Why the S.E.C. didn't hit Goldman Sachs harder

http://www.newyorker.com/business/currency/why-the-s-e-c-didnt-hit-goldman-sachs-harder

by JMiao • 10 years ago

294 191 10 years ago

jbob20002• 10 years ago

Here's the TL;DR:

"In our conversations, Kidney reflected on why that might be. The oft-cited explanations—campaign contributions and the allure of private-sector jobs to low-paid government lawyers—have certainly played a role. But to Kidney, the driving force was something subtler. Over the course of three decades, the concept of the government as an active player had been tarnished in the minds of the public and the civil servants working inside the agency. In his view, regulatory capture is a psychological process in which officials become increasingly gun shy in the face of criticism from their bosses, Congress, and the industry the agency is supposed to oversee. Leads aren’t pursued. Cases are never opened. Wall Street executives are not forced to explain their actions."

Basically, regulators don't have the balls to go after the big guys.

maxxxxx3• 10 years ago

"regulators don't have the balls "

That's a little harsh. Everybody loses their balls quickly if they aren't backed up by their bosses.

bg4• 10 years ago

No balls all the way up the chain.

feverishaaron2• 10 years ago

Exactly. If it affects my personal livelihood, it is not logical to pursue.

bpchaps• 10 years ago

Tss. After seeing how weakly regulators push exchanges like CME to prevent legitimate and proven spoofing, it's pretty clear that "backed up by their bosses" goes all the way up the chain.

Side comment: The GS head of technology recently left there to go to an at-best-mediocre options brokerage recently, which I recently left. Not gonna lie, that makes my suspicio-meter go off after seeing the shenanigans they did there.

Side note again: Another thing that pushes my supsicio-meter pretty far is seeing secret service, Harry Reid and a very well known name in HFT walk into an office and talk to each other for an hour.

I don't want to come to any direct conclusions, but "People are shitty" comes close.

ArkyBeagle11• 10 years ago

People will inevitably identify with an adversary if the relationship lasts long enough.

wnevets• 10 years ago

being the fun police is hard.

_delirium2• 10 years ago

Sounds a bit like a variety of legal realism, roughly the idea that the law is not what's formally written down, but the collection of practices that can be inferred from what people (judges, prosecutors, police, etc.) actually do. If Wall Street practices have become culturally normalized, especially among elites, then they simply get thought of as "legal", regardless of whether they follow the letter of the law, and it appears radical to argue that they should be prosecuted for doing things that are just normal practice and therefore presumptively legal. It looks to many people like you're trying to change the law in that case (the government intervening to overturn normal business practices) even if formally you're just enforcing the law as actually written. Many people in a position to initiate prosecutions shy away from that unless they have strong political backing (e.g. from a popular politician willing to make trust-busting or taking on Wall Street their signature issue).

jbob20002• 10 years ago

Can I use that argument to get out of speeding tickets? It's culturally normalized to go 10-20kph over the limit, and people actually get pissed if you do the limit on the highway.

cowardlydragon3• 10 years ago

I guess there is no ramifications to consistently fucking over black people in criminal prosecutions. right?

This is whitewashing. In all the ways you can apply it.

galtwho• 10 years ago

and the problem with unwritten rules is that it is majority who knows best on how to read them.

when you don't run within the majority culture you are always making mistakes in their interpretation

and then you have law officers who choose to make examples every now and then.

guess who gets booked?

PS : one of the advantages of privilege

shostack• 10 years ago

I totally get that piece, but I feel like in some ways it is meant as an attempt to deflect conversation away from what is stated to be a factor:

"The oft-cited explanations—campaign contributions and the allure of private-sector jobs to low-paid government lawyers—have certainly played a role."

Emphasis on "have certainly played a role." The moment I hear that, I ask why the hell we aren't focusing the conversation there and keeping it there. Guarantee a lot of the "lack of balls" has to do with worrying about future security in the form of campaign contributions and private-sector jobs.

