Mutual Fund Scandals Lay Bare Problems at SEC

[The Backlash Cometh]

<In a nutshell, the SEC failed us because they were understaffed in the 90's and because of revolving door cronyism between the regulating agency and business. Gee, there's not too much of that happening in the U.S. today, is there? (hint: Look up today's news on Boeing and the Air Force connections.) We know the source of the problem: Republican's push for deregulation in the Newt Gingrich years has hurt us badly. Why doesn't someone have the balls to say it?>

Here's a clip of the article:

"Some said the SEC's revolving-door culture can breed too much familiarity between regulators and those they regulate. Lawyers, examiners and accountants often move back and forth between the SEC, the fund groups it oversees and the law firms that represent them.

"That coziness suggests that everyone knew about these practices, but they may have been looking out for each other because of the close-knit nature of the mutual fund community," said a securities lawyer who asked not to be named."

http://www.reuters.com/newsArticle.jhtml;jsessionid=1DEZJF451PGW4CRBAE0CFEY?type=reutersEdge&storyID=3947848

or go to http://www.reuters.com/ and look for the article.

[Code_Name_D]

1. The FEC did not fail.

This was intended to happen. Its part of the whole "self regulation" argument that buisnes can be more effichent if they do not have a baby sitter nagging them with every inocavation they come up up with.

The coruption is just an example of "inovations".

[The Backlash Cometh]

2. And which party was trying to sell the myth that business would work

better without government intervention? Certainly not the Democratic party who once had a leader who warned about the malevolent self-interested private sector.

[Code_Name_D]

3. Some of the Democrats have push this myth just as hard as the republicans

Some of the Democrats have push this myth just as hard as the republicans have. Keep in mind how the political system works. Candidates must have money to run there campaigns, and to get that money, they must go to corporations, and to get corporations to donate, they must scratch the back of the corporation. Or at the very least, not slap there hands when cough in the cookie jar.

This is where much of our problems have come from. We get to chose the fox buddy #1, or fox buddy #2. It don't mater because it the same fox that keeps getting into the hen house. The hand full of dems and even repugs that oppose this, get labeled anti business, or even "anti-jobs" by the corporate controlled press.

But it is important to note that it is not one or even both of the political parties pushing this agenda. It is in fact the corporations, and the elates who run them. They just pull the strings of both the D & R's to get there way.

Indeed, the "self enforcement" argument is a corner stone to supply side economic theory, and I use the term "theory loosely here. The argument goes that in a free market system, greed will drive the businessman to sell his widgets for as high a price as possible, even to obscenely high levels what would qualify as extortion. But the buyer is equally greedy and will try to get the widgets as cheaply as possible, for free if he could manage. The two will confront each other, and there greed, AKA competition, will cancel each other out, the resulting barring will produce an optimum price that is neither too high, nor too low. The argument even take it a step further by stating that greed is an essential component to this self regulatory effect. If one was greedy and the other wasn't, than this would result with one taking advantage of the other, and prices go out of whack. If both seller and buyer are not greedy, than they get all touchy feely, and would "give and take," still knocking the prices out of whack.

This is why I say that the FEC is not failing when it fails to prevent these scandals from taking place. And if you pay attention, you will here they say so. That this is NOT the manager of the mutual fund's fault. It’s the consumers fault for not shopping around more.

[Rainbows]

4. Yep, Paragraph two you just described ...

a centrist democrat, also know as, a 70's republican. That is why some of us desire a move back toward the left from the very ideology you very aptly described in paragraph 4. The propensities of greed need regulation, it comes down to controlling immoral aggression. The young, old, less educated, less able, are eaten alive by the fox otherwise, not to mention the average comotose citizen working sixty hours a week to survive who have their retirement in managed funds they are not allowed or don't have the time to manage themselves. Trust in others to be fair and you'll be the foxes next meal, you agree?

[Code_Name_D]

5. Greed is NOT a vertue.

And that is what we need to get at. If that is the position of the left, than so be it.

