Tag Archives: Sarbanes-Oxley Act

Nevada Representatives Explain Economics, sort of…

tweedledeeWe can easily use Representative Joe Heck’s (R-NV3) own words to decode the magic economic policy he’s espousing, and one that is antithetical to the requirements of the REAL economy in which people in Nevada and elsewhere are looking for REAL jobs:

“Uncertainty is gripping our economy. It is felt by families and job creators across Nevada, and it is why our economy hasn’t recovered fast enough. The uncertainty stems from the federal government’s spending, leading families to wonder if their taxes will go up to pay for Washington’s misadventures. The uncertainty stems from government’s overly burdensome regulations, leading businesses to wonder if they will be forced to spend more money complying with regulations instead of hiring new workers. ”  [Heck]

Now, let’s decode this gibberish: “Uncertainty is gripping our economy. It is felt by families and job creators across Nevada, and it is why our economy hasn’t recovered fast enough.”

Notice that the “uncertainty” is highly generalized, and instead of being predicated on data the implication is offered that this is the cause of a slow recovery.  But wait, isn’t Representative Heck being specific when he talks about government spending and “burdensome regulations?”  NO. Not exactly.

First off the bat, how often does it need to be pointed out to Representative Heck that federal government spending as a percentage of our GDP is declining?  Perhaps he’d need a picture:

Federal Spending 2

Or perhaps the Congressman needs yet another graphic concerning the rate of spending?

Annualized Federal SpendingPlaying Tweedledum to Heck’s Tweedledee, Representative Mark Amodei strikes this poise in prose:

“The first step toward recovery is admitting that you have a problem. The administration needs to admit that its policies of record spending, uncontrolled debt, excessive regulations, and the threat of higher taxes are not the solution. They are the problem.”  [Amodei]

Do the charts illustrating federal spending levels since 1985, and the rate of increase in federal spending levels since the Reagan Administration  look like there’s “record spending?” “Uncontrolled debt?”    In short, the individuals in denial, who need to admit they have a problem, are Representatives Heck and Amodei, who are not going to let some inconvenient facts get in the way of their radical economic ideology.

Oh, Those Burdensome Regulations!

Heck: “The uncertainty stems from government’s overly burdensome regulations, leading businesses to wonder if they will be forced to spend more money complying with regulations instead of hiring new workers.”

Amodei: “Washington has tied the hands of small business owners and job creators with onerous regulations and backward fiscal policies that have stalled the economy, slowed innovation and destroyed jobs. We need common sense, pro-growth policies to give small businesses and entrepreneurs renewed confidence in our economy and to remove Washington as the roadblock to job creation.” [Amodei]

Secondly,  do we really have any serious questions about which regulations the Congressmen are so concerned will lead to economic atrophy?  We can get a few clues by looking at the bills the Republicans have brought to the floor that directly address regulations.  What new regulations have taken place in the last few years that have Republicans up in arms?

The Sarbanes Oxley Act (2002) — a statute that was being hacked at in 2009. [NYTimes] Oh, those “burdensome regulations” which sought to prevent another re-enactment of the Enron Debacle, and other financial sector scandals of the recent past.  Thus the passage of H.R. 1564 in the House of Representatives the “Audit Integrity and Job Protection Act – which Amends the Sarbanes-Oxley Act of 2002 (SOX) to deny the Public Company Accounting Oversight Board any authority to require that audits conducted for a particular issuer of securities in accordance with SOX standards be conducted by specific auditors, or that such audits be conducted for an issuer by different auditors on a rotating basis.”  Both Representatives Heck and Amodei were pleased to vote in favor of this bill to gut the independent accounting rules for large corporations.  [roll call 306]

Now it’s time to ask, just how many small business owners were wondering how to comply with the auditing requirements for major corporations?  How many garage owners, bakery shop operators, and hardware store businessmen were delaying hiring decisions based on the final resolution of PCAOB jurisdiction?  It’s reasonable to conclude that the answer to that question is ZERO.

The Dodd Frank Act, enacted in the wake of the financial sector collapse in the wake of the Housing Bubble and Mortgage Meltdown — from which we are still suffering. As mentioned here before, the Congressional GOP introduced H.R. 1135, “Burdensome Data Collection Relief Act – Amends the Dodd-Frank Wall Street Reform and Consumer Protection Act to repeal the requirement that the Securities and Exchange Commission (SEC) amend certain federal regulations about executive compensation to require each issuer of securities to disclose in any filing: (1) the median of the annual total compensation of all the issuer’s employees, except the chief executive officer; (2) the annual total compensation of the chief executive officer; and (3) the ratio of the first amount to the second.” [Congress.gov]

Again, how many convenience store managers are deferring hiring until it is determined if the SEC may require major corporations to divulge the compensation packages for their chief executive officers?

Over on the Senate side the GOP introduced S. 451, “Dodd-Frank Wall Street Reform and Consumer Protection Technical Corrections Act of 2013 – Makes technical corrections to the Dodd-Frank Wall Street Reform and Consumer Protection Act, including certain Acts within it as well as other specified Acts, regarding definitions affecting regulation of advisers to hedge funds.  Extends for one year the deadline for issuance of any rule or regulation, conduct of any study, or submission of any report required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, except any rules already finalized.”  [Congress.gov]

How many farm and ranch supply store owners aren’t hiring because they’re waiting to see if there will be any more regulations on hedge fund managers?

Ah, but the House doesn’t want to merely hamstring the implementation of the Dodd Frank Act — it wants to repeal it. H.R. 46 introduced by Congresswoman Bachmann would repeal the bill outright.  The bill has been assigned to the House Subcommittee on General Farm Commodities and Risk Management.

How many shoe store owners are delaying hiring decisions because they aren’t sure of the Orderly Liquidation Process included in the Dodd Frank Act for major financial institutions?

Then there’s H.R. 2571 which restricts the Consumer Financial Protection Bureau in terms of the kinds of data it may collect.  There’s H.R. 677,  a bill to provide that inter-affiliate transactions, when the parties to the transaction are under common control, will not be regulated as swaps.  How many barber shop proprietors are so vitally interested in the regulations of financial swaps, they’d not hire an extra barber or bookkeeper?

H.R. 701 passed the House on May 15, 2013 to amend the Securities Act of 1933 to set October 31, 2013, as the deadline for the Securities and Exchange Commission (SEC) “to add a class of domestic securities to those already exempted from regulation under that Act in accordance with specified terms and conditions, including that: (1) the aggregate offering amount of all securities offered and sold within the prior 12-month period in reliance on the new exemption shall not exceed $50 million, (2) the securities may be offered and sold publicly, and (3) they shall not be restricted securities under federal securities laws and regulations.”  Now, there’s a bill to glaze the eyes of any dry-wall subcontractor?

How about H.R. 1062, which part of the CRS summary describes as follows:

“SEC Regulatory Accountability Act – (Sec. 2) Amends the Securities Exchange Act of 1934 (Act) to direct the Securities and Exchange Commission (SEC), before issuing a regulation under the securities laws, to: (1) identify the nature and source of the problem that the proposed regulation is designed to address in order to assess whether any new regulation is warranted; (2) use the SEC Chief Economist to assess the costs and benefits of the intended regulation and adopt it only upon a reasoned determination that its benefits justify the costs; (3) identify and assess the available alternatives that were considered; and (4) ensure that any regulation is accessible, consistent, written in plain language, and easy to understand.”

Translation, the SEC would have to perform a cost benefit analysis of any regulations, and justify the regulations if they were to have any effect on a financial institution’s bottom line.   Representatives Heck and Amodei both voted in favor of this bill.  [roll call 160]

Have the eyes of the average proprietor of the local dress shop rolled back yet… or are these people waiting for the outcome of H.R. 1256 which creates a nice loophole for London Whales, and “Directs the Commissions to exempt from U.S. swaps requirements any non-U.S. person in compliance with the swaps regulatory requirements of a country or administrative region having one of the nine largest combined swap and security-based swap markets by notional amount in the calendar year preceding issuance of such rules (unless the Commissions jointly determine that such requirements are not broadly equivalent to U.S. swaps requirements).”

Are we seeing the pattern here?  Those supposedly Burdensome Regulations which are allegedly causing small business owners across this fine land to delay or defer hiring decisions because of “uncertainty” must be the result of the activities of the Securities and Exchange Commission, the passage of the Sarbanes Oxley Act, and the Dodd Frank Act, because those are the laws the House of Representatives are focused upon.  The bills introduced, and passed, by the House have precious little to do with real small business owners in this country — and everything to do with the convenience and profitability of the Really Big Banks, and the Really Big Global Corporations.

To conflate the needs of small business owners (who need customers to drive sales and services in order to justify hiring decisions) with the profitability and convenience (not to mention the opacity) of major multi-national corporations is misleading at best and downright obfuscatory at worst.

Reality Check Time

Once again, with feeling — small business owners know there must be an increase in the demand for their goods and services in order to make the addition of staff justified in good old fashioned local economic terms.  Small business owners also know that tax policy has demonstrably little to do with demand.   The family automobile needs new brake pads regardless of the marginal rate of federal income taxes. They know that uncertainty in this economy doesn’t emanate from whether major financial institutions and global corporations are required to be transparent in their operations — but from whether or not their customers have the wherewithal to spend money from their personal revenue — salary and wages.

And, where do salaries and wages come from —- JOBS.

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Filed under Amodei, Economy, financial regulation, Heck, House of Representatives, Politics

Congress: Not Exactly Working Overtime

Hard HatHouse Speaker John Boehner would have us believe that he and his cohorts like Rep. Joe Heck (R-NV3) and Rep. Mark Amodei (R-NV2) have been thinking of nothing! — Nothing, I say, except jobs for the last two and one half years:

“So tomorrow the president says he’s going to go out and ‘pivot’ back to jobs.  Well, welcome to the conversation, Mr. President, we’ve never left it.  We’ve been focused on jobs for the last two and half years – actually, longer than that – but the two and half years we’ve been in the majority. [Speaker]

What Haven’t You Done For Me Lately?

Really?  In the first 99 roll call votes in the House’s 113th session there are NO jobs bills.  There was a bill passed to “prohibit the National Labor Relations Board from taking any action that requires a quorum of the members of the Board until such time as Board constituting a quorum shall have been confirmed by the Senate, the Supreme Court issues a decision on the constitutionality of the appointments to the Board made in January 2012, or the adjournment sine die of the first session of the 113th Congress.” [H.R. 146]  It’s a bit of a stretch to figure out how handcuffing the NLRB is a way to promote the wealth and welfare of American workers.  Nevada Representatives Amodei and Heck voted in favor of this blatantly pro-corporate management bit of legislation; Representatives Horsford and Titus did not.

Ah, but wait! The Republican controlled House wasn’t finished with the NLRB, on April 12, 2013 H.R. 1120 was passed which declared: “Effective on the date of enactment of this Act, the National Labor Relations Board shall cease all activity that requires a quorum of the members of the Board, as set forth in the National Labor Relations Act (29 U.S.C. 151 et seq.). The Board shall not appoint any personnel nor implement, administer, or enforce any decision, rule, vote, or other action decided, undertaken, adopted, issued, or finalized on or after January 4, 2012, that requires a quorum of the members of the Board, as set forth in such Act.”  [roll call 101]

This wasn’t handcuffing, it was a full on effort to make the NLRB completely dysfunctional.  Contending that this bill has anything at all to do with Job Creation is an argument which only works if one adopts the discredited Supply Side Economics Hoax — theorizing that if corporate management is happy then everyone will be happy.  Representatives Amodei and Heck were happy to vote for it.

Ah, but the assaults on the labor force continued with H.R. 1406, the Working Families Flexibility Act.  Yes, a person could label this as “flexibility” for American workers, but a better shorthand description would be the Anti-Overtime Bill.  H.R. 1406 Prohibits an employee from accruing more than 160 hours of compensatory time. Requires an employee’s employer to provide monetary compensation, after the end of a calendar year, for any unused compensatory time off accrued during the preceding year.   Once more Reps. Amodei and Heck were pleased to support corporate management and vote yes, Rep. Titus and Horsford, failing to see how substituting comp time for actual overtime wages would help most workers,  voted no. [roll call 137]

Veterans were supposed to see some benefit from H.R. 1412, which would have job training programs end up paying veterans 75% of what the job normally pays — the current rate is 85%.  [CRS] And, then there was this kicker: “Extends from November 30 through December 31, 2016, the requirement of a reduced pension ($90 per month) for veterans (with neither spouse nor child) or surviving spouses (with no child) covered by Medicaid plans under title XIX of the Social Security Act for services furnished by nursing facilities.”   Thank you for your service?  The bill passed on May 21.

Let’s not forget that old “Job Creator” — the XL Pipeline — and let’s also remember there’s some very real controversy about how many actual jobs this would create while subsidizing the transportation of Canadian oil to global markets.   The provision of H.R. 3 passed on May 22, with Representatives Heck and Amodei voting to subsidize the Canadians; Representatives Titus and Horsford voting no. [roll call 179]

Add to this H. Res. 274, the Drill Baby Drill Act, this time on the continental shelf of the U.S.  There’s a pattern here — Reps. Amodei and Heck yes; Titus and Horsford no.

Now, we’re up to Roll Call 300 in the last session of the vaunted Job Creators in the U.S. House of Representatives — How about something called the “Offshore Energy and Jobs Act?”  Evidently, if you add the word “jobs” to a bill it automatically means — jobs?
“(Sec. 101) Amends the Outer Continental Shelf Lands Act (OCSLA) to direct the Secretary of the Interior to implement a leasing program that includes at least 50% of the available unleased acreage within each outer Continental Shelf (OCS) planning area considered to have the largest undiscovered, technically recoverable oil and gas resources, with an emphasis on offering the most geologically prospective parts of the planning area.”  Drill Baby Drill, and keep drilling.  Here we go again: Amodei and Heck voting with the Oil Lobby, Titus and Horsford voting no on H.R. 2231.

Thus far we can document that the 113th Congress has taken target practice at the NLRB, at worker’s over-time pay, promoted the construction of pipelines and wells for the benefit of global energy corporations — and…. we haven’t touched another category of bills the House GOP asserts would be “job creators,” bills to gut the Sarbanes-Oxley corporate finance reform law and the Dodd-Frank financial sector reform law.  There have been bills to restrict the SEC’s capacity to regulate the derivatives markets, and the commodities markets.  In short, it’s the same old drum beat: Corporate Subsidies and De-regulation.

Once Upon A Time

There was the administration proposed American Jobs Act, which the Republicans allowed to expire from the last session.  The bill would have cut the payroll taxes for 98% of American businesses, which we usually call “small business.”  It sought to prevent the layoff of 280,000 teachers and funded renovations and upgrades to some 35,000 schools (construction jobs anyone?)  The bill contained an Infrastructure Funding system, with a proposal to finance road construction, airport improvements, rail improvements and high speed projects…. and the GOP let it die.

Undaunted by the failure of the Republican leadership to craft any legislation including infrastructure and employment, Rep. Frederica Wilson (D-FL) has introduced an updated version of the American Jobs Act.  Wilson’s “Jobs Now Act” (H.R. 2574) was introduced on July 18, 2011, and Representative Wilson is ready to try again.  The House leadership may be just as willing to let the bill expire yet again in the House Education and Workforce Training Committee.