How about we solve for that problem first and see if they still lack balls when they are no longer worried about their financial future being directly tied to those they are supposed to police.

rayiner9• 10 years ago

Who at SEC is elected? How does the prospect of going into a private sector job (usually at a law firm which makes money from banks getting in trouble), dissuade anyone from taking down a big Wall Street player?

ArkyBeagle11• 10 years ago

The effect of campaign contributions is unmeasurable at this writing. If we want to allow public service by government lawyers to be a farm system for big finance houses, then we can continue to underpay them.

fcp• 10 years ago

Sounds very similar to this story[0][1]. If i recall correctly: Ambitious NY Fed employee claims she was fired because she wouldn't soften language in a report; secretly records meetings that show extreme deference to banks. The This American Life version is really great.

[0]https://www.propublica.org/article/carmen-segarras-secret-re...

[1]http://www.thisamericanlife.org/radio-archives/episode/536/t...

kelseydh2• 10 years ago

Very interesting stuff. Some of the better direct evidence for regulatory capture I have read.

ikeboy• 10 years ago

Interesting; Matt Levine claims the opposite is true, that a revolving door makes regulation harsher.

http://www.bloombergview.com/articles/2014-06-26/strict-regu...

http://www.bloombergview.com/articles/2016-04-12/mortgage-de...

http://www.bloombergview.com/articles/2016-04-14/argentine-b...

jimmytidey• 10 years ago

Matt Levine's theories nearly all suggest we should end the 'revolving door' because it leads to conflicts of interests - either by making regulation harsher or less harsh, rather than impartial.

If regulators really are harsh so banks hire them "to get them of their backs", presumably banks have an expectation that this works, causing in the long run, softer regulation.

The alternative theory that regulators are incentivised to be diligent and fair so banks will hire them on that basis is... not compatible with most people's understanding of the financial sector's culture.

devy• 10 years ago

Basically, regulators don't have the balls to go after the big guys.

Bernie would change that if given the opportunity.

krapp• 10 years ago

What presidential candidates promise and what presidents deliver are often very different.

ArkyBeagle11• 10 years ago

So what if that knocks, say 2% off GDP growth?

rurban• 10 years ago

We thought the same about Obama and then he turned 180 on us.

Bernie has a history favoring weapon makers from his own state as well as going after people using his logo, so we can be pretty sure that given the opportunity it will not all be as wonderful as he promises.

And who knows what they have collected about him in the meantime. There must have been a reason why Obama turned 180 so suddenly, as soon as he was in office.

spinlock4• 10 years ago

I read it differently. My take away was that the SEC didn't have the _evidence_ to go after anyone but Fabricci.

However, I really don't understand how Goldman would have profited from aiding Paulson & co. Goldman set up a security that let people bet for or against the housing market. It's similar to Vegas letting people bet on a sports match. Why would Vegas fix the game that other people were betting on? It's not like Goldman made more money because Abacus paid out to Paulson vs. the Germans.

chishaku2• 10 years ago

My take away was that the SEC didn't have the _evidence_ to go after anyone but Fabricci.

"Nor had they questioned top bankers in Goldman’s mortgage businesses or any of the bank’s senior executives. Even more surprising to Kidney, the agency had not taken testimony from John Paulson, the key figure at his eponymous hedge fund."

An investigator that doesn't ask questions will have a hard time finding evidence.

mathattack• 10 years ago

They get very large fees for "securitizing the deal", or being the ones who turns a bunch of loans into something that can be traded. In the case of very complicated deals, it can be several percent for a transaction that is low-risk for the bank since they've already identified both sides of the trade.

cowardlydragon3• 10 years ago

Yes, the CIA, FBI, NSA, and all the lot have the entirety of our financial and communications records stored away.

But there's no evidence anywhere. Sorry. Right.

dguaraglia2• 10 years ago

This explanation is just an attempt at hiding the actual problem: the revolving door between the public and the private sector, specially in the banking industry. Of course you don't want to be the one sending Lloyd Blankfein to prison. No way you are going to get a lofty job at a bank after that.

This is the one case where regulators would have massive popular support, specially in an election year when two very popular candidates (well, three if you believe Hillary's latest statements) are calling for stronger measures against the people responsible for the "Great Recession".

mruniverse2• 10 years ago

Would it work if we made the revolving door less attractive?

For instance, could we pay the regulators enough for it to become attractive? Over time, maybe being a regulator will become the end goal of new grads.

xadhominemx• 10 years ago

If anything, the revolving door probably leads to tougher regulation...

http://www.bloombergview.com/articles/2014-06-26/strict-regu...

"Here are some possible theories of the financial-regulatory revolving door:

...

2. Regulators want to get higher-paying jobs at banks, so they try to be diligent, fair, competent and zealous, so that the banks are impressed by them and hire them.

3. Regulators want to get higher-paying jobs at banks, so they are hard on banks in ways that force the banks to hire lots of ex-regulators -- to understand complicated rules, say, or to work as monitors for regulatory settlements.

4. Regulators want to get higher-paying jobs at banks, so they are hard on banks in general, hoping that the banks will hire them to just shut them up."

ArkyBeagle11• 10 years ago

Arnold Kling used to work for one of the housing agencies as an economist. He's on record repeatedly as saying that the Great Recession might as well have been the design goal of housing policy since George Romney.

julian_1• 10 years ago

Basically, regulators don't have the balls to go after the big guys.

The other component to this, is that regulatory compliance becomes a significant barrier to entry for new firms. Incumbents end up gaining even more organizational power as market power increases, and competition on price and service quality decreases.

wildmusings• 10 years ago

Goldman Sachs has even mentioned this as an advantage on earnings calls. The regulatory burden on the financial industry is insurmountable for a new entrant.

wldcordeiro5• 10 years ago

The movie "The Big Short" has a brief scene with reference to this that you reminded me of and I highly recommend the movie. In the scene one of the main characters is discussing with his brother's ex who is an SEC regulator and she says something to the affect of "the regulators are a revolving door of industry insiders and you aren't going to get looked at when applying for the cushy bank job if you're known as the stickler regulator."

MichaelGG• 10 years ago

In Canada, there's a "saying" with the big Yelcos like BRM or Rogers: if they need a law passed, one of their VPs resigns and joins the CRCT (FCC equivalent). That'd explain how they pass laws like the one that mandated that competing DSL providers couldn't price services lower than Bell or offer uncapped data.

psychometry• 10 years ago

This happens in many industries. The government-agriculture revolving door is explored in Food, Inc.

rdancer2• 10 years ago

The book that superb movie is based on is well written as well.

vasilipupkin2• 10 years ago

You are going to have a harder time getting a good job in compliance at a bank or a trading firm unless you were a good regulator

samstave• 10 years ago

I found this to be an interesting theory:

Panama papers is not a "leak" it was a hack by the NSA and only released a bunch of info on Panama based shell companies that are largely BRIC nations, none the US - and that it is a PSYOP to get a bit of anger against specifically others to protect US financial hegemony...

The only country to prosecute bankers/Wall Street - the PM resigned after he got caught doing the same thing.

It's revenge and a pre-emotive attack - but one that kind of lost control.

Watch the Panama papers doc to see how In The 2013 doc PBS' "the warning" the DOJ literally stonewalls against all questions regarding going after Wall Street.

The whole system is absolutely a corrupt greed ponzu scheme.

What happened those three vids, please, and give me your opinion.

kqr2• 10 years ago

Matt Taibbi wrote about this in his book The Divide: American Injustice in the Age of the Wealth Gap [1].

Enron was probably the last big corporate take-down by the government.

From an interview http://www.democracynow.org/2014/4/15/who_goes_to_jail_matt_...

  But at the bottom of it, there was this thing that he [Eric Holder]
  laid out called the "collateral consequences doctrine." 
  And what "collateral consequences" meant was that if 
  you’re a prosecutor and you’re targeting one of these big 
  corporate offenders and you’re worried that you may 
  affect innocent victims, that shareholders or innocent 
  executives may lose their jobs, you may consider other 
  alternatives, other remedies besides criminal 
  prosecutions—in other words, fines, nonprosecution 
  agreements, deferred prosecution agreements.
  And again, at the time, it was a completely sensible 
  thing to lay out. Of course it makes sense to not always 
  destroy a company if you can avoid it. But what they’ve 
  done is they’ve conflated that sometimes-sensible policy 
  with a policy of not going after any individuals for any 
  crimes. And that’s just totally unacceptable.

1. http://smile.amazon.com/Divide-American-Injustice-Age-Wealth...

josho2• 10 years ago

Or concisely:

  Too big to fail; too big to jail

maxerickson3• 10 years ago

Shareholders don't deserve protection like that. I understand that giant corporations are not particularly run by shareholders, but if someone dumps their money into something and doesn't pay attention to it, it's fine to make them feel the consequences of not paying attention.

stegosaurus• 10 years ago

I understand the principle here, but the specific examples given here are a bit odd.

>> shareholders or innocent executives may lose their jobs

Shareholders are unlikely to be affected to a large extent because their holdings in Enron would probably make up a small portion of their net worth.

Executives are paid large salaries and so can deal with the effects anyway.

I'd be much more concerned with the rank and file.

leoc• 10 years ago

William K. Black is well worth reading on the issue too http://america.aljazeera.com/opinions/2014/9/eric-holder-res... , as one of the team that successfully prosecuted people back in the S&L days http://www.amazon.com/Best-Way-Rob-Bank-Own/dp/0292721390 (apparently it wasn't politially easy then either).

ArkyBeagle11• 10 years ago

"Of course it makes sense to not always destroy a company if you can avoid it." So that's the basic implied threat - destruction?

Nice. And this then becomes a brinksmanship game. The act of flauting the law is now coin of the realm.

Enron was taken down by ... the running dogs of CALPERS. "My fund can beat up your fund" so to speak. This is why we can't have affordable housing - the spall from Enron painted the whole state of Texas.

blazespin• 10 years ago

Yeah, but why is congress criticizing the regulators?

_yosefk• 10 years ago

What if it's simply bribes and he won't say it because they will eat him alive? "Tarnished concept of government blah blah" sounds great to those who love the concept while not exposing this guy to libel lawsuits from the people put by this concept into positions to take the bribes.

lifeisstillgood• 10 years ago

They don't have the upside. They already have the power to do almost anything to a bank. The top ranks of most big banks already spend most of their time worrying about the next inspection.

As far as regulators go, there is not much more fear and respect and obedience they can get.

So why make an example of anyone when day-to-day regulators are the big I ams

A sort of reverse Regulatory capture has been achieved. The regulators are calling the shots, but don't see the need to dig deeper.

The best analogy I can give is if Lord Ventinari from disc world were running 30's Chicago - Al Capone has been tamed, does not rock the boat and only kills his "own kind". Why should cleaning up the city and arresting Capone be a priority - he is under control.

I like discworld novels but I am not sure I want to live innsuchba compromised society

carsongross2• 10 years ago

There isn't any great mystery here: it's regulatory capture. It's a well understood public choice problem:

https://en.wikipedia.org/wiki/Regulatory_capture

https://en.wikipedia.org/wiki/Public_choice

What's interesting to me is that quite smart people would expect the SEC to act otherwise.

ArkyBeagle11• 10 years ago

Beats me why anybody would think that.

Did we learn nothing from "Point Break?" :)

vasilipupkin2• 10 years ago

Or, alternatively, in this case there was no good case as some SEC lawyers suggested. It seems strange to me to suggest that assembling a security of mortgage bonds so that one party could short it while another could go long it is a crime. That is what Goldman is supposed to do !

wwwdonohue• 10 years ago

There was no good case because, as the article explains in quite a lot of detail, the team was instructed not to interview anyone in any position of responsibility at Goldman/Paulson. It also explains, in quite a lot of detail again, how Goldman was not simply "assembling a security of mortgage bonds." There was quite likely intentional fraud involved.

joe_the_user2• 10 years ago

The oft-cited explanations—campaign contributions and the allure of private-sector jobs to low-paid government lawyers—have certainly played a role. But to Kidney, the driving force was something subtler.

The only "subtler" thing is that corrupt actors of this sort need to manufacture vague and appealing alternatives to plain-old-corruption in order to look themselves in the mirror.

CPAhem• 10 years ago

Good summary. Those who pay the piper call the tune, and have made themselves above the law.

daodedickinson• 10 years ago

It's a political process in which officials are intimidated by their bosses from pursuing justice. Regulators don't have guns big enough for the big guys; they can't play the game of thrones.

atmosx• 10 years ago

Basically, regulators don't have the balls to go after the big guys.

Wouldn't you? The regulators receive direct or indirect instructions. They can see what happens when they choose not to listen. So why bother playing hero? Real life is not hollywood. You can always make the opposite argument no matter how flawed might be e.g. "hey! this guy is killing corporate America whilst the entire world is the midst of a crisis! It's crazy right?", you know how many bellow 50k/year households will buy that argument? It's crazy ;-)

This is a government policy, whether is good or bad depends on which side of the fence you stand. It's bad for the majority and for the rule of law, but who cares.

ArkyBeagle11• 10 years ago

Adversarial relationships in governance don't work.

ErikAugust• 10 years ago

The lyrics of this song contain the answer: https://www.youtube.com/watch?v=s2VG53RIJ50

josho2• 10 years ago

Thanks for baiting me into listening to 30 seconds of crappy music to merely here "It's the money".

chollida1• 10 years ago

For those of you who haven't spent the past 10 years of your lives following this and want a quick TL/RD, the below link has a good recap of what Abacus is.

http://www.reuters.com/article/us-goldmansachs-abacus-factbo...

nickpsecurity3• 10 years ago

It's pretty simple: the Treasury head and many others in regulators are ex-Goldman. The word is subversion. The biggest violators have people embedded into the regulators to make sure they're not a problem.

maxerickson3• 10 years ago

Jack Lew did a brief stint at Citigroup but is reasonably described as having a career in public service:

https://en.wikipedia.org/wiki/Jack_Lew

Tim Geithner is also reasonably described as having a career in public service:

https://en.wikipedia.org/wiki/Timothy_Geithner

Don't despair! He has shadowy connections to the Kissinger Group (a brief stint early in his career).

Henry Paulson did in fact lead Goldman Sachs:

https://en.wikipedia.org/wiki/Henry_Paulson

John Snow was a railroad tycoon:

https://en.wikipedia.org/wiki/John_W._Snow

Paul O'Neill was an industrial magnate that did a stint leading the mysterious RAND Corporation:

https://en.wikipedia.org/wiki/Paul_H._O'Neill

nickpsecurity3• 10 years ago

The majority of that list fits my pattern with two claimed to be public service. Lew was COO for one of the guilty parties as the stuff happens. Geithner came in after the bailouts started. Paulson is the main guilty party there. Lew and Geithner, whatever their beliefs, haven't tried to make a prosecution happen or significantly countered the funding. The crooks are doing A OK with some of their gains paid back in fines. Cost of doing business.

List isn't looking good. That's without considering Kissinger or RAND connections. No speculation needed with results like this. ;)

carsongross2• 10 years ago

The formal concept is regulatory capture:

https://en.wikipedia.org/wiki/Regulatory_capture

Which is a result found in Public Choice analysis:

https://en.wikipedia.org/wiki/Public_choice

The SEC is specifically mentioned in the first article.

As I said elsewhere, what is surprising here is not that Goldman got a wrist slap, but that intelligent people expect some other result.

nickpsecurity3• 10 years ago

I agree with you and find it aggravating as I see it in politics all the time. Otherwise smart, effective people stay all over peripheral instead of core issues.

An example is recent election. People are citing what each candidate says or promises despite admiting the whole game is to lie for votes then do what they're paid to do by their contributors. So, you look at voting history and prior business activity to determine both likely action and character. Got Hillary and Trump filtered out almost instantaneiusly for me whereas they rise to the top for the masses. "But he/she said..." (Sighs)

Synaesthesia• 10 years ago

Goldman Sachs has many well-documented connections to the US government & White house. https://prof77.wordpress.com/politics/an-updated-list-of-gol...

http://www.whiteoutpress.com/articles/q42012/list-of-goldman...

alanwatts5• 10 years ago

Goldman was Obama's 2nd biggest campaign contributor in 2008

rayiner9• 10 years ago

Goldman, the company, is not allowed to contribute to candidates. What OpenSecrets means when it says that is Goldman employees contributed. Which is unsurprising. Goldman has tens of thousands of well-payed employees in a heavily Democratic state. Who would they contribute to?

cloudjacker• 10 years ago

Sometimes I like to imagine that there are esoteric business relations like this in places like Palestine with an Israeli regulator.

But I can never get a discussion deep enough going on about how the rule of law is implemented there.

arca_vorago• 10 years ago

I boil this down to a few categories of people in positions of government. There is a certain word, don't say it too loud or they might run or grab pitchforks, but the word is... cough... accountability.

Looks around carefully. I spent some time contracting in DC, and the conclusion I came to is that there are three main types of people around the government and financial centers of power.

1) Those who are aware of the coming shitstorm and the complete corruption and subversion, and are just trying to "get theirs". This usually ends up in a "I got mine, fuck you" attitude. They don't push back because they know they would get punished for it, so they instead use their knowledge to further their career at the expense of their duty, and principles. They know, but don't care (enough to risk anything) about the status quo.

2) Those who know about the situation, and agree with it. These are usually indoctrinated extremists on either side of the spectrum, neocon, ultra-lib, the kind of people who now think capatalism in it's current form is the best gift from god and they speak of peace while selling massive amounts of weapons to dictators they setup all around the world. They know, and they care (for the wrong things), and actually perpetrate many of the abuses of the system.

3) Those who are too ignorant or stupid to know, or the slightly modified, those who have an idea about how bad it is but would rather stick their head in the sand and pretend reality doesn't exist. They don't know and don't care.

Don't tell me where all the true patriots went. I have told my friends, that "I know not one brave soul, not one." (keep in mind I'm not talking about media figures, like Snowden, Manning, Drake, Binney, Tice, Edmonds, all of whom I do consider brave souls) To me, that is the real problem I faced when I had my Descartes reset, in that I started to realize that while I still believe in the power of an oath, and the duties that come with them, the majority of the people around me and in positions of real power pay tons of lip service to principles, but never actually do them. Personally, I think this is causing a kind of mass cognitive dissonance and compartmentalization that we have yet to realize the full impact of.

When I think about the leadership traits I learned in the Corps, and how little of them I see in our leaders, I fear for the future of my country.

(in case anyone is wondering, they are: Justice, Judgement, Dependability, Initiative, Decisiveness, Tact, Integrity, Enthusiasm, Bearing, Unselfishness, Courage, Knowledge, Loyalty, and Endurance.)

alanwatts5• 10 years ago

"I know not one brave soul, not one"

Just because you don't recognize them doesn't mean they're not there.

Sometimes when you're "behind enemy lines" or consciously trapped in extreme group think, being tactful means being subtle, delicate, or unnoticeable.

marincounty• 10 years ago

I've seen a steady erosion of ethics in all professions.

I don't know what's causing it. Actually, I have a few hypothesis, but I'll get hammered for even mentioning them.

I used to look at people's actions in society, with the expectation that the average guy would be one of the 65% who delivered the legal 450v sting in the Milgram experiment. That left 35% who would do The Right Thing.

As, I've aged, I see a number much greater than >65%. I'm seeing way too many people doing immoral legal acts. Acts that are highly immoral, but legal.

I used to just take ethics for granted.

I am now Shocked when I run across a person with ethics.

I've gotten so jaded when someone is being honest/genuinely helpful--I look for the catch I missed. So, basically I look at most people, especially the financially successfully with extreme caution.

In Ireland, I was told they look at successful people differently than we so I the United States. They look at that person, and wonder, "Who did they screw over, or step on in order to get there." I overheard this. It might be wrong. I haven't got there, but it's getting close.

I'm not even talking about blatant criminals. I'm talking about the guys in ties. The guys with licenses. The guys with power. The guys who bend the rules in order to get ahead. The guys who exploit poor and uninformed just because they are easy marks.

sbardle• 10 years ago

The Polish philosopher Leszek Kolakowski once said "Original sin remains a profound and insightful view of the human condition". He didn't last long at Berkeley, as it happens.

whatok2• 10 years ago

For people complaining about revolving doors, how do you get regulators with current industry expertise without.... industry experts?

bduerst• 10 years ago

You don't really.

The question that the revolving door complaint raises is whether these people can competently perform in these regulatory positions without bias.

The solution isn't picking different people, it's transparency and enforcing the checks and balances. Articles like this are important, because the SEC is notoriously bad at being transparent (getting a D- on FOIA) and it exists as an independent agency in the executive branch.

wldcordeiro5• 10 years ago

I dig your solution as well as some kind of limitations on "crossing the aisle" once you've gone over. Like former regulators have to have n years out of the job before being legally allowed to work for financial institutions or other ways to add distance and disincentive lenient regulation.

alanwatts5• 10 years ago

Program/code the regulations into the financial systems instead of relying on the thumbs up from an easily corruptible human being.

Edit: immediately after posting this it occurred to me how terrible if not impossible this would be with the spaghetti code that is the tax and compliance legal code. So that would ideally have to be reformed, or rewritten and consolidated which is quite a big proposition

mrgreenfur• 10 years ago

Why can't people excel and be experts while being a regulator? That's like saying police have to be criminals before they can be police or they won't be experts.

If the financial industry is doing things so complicated that they cannot be policed, then they should be made to define their actions so that they CAN be policed, or their actions should be illegal.

rayiner9• 10 years ago

Should government bureaucrats who have never coded something be in charge of micromanaging internet companies?

rdancer2• 10 years ago

It's not that you cannot play for Blackhawks for a few seasons, and then sign up with Rangers. As the revolving door metaphor suggests, the movement is both more frequent and continuous. Glenn Greenwald goes even further in With Liberty and Justice For Some, suggesting the government and the industry have in practice become two departments of the same organization, with employees being reassigned, but never actually leaving:

"People like [the Democratic appointees] Rubin, Summers, Patterson, and Gensler shuffle back and forth between the public and private sectors, taking turns as needed with their GOP counterparts. When in government, they ensure that laws and regulations are written to redound directly to the benefit of a handful of Wall Street firms, abolishing most regulatory safeguards that keep those behemoths in check. When the electoral tide turns against them, they return to those very firms and collect millions upon millions of dollars, profits made possible by the laws and regulations they implemented (or failed to implement) when they were in charge. Then, when their party returns to power, back they go into government, where they use their influence to ensure that the cycle keeps on going."

And if you don't care for a 9–5 back at your old bank, or your party holds the presidency for too long and you're kinda strapped for dineros, you just ask for a reassignment with a short period of unemployment. During the sabbatical, you visit your Wall Street office for a few hours, collect a "speaking fee"[1], and take a holiday. When you come back, infused with vitamin D and liquidity, your lesser-minded colleagues may think you never left or (gosh!) took a bribe.

[1] http://americablog.com/2013/07/tim-geithner-speaking-fees-go...

retube2• 10 years ago

Would you trust a code reviewer who had never written a line of code or deployed an app?

jheriko• 10 years ago

TL;DR;

they are inept and impotent.

qaq• 10 years ago

Mainstream Banks laundered close to 400 billions in drug money and got slapped with fines in 10 mil. range. Everyone is up in arms about GS. GS counterparties are supposed to be sophisticated Fund managers they are payed millions in fees for managing money. It's their job to do due diligence on the deals they do with GS or otherwise.

Annatar• 10 years ago

When I was growing up, my father used to tell me "bankers cause wars; they are the biggest criminals in the history of mankind." The article, and my own personal experience, which I'd rather not divulge in public, illustrate this perfectly. I know all the managers knew about the scam; they perpetrated it; and yet, they walk free and flush with cash from such deals, while ordinary people lost their homes and jobs. The S.E.C. is in cahoots with them. Essentially, the managers and lawyers inside of the S.E.C. and the banks found a way to commit criminal acts without going to prison.

"Liberty and justice for all."

inthewoods2• 10 years ago

Abacus is a more complicated case. The more shocking one to me is why Dick Flud isn't in jail. His use of the Repo 105 to move assets off the books to make Lehman look less leveraged and in better condition is a clearer case of fraud. He essentially did the same thing that Enron did - and Sarbanes Oxley requires that CEO sign off on the truthfulness of financial statements. Here's a guy that seems to have deliberately misled in those financial statements, yet he walks free. To me, that case is a more clear case of how the SEC is a toothless agency.

retube2• 10 years ago

Is it fraud though? Repo 105 (and 108) were perfectly legitimate financing transactions and their reporting adhered to the relevant accounting standards.

Yes they were done to lower the firm's reported leverage, but again this computation conformed to regulator standards.

So not so clear cut it's "fraud" as nothing was mis-reported.

Edit: incidently this is nothing like what Enron did, which was to move assets off balance sheet by moving them to SPVs and swapping the risk back (incidently also completely legal and fairly common in structured finance). These were simple repo transactions.

inthewoods2• 10 years ago

This is very similar to what Enron did, although the vehicle was different - they moved liabilities off the books to make themselves look less leveraged. Enron did this through shell companies owned by Fastow - Fuld/Lehman did this through abusing a standard rule and then getting E&Y to hold their nose and say that these transactions were not material and did not involve reporting the information to shareholders. To me, that's fraud.

I'm not alone in this analysis: "The segment, which marks the first time Vakulas has been interviewed since filing his nine-volume, 2,200-page report two years ago, claims there is sufficient evidence to prosecute officials at Lehman. According to Vakulas, Lehman Brothers was intentionally misrepresenting their financial health."

http://www.huffingtonpost.com/2012/04/23/lehman-brothers-inv...

The key question, to me, is whether they knowingly misrepresented the health of the company in reporting to shareholders. If it ever went to trial I think the answer would be "yes" - but of course we'll never know because no one in the US government wants to go after them.

At least the NY Attorney General went after E&Y and extracted a minor settlement (albeit one with no admission of wrongdoing):

http://www.nytimes.com/2015/04/16/business/dealbook/ernst-yo...

known• 10 years ago

It's due to https://en.wikipedia.org/wiki/Stockholm_syndrome

Von_Jones• 10 years ago

I am not an American and I wonder why the most likely presidential candidate is the one taking somewhat opaque "speaker's fees" from an organisation that a lot of Americans realise operates in ways akin to a mafia. From the outside it like turkeys voting for Xmas.

paulddraper• 10 years ago

Better that than Thanksgiving.

elangoc• 10 years ago

If the parent is Canadian, then you're talking about the same thing, effectively.

Why the S.E.C. didn't hit Goldman Sachs harder

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