[Rainbows]

6. No greed is not a virtue ...

It is one of the more base elements of human nature that only mental and spiritual growth can voluntarily control. And greed is not exclusvive to either the right or the left, but involuntary control of greed through regulatory laws and enforcement is a position of the left that is hard to find if existant, on the right. It becomes very mushy in the center as you described in paragraph two and four of your original post. All the above IMHO.

[rapier]

7. notes

The stock market is essentially corrupt. Always has been always will be. Stock are not an investment, they are a speculation. That is espececially true during periods of low dividends, which is now. An investments worth can only be measured by judging the expected return on it. No rational person would invest in a basket of stocks which comprise the S&P 500 because the return is only about 1.8%. Much less the NASDAQ whose dividends are essentially zero.

But everyone knows this. They are not investing on the expectation of dividends they are speculating that stock prices will inflate. For 20 years stocks have been inflating. Sure they deflated for awhile there but the belief in their endless inflation never died and that belief is now more widespread than any time in history.

The SEC long ago was captured by the industry. So it goes. That is the way the world works. While I despise libertarians there is a libertarian solution to the cesspool that is the world financial system run out of Wall St. and Washington DC. That would be for political leaders, or any leaders for that matter, to call a spade a spade. To say what I just did, that stocks are a speculation. To warn the public endlessly to distrust such speculation. After the great crash the public learned that lesson well. That has been forgotten

Chances of that are zero. When the real economic troubles come as I think they will and stocks are again in the gutter remember it was both parties which pushed the generation long love affair with stocks into high gear with IRA's and 401 K's. This was a direct subsidy of Wall St. and thru that the rise of corpratism was solidified. What will be lost is a vast portion of that hoped for retirement money socked away by all of the Jane and John Doe's.

This Mututal Fund thing is just a tiny glimpse of the stock markets real reason for existence. That being to seperate people from their money. Show me a place where people congregate to handle other peoples money and without fail many of those people will be theives. That is human nature.


If you are a progressive now is the time to sell all your stock. Period. Even if I am wrong and stocks go to the moon the next 100 years you must know this. If stocks continue to inflate than democracy is dead. For corporations now own the government and they do it thru the wealth they can bestow on the elite, thru stocks.
In essence the broadening of stock ownwership thru tax advantaged retirement plans was a way to buy off the public. While many even here imagine somthing democratic about this the result has been anti democratic on all counts. Firtly it has directly led to the skewing of wealth to the top. More importantly it has delivered us and our politicians into the arms of the corporations.


I should note that this has indeed increased total wealth and probably stability. You must ask yourself if you want wealth and stability and power, or freedom.

[Rainbows]

8. What I'm Not Hearing ... ????

is any estimates dollar wise of just how big this is. I did here from a Krugman article that former SEC chairman Arthur Levitt call it the largest scandle in fifty years, the S&L's all told was near a trillion dollars. Has any one heard any estimates of How Much???

[rapier]

9. notes

The numbers are relatively small. The scandal involves only after hours trades (the media using the wrong term for this is calling it "market timing". That term has a specific meaning and has nothihg to do with this practice which as I see it should have meant easy money like 4 out of five trades for even an average trader) The only number I have seen related to the Strong Fund's (?) guy who made like $650K.

Multiply that by 10 or 20 or whatever and in the big scheme of things on Wall St. this is stricly small potatoes.

The whole thing is important only as a reminder that when it comes to people who make a living handling other peoples money those handlers inevetibly conatain a large portion of crooks. EVERYONE should know this right down to their bones. It should be taught in scool starting in the first grade.

The final tally on the S&L bill was in the neighborhood of $500 million. We are still paying by the way. To fund the bailouts bonds were sold and most were of a 20 year duration I think. I'm sure there is a line in the budget somewhere detailing it. Ho hum.

Levit was hillarious on this. He pulled a Renault and said he was shocked, yes shocked, that the funds would allow such rip offs of odinary customers. There are two ways to look at this. The erstwhile tough regulator was either naive or stupid, or he is just lying. I prefer the latter explaination.


