Cartoon of the day

Special mention

Cartoon of the day

Special mention

Wall Street hold ‘em

The series continues with the Nine of Hearts: Angelo Mozilo.

Angelo R. Mozilo was chairman of the board and C.E.O of CountryWide Finance until July 2008. Countrywide was not so interested in sub-prime loans in the beginning when the sub-prime loan industry took off. Mozilo described the people involved with those loans at the time as “crooks”. But facing significant loss of business, Country Wide moved quickly into the sub prime business.

Mozilo used his fiscal power to give favorable mortgage financing to key political figures and power brokers. This included loans to Senate Banking Chairman Christopher Dodd, Senate Budget Committee Chairman Kent Conrad and former Fannie Mae CEO Jim Johnson. Other people received favorable mortgages to buy political favors. This included Nancy Pelosi’s son, Paul, Barbara Boxer, Richard Holbrooke, Donna Shalala and others wielding influence and power.

Mozilo sold hundreds of millions of dollars worth of mortgages over the years personally. The SEC charged him in 2009 with insider trading and securities fraud. He reached a settlement with SEC in 2010. He paid $67.5 million of a fortune estimated as over $600 million.

Wall Street hold ‘em

The series continues with the Queen of Spades: Mary Schapiro.

Mary Schapiro is the current chairwoman of the Securities and Exchange Commission, the main federal agency charged with enforcing the federal securities laws and regulating the securities industry. Previously she was a regulator for Presidents Reagan, George H.W. Bush and Clinton, and was one of the voices calling for deregulation of the securities industry. She powerfully advocated for lessening “the burden of regulation” as the chairperson and CEO of the Financial Industry Regulatory Authority (later called the National Association of Securities Dealers) which is a trade organization of those who do not want to be regulated! As chair of the SEC in a time of rampant financial malfeasance, she has not aggressively pursued individuals, organizations and vested interests with the full force of her office.

Schapiro steps down as chairwoman on 14 December, to be replaced by Elisse Walter.

SEC lawyers have scored some victories. In two cases related to subprime mortgages, they won settlements of $550 million from Goldman Sachs Group (GS) and $67.5 million from Angelo Mozilo, co-founder of Countrywide Financial. Still, the agency was attacked by lawmakers, judges, and consumer groups for not going after individual Wall Street bankers. SEC lawyers didn’t take action against anyone at Lehman Brothers orAmerican International Group (AIG), companies at the epicenter of the credit crisis. Lynn Turner, a former SEC chief accountant, says the agency’s enforcement record signals to Wall Street that the tough talk is just rhetoric. Schapiro “has created a culture where it is better to ask for forgiveness than beg for permission,” Turner says. “And the trouble is, she always forgives them.”

Occupy the SEC

A student last semester complained that the Occupards of Wall Street seemed not to know much about economics. In my response, I explained that perhaps some did and other didn’t but that, along the way, the Occupards would be learning much more about economics, how capitalism works, and so on.

And so they have. The latest is the response by the Occupy the SEC group to the so-called Volcker Rule.*

The Volcker Rule places limits on proprietary trading by banks. In their comment on the proposed rule, Occupy the SEC argues that the rule “was woefully enfeebled by the addition of numerous loopholes and exceptions.”

The banking lobby exerted inordinate influence on Congress and succeeded in diluting the statute, despite the catastrophic failures that bank policies have produced and continue to produce. Nevertheless, the Volcker Rule, in its current statutory form still has the potential to rein in certain speculative trading practices by banking entities that enjoy ready access to customer deposits and virtually limitless funding through various Federal Reserve programs. We encourage the Agencies to stand strong against the flood of deregulatory pressure that they have and will continue to face in connection with their implementation of the Volcker Rule. A vigorously implemented and enforced Volcker Rule would serve as insurance against the need for future bank bailouts funded by taxpayers.8 The Agencies must take advantage of this historic opportunity to protect the financial position of the average person living in the United States.

That’s the general orientation. But what’s remarkable about the comment is the authors go through the proposed rule line by line explaining why they think parts of it are useful and other parts need to be shored up. Here’s one example: the idea of “market marking”:

Market making is an indispensable component of liquid, efficient markets. This service, however, simply does not belong in banks. One of the most challenging aspects of our attempt to digest and comment on this Proposed Rule has been navigating the presupposition that banks have some inherent role in proper market making. . .

The bank lobbying effort is certainly understandable: market making is a profitable business and one that banking entities certainly do not want to lose. It is well-known that the major dealers have always fiercely guarded their dominance of market making, particularly in the less regulated OTC markets. Firms that attempt to enter this business are regularly strong-armed through anti-competitive arrangements with inter-broker dealers. . .Despite the banks’ desire to continue reaping such profits, their contention—that banking entities alone are able and willing to provide this valuable service to the market, and that regulation will cause irreparable damage to the financial system at large—is unfounded and nonsensical.

It is likely, given the intense lobbying efforts of large banks and other financial entities, that the 325-page comment by Occupy the SEC will be largely ignored. But it’s also clear the movement is learning a great deal about economics and economic policy as well as what the movement is up against in terms of changing economic discourse and institutions in the United States.

* As they explain in their response, “Occupy the SEC (http://occupythesec.org) is a group within the New York-based Occupy Wall Street (“OWS”) protest movement. This letter represents the opinion of our group’s members, and does not represent the viewpoints of OWS as a whole. Our members include Akshat Tewary, Alexis Goldstein, Corley Miller, George Bailey, Caitlin Kline, Elizabeth K. Friedrich, Eric Taylor, and others.”

Update

Here’s Felix Salmon’s interview with some of the members of Occupy the SEC: