_8602960.html)...

Now that my rant is over, if you have some reading that might help me or someone else interested please provide. As I admit from the get go, I don't understand much of what transpired but am willing to learn.

I think I got most of the assumptions and preconceived notions. I'll have to look for more background for you.

[Kathianne]

There are still future losses to be considered which are now in play because the government guaranteed the debt.

So that $5 trillion isn't already on the books?

Does this seem a good idea to you?

http://www.bloomberg.com/news/2011-08-16/fannie-and-freddie-would-survive-in-new-form-under-obama-plan.html


Fannie and Freddie Would Survive in New Form Under Obama Plan <cite class="byline"> By Lorraine Woellert - Aug 16, 2011 </cite>
The Obama Administration is working on a proposal to maintain a large government role in mortgage finance, effectively preserving most of the functions of Fannie Mae and Freddie Mac (http://topics.bloomberg.com/freddie-mac/), according to a person with direct knowledge of the effort.


The primary goal is to encourage reliable sources of residential lending by continuing an 80-year-old practice of government guarantees on most home loans. At the same time, the administration wants to reduce government’s dominance in the system by imposing limits on Fannie Mae, Freddie Mac or their successors.


In February, U.S. Treasury Secretary Timothy F. Geithner (http://topics.bloomberg.com/timothy-f.-geithner/) and Housing and Urban Development Secretary Shaun Donovan presented Congress with three options for weaning the almost $11 trillion mortgage market from its dependence on government.


There is no timeline for delivering the new proposal, which is based on one of the options in the February report, according to the person, who did not want to be identified because the work is in an early stage.
...

[KartRacerBoy]

Hey Kathianne, have you "bailed," as you call it, on the whole war powers thing? Just wondering since you've posted everywhere else...

[Kathianne]

Hey Kathianne, have you "bailed," as you call it, on the whole war powers thing? Just wondering since you've posted everywhere else...

Haven't seen new posts on it. Looking for something in particular?

[KartRacerBoy]

Haven't seen new posts on it. Looking for something in particular?

It is kinda buried on the "new post" search but I responded to your questions, teach.

[Kathianne]

It is kinda buried on the "new post" search but I responded to your questions, teach.

I found it and responded a bit, including about the use of the 'bail' comment.

[fj1200]

So that $5 trillion isn't already on the books?

Does this seem a good idea to you?

http://www.bloomberg.com/news/2011-08-16/fannie-and-freddie-would-survive-in-new-form-under-obama-plan.html


The Obama Administration is working on a proposal to maintain a large government role in mortgage finance, effectively preserving most of the functions of Fannie Mae and Freddie Mac (http://topics.bloomberg.com/freddie-mac/), according to a person with direct knowledge of the effort.
The primary goal is to encourage reliable sources of residential lending by continuing an 80-year-old practice of government guarantees on most home loans. At the same time, the administration wants to reduce government’s dominance in the system by imposing limits on Fannie Mae, Freddie Mac or their successors.

...
It would allow private companies to buy, bundle and sell loans that meet certain criteria, much like Fannie Mae and Freddie Mac do now, and provide government-backed “catastrophic reinsurance” on the securities should they fail. The government would charge a fee for the insurance, which would be used to offset any losses to taxpayers and in theory, would prevent future bailouts. The government reinsurance would kick in only after the private companies have taken the bulk of the losses, according to the report.

Not the plan as laid out here; What is the point of retaining a large government role? The whole reinsurance thing just seems to be an overworked plan to get us to the same place.

My idea would have the mortgages packaged by the banks in defined "fannie mae/freddie mac" type securities so that the market can easily judge the underlying credit. F&F could simply create the packages and sign off on the collateral and step back so the market can resell them. I think it would simplify the mortgage process while eliminating any moral hazard. Those securities could then be used by the banks as reserves knowing exactly what they have.

No, the $5 TT is not on the books, it's an unknown.

[fj1200]

Now that my rant is over, if you have some reading that might help me or someone else interested please provide. As I admit from the get go, I don't understand much of what transpired but am willing to learn.

Here you go, some excerpts but the whole thing is worth the read as the author got his own rule named after him.

How Government Created the Financial Crisis (http://online.wsj.com/article/SB123414310280561945.html)
The classic explanation of financial crises is that they are caused by excesses -- frequently monetary excesses -- which lead to a boom and an inevitable bust. This crisis was no different: A housing boom followed by a bust led to defaults, the implosion of mortgages and mortgage-related securities at financial institutions, and resulting financial turmoil.Monetary excesses were the main cause of the boom. The Fed held its target interest rate, especially in 2003-2005, well below known monetary guidelines that say what good policy should be based on historical experience. Keeping interest rates on the track that worked well in the past two decades, rather than keeping rates so low, would have prevented the boom and the bust. Researchers at the Organization for Economic Cooperation and Development have provided corroborating evidence from other countries: The greater the degree of monetary excess in a country, the larger was the housing boom.
The effects of the boom and bust were amplified by several complicating factors including the use of subprime and adjustable-rate mortgages, which led to excessive risk taking.
...
Diagnosing the reason for this sudden increase was essential for determining what type of policy response was appropriate. If liquidity was the problem, then providing more liquidity by making borrowing easier at the Federal Reserve discount window, or opening new windows or facilities, would be appropriate. But if counterparty risk was behind the sudden rise in money-market interest rates, then a direct focus on the quality and transparency of the bank's balance sheets would be appropriate.
Early on, policy makers misdiagnosed the crisis as one of liquidity, and prescribed the wrong treatment.
...
It did not have to be this way. To prevent misguided actions in the future, it is urgent that we return to sound principles of monetary policy, basing government interventions on clearly stated diagnoses and predictable frameworks for government actions.
Massive responses with little explanation will probably make things worse. That is the lesson from this crisis so far.