Currently mutual funds are as fully invested as any time in history. Buying with both hands every piece of shit stock imaginable because everyone else is. Chasing momentum it is called. And John and Jane Doe send them more money every week to buy more overpriced crap and the market goes up and everyone thinks they are smart. Mistakeing inflating asset prices for building wealth and calling it investing.

This is the real scandal.

[rapier]

10. EDIT

Final S&L bailout cost about $500 BILLION. Sorry

I've been trying to find this for a quarter hour but no luck. I seem to recall a number like $435 billion as the official number.

It might be noted that what killed the S&L's was borrowing short (term) and lending long (term). Guess what FannieMae and FreddyMac do. Oh, there are many differences, don't get me wrong. Just something to file in the back of your head. Someday, next week or in 2010 it will mean something. They are much bigger than the S&L's by the way, and growing exponentially.

[Rainbows]

11. Thanks Rapier, I think you are right on the 500Bn ...

I read a book with interviews of ED Gray the regulater that kept trying to expose it in the early to mid eighties. He was constantly blocked by Donald Regan and had a lot of interference from four congressmen as well, one of them Alan Cranston, and I think Sen McCain as well but I not sure on the latter. The book went to print in the very late eighties and the tally then was about 850bn with still more cases to settle. However there was a mention that some of the money might be recovered through asset forfeiture and fines but I never heard the follow up on that. However I have heard the 500BN figure from a couple of other sources that have made me wonder, Cathern Austin Fitts of Solari.com to mention one. I have also heard the near trillion figure in posts on this site, but who knows about the poster. Any way thanks for clearing that up.

Also thanks for confirming what my gut has been telling me about the Levitt quote, that it was blown out of proportion. I've looking all over for large sums that have been looted but so far it all adds up to maybe a billion or two but not much more, certainly no where near the half trillon of S&L's, or the 'largest scandal in the last 50 years'.

One other note as well about the S&L's, is a fair portion of the losses were not in legitimate ventures gone bad but were targeted by organized crime and other sharks with no intentions of paying the money back. Also a person with chump change could either buy in or be licienced a S&L with almost no pre investigation into their character or qualifications. Several S&L's were set up as shells for hucksters to work out of with new innocent investors chasing better returns providing the booty. Once deregulation went through and regulaters were underfunded and under manned, the sharks were on it like a duck on a june bug, before anyone knew what hit em.

Thanks again for your info and efforts.

[rapier]

12. notes

When talking about the S&L mess critics make the mistake of way overstating the amount looted, as opposed to lost. There is a big difference. The weak real estate market and the very nature of the bussiness in the 80's made up for most of the losses.

The thing is this. Thousands of people bilked billions of dollars. Isn't that enough?

Nobody knows the amount stolen nor the failures and losses due to that theft. Probably about 10%. I've seen non sensational estimates ranging from 2% to 25%. Whatever.

Also missed is the fact that Wall Street led by Milkin poured millions into S&L deposits of the weakest institutions who had to pay the highest rates, knowing the amounts were insured. Nobody to my knowlege ever criticized this.

There was also quite a bit of funny bussiness in the investigations and prosocutions. Congress, the deomcratic one, built in a short statute of limitations on prosocutions so investigation time was cut short. Semi famously almost the entire Denver area office of the RTC investigation division was transfered late in the process.

Then finally was the asset sale proceedrues. Most were done in large blocks of several properties. Without question plum blocks were designed. The bundleing of such large blocks of necessity made the purchase possible only by those haveing the deepest pockets and the ability to analyze multiple properties. It's certain to me that many blocks were designed in advance by said deep pocket boys. In other words by direct corruption inside the RTC itself.

Of course all the winners hate government.

Old Bill Simon was the biggest winner of all. That's how he became a multi billionare.


Finally GW Bush said Neil was "screwed" in relation to his involvement in Silverado. An ideal beyond laughable. He suffered some bad publicity, well deserved, and had to agree not to be an S&L insider for a few years. I think maybe being executed for a crime you didn't commit is a better definition of screwed. That's just me however.

[Code_Name_D]

13. And be sure to tell them about the "moral hazerd."

That the fact these acounts were insured actualy inabled the coruption to take place.