But wait?  Speaker Boehner wants us to understand that the Congress should be praised for what it hasn’t done.  If that is the standard then the body is praise-worthy indeed — they’ve done relatively little except cater to the Wall Street bankers who want to return to the Good Old Days of Casino Capitalism, to the Oil Giants, and to the top floor corner offices of corporate management.

The rest of us?  Not so much.

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Filed under Economy, House of Representatives, labor, Nevada politics, Politics

Whale Watching for Market Makers and their Congressional Allies

Occupy Wall Street bankersPrevious posts have highlighted cooperation from the Republican Congressional representatives from Nevada with the Wizards of Wall Street.  While press attention has been focused on the Anti-Choice, Anti-Women’s Rights activities of the Grand Old Party (as well it should) there’s another attack on the American middle class which is part and parcel of the bills the House GOP is pushing to gut the Dodd-Frank Act, and the Sarbanes-Oxley Act.   The Sarbanes-Oxley Act was passed in the wake of the collapse of Enron, and the illumination of the morass of highly questionable dealing as a result.  The Dodd-Frank Act was enacted after the financial collapse of the Housing Bubble and related mortgage derivative machinations.

Both acts were designed with protecting the American economy in mind, and with protecting investors from the miscreants who would gamble away inconceivable amounts of money in bets, wagers, and side bets on any transaction which might be securitized.   Corporations, and their Wall Street allies, would very much like to be rid of both statutes.

These acts are more necessary than ever, and the “convenience” of the investment houses and the “profitability” of the Big Banks and their investment operations ought not to be the prime mover behind legislation considered by our Congress.  However, in making the case for deregulating the financial markets — yet again — Wall Street and the GOP have carefully tended some garden variety myths.

Three Myths and Wall Street Legends

Myth One: Job creation is the result of unrestricted investment.”   In a highly generalized sense, investment is supposed to be made in business enterprises, and the expansion or creation of those enterprises is supposed to create jobs.  That was then — This is now:  When “investment” comes to mean little more than paper shuffling with Big Bank A investing in the derivatives “market” in order to achieve a better revenue stream from its “positions,”  less is invested in entrepreneurial activities — unless those start ups happen to be hedge funds.   But! What of the investment in American “manufacturing?” Ernst & Young’s capital investment report for 2011 (pdf) tells us that 60% of announced capital investments were in manufacturing.

Now, keep reading the report — where were those investments made?  Natural gas, oil and gas extraction, petroleum, and chemical manufacturing were the most “capital intensive” during 2011.  The second chunk of the capital investment pie went to automobile manufacturing.  Remember those cries of “let’em go bankrupt?”  Jokes about “Government Motors…”  Those who anguished over the “government take over of the auto industry” have some explaining to do, not that we’ll ever hear it.  The third largest sector of manufacturing growth continues to be in high tech operations like semi-conductors.   Finally, investment in alternative energy sources (solar and wind) are another part of capital investment trends, with about 20% of mobile capital heading in that direction.

Job creation is a function of capital investment — IF the capital is invested in the kinds of projects listed in the E&P report.  If, trends in shadow banking activities continue, then much capital is siphoned off into the Great Paper Shuffle which does NOT create jobs outside the financial sector.

We might also look at what is NOT in the E&P report — where’s the investment in American manufacturing of common retail products? In furniture? Appliances? Pharmaceuticals? Textiles? An internationalist would argue that American wages are too high, and that investment in Chinese, South East Asian, or other factory locations is “good” for the global economy.  The argument is thin cover for a race to the bottom of the wage scales.  The physical reality may be in the photographs taken in the aftermath of the Bangladeshi factory collapse?

Myth Two: “All investment is created equal.”  Not if we’re talking about job creation.   Money flowing into and around the Shadow Banking System isn’t all that helpful for the accumulation and distribution of mobile capital for manufacturing investment.  What is this Shadow Banking System?  The Financial Stability Board explains (pdf):

The “shadow banking system” can broadly be described as “credit intermediation involving entities and activities outside the regular banking system”. According to one measure of the size of the shadow banking system , it grew rapidly before the crisis, from an estimated $27 trillion in 2002 to $60 trillion in 2007, and remained at around the same level in 2010. The term started to be used widely at the onset of the recent financial crisis, reflecting an increased recognition of the importance of entities and activities structured outside the regular banking system that perform bank-like functions (“banking”). These entities and activities provide credit by themselves or through a “chain” that transforms maturity or liquidity, and builds up leverage as in the regular banking system. They also typically rely on short-term funding from the markets, such as through repos and asset-backed commercial paper (ABCP).”

Who are the players? Hedge funds, commercial banks, money market funds, and “structured investment vehicles.”    And, yes, that’s $60 Trillion, with a T.   There’s a problem with the Shadow Banking System — encapsulated in the term “short term funding.”  Shadow operation face some of the same issues as regular banking functions, like liquidity problems, market risks, and credit risks. Add the short term financing of these “markets” and we have a classic recipe for volatility.   That is, when bankers are doing little except “making markets” — i.e. finding someone to take the “other side” of a deal — that’s money NOT flowing into mobile capital investments in manufacturing — unless, of course, we call “manufacturing of paper documents” manufacturing.  That’s a real stretch.

So, no — all investments are not created equally, and not all activities which might be categorized as investments do much of anything to create real economy jobs — just more lines of revenue for investors.

Myth Three:  “Everyone’s invested in the market.”  Noticed a little something in the last few years? Remember the old maxim that if the stock market went up then the bond market went down?  The reason for the quirks in the system at the present is that the equities market is all but controlled by professional investors. [USAT]  What about all those little people sitting out there in the dark with their money market funds, their 401(k)’s?

About 52.5% of Americans have some form of investment in mutual funds.  Of this number about 46% are baby-boomers.  They are, for the most part, well educated, and earning over $80,000 per year.  They participate in employer sponsored retirement programs and may often have their own, independent, mutual fund account with a broker.   Only about 24% of those born between 1965 and 1976 have IRA, or other forms of mutual fund accounts, and those born before 1946 constitute only 18% of the investors in mutual funds.  [ICI.org]

While the percentage indicate a bit more than half the citizens of the U.S. have some form of mutual fund account (either employer managed, independent, or both),  saying that “everyone” is invested in the stock market is to warp the view.  The funds are primarily for retirement purposes, and they are managed by professional investors.

That second percentage should raise some alarm bells — that only 24% of those between the ages of 48 and 37 are involved in some form of mutual fund accounts says that someone doesn’t have the wherewithal to hold  investment accounts.  If mutual funds are the most common form of investment (IRA, 401(k), etc.) and only 24% of those who are at least within 17 years of a retirement at age 65 have such accounts this could be a problem later down the line?  If we add up the categorizations included in the ICI fact sheet we come up with 88% — leaving 12% who are in age groups under 37.  So, while it might be true that most middle aged, financially secure households, have mutual fund investments, it’s not true that “most” people have mutual fund accounts.

The Play Book

Blocking: H.R. 1840, introduced by Rep. Conaway, (TX-11) in the 112th Congress to make the CFPB run a cost benefit analysis on all rules to insure the “least possible burden” on investment firms.  The bill would triple the number of factors required for study, and was intended to stifle rule making by the CFPB.   This particular bill didn’t get out of the House, but it wasn’t for lack of trying.

Rep. Scott Garrett (NJ-5) thought his “Swap Execution Facility Clarification Act” H.R. 2586 would have been a good idea in the 112th.   “HR 2586 would actually prohibit regulators from requiring publicly accessible posting of bid and offer prices on derivatives exchanges.” [AFR]  This isn’t exactly the transparency the public is looking for in the wake of the Housing Bubble mess.  Fortunately, this bowing and scraping to the trading desks also failed to emerge from the House.

But wait, there were more!  Rep. Stivers (OH-15) introduced H.R. 2779 (112th) to exempt inter-affiliate swaps from federal regulation.  This one did pass the House (roll call 127).  Nevada Representatives Amodei (R-NV2) and Heck (R-NV3) voted in favor of this bill, which died in the U.S. Senate.  As it should have.

And more. How about protecting consumers from credit exposure from derivatives trading?  Rep. Michael Grimm (NY-13) tried this end run around the regulations regarding credit exposure from derivatives trading risks in his introduction of H.R. 2682.   This, too, failed — but they keep trying.

And more, we should give Rep. Randy Hultgren (IL-14) credit for the creative title to H.R. 3527, the “Protecting Main Street End-Users From Excessive Regulation,” because there isn’t much for Main St. in this bill.  The bill would, “Directs the CFTC to exempt from designation as a swap dealer an entity that enters into swap dealing transactions with or on behalf of its customers if the aggregate gross notional amount of the outstanding swap dealing transactions entered into over the course of the preceding calendar year does not exceed $3 billion (or a greater amount, as market conditions warrant), adjusted for inflation.”   Just exactly what Main Street wanted for Christmas, right??

And more…fast forward to March 2013 and the House is at it again.

“On Wednesday, however, Republicans and Democrats on the House Agriculture Committee approved seven bills that would roll back parts of the Dodd-Frank financial regulations. The bills will now proceed to a floor vote.

So what do these measures do? They weaken Title VII of Dodd-Frank, which is the part that regulates derivatives. Since Dodd-Frank, there’s been an extensive amount of debate about the new rules for derivatives, which range from collateral to price transparency. But there has also been a counter-debate about who has to follow the new rules. Those who fall under “end-user exemptions” are largely able to forgo following the Dodd-Frank rules, and the easiest way to understand the bills passed out of the Agriculture Committee is to note that they seek to expand the scope of those exemptions.” [WaPo]

The article continues with the specifics of how the proposals from the Republican controlled House of Representatives would chop back the regulations for swaps and derivatives trading — back to those Good Old Days of the Housing Bubble and Mortgage Mess.   If this is beginning to sound like a replica of the 37 House votes to repeal the Affordable Care Act and Patients Bill of Rights, and the innumerable bills to restrict a woman’s right to choose her medical treatments… Yes, the House will continue its attempts to decimate the Dodd Frank Act and its financial regulatory reforms.  Further, if you believe that any of this has anything to do with “Main Street USA,” I have some potential beach front property in Nevada for you.

We’ve revisited the current H.R. 1135, a bill to put executive compensation back into the caliginous depths of pure opacity; and H.R. 1564, an act to return to those wonderful old days of Love and Lust among the Corporations and their Auditors.

End Game

As we’ve seen from the examples from the 112th and the 113th Congress, there is no end to the number of Representatives who are ready and willing to create fanciful titles for bills which would gut both the Dodd Frank Act and the Sarbanes-Oxley Act — for the benefit of Wall Street traders and their companies.

It would be nice to say that Wall Street has learned its lesson from the debacle it created in 2008 — but that would be to ignore the London Whale in the corner.

Sometimes it feels like it would be easier to ignore the Elephants in the Congress than it is to avoid the Whale in the financial markets? We’d do both at our peril.

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Filed under consumers, Economy, financial regulation

Nevada Congressional Delegation Votes For Enron Redux?

Enron LogoIt’s not just the Dodd-Frank Act to reform our financial sector regulatory structure that is the target of Wall Street lackeys in the Congress of the United States — Remember Enron?  Rep. Robert Hurt (VA-5) has his sights set on the Sarbanes-Oxley Act in his ironically labeled  “Audit Integrity and Job Protection Act.”  (H.R. 1564)

The CRS summary reads as follows:

“Audit Integrity and Job Protection Act – Amends the Sarbanes-Oxley Act of 2002 (SOX) to deny the Public Company Accounting Oversight Board any authority to require that audits conducted for a particular issuer of securities in accordance with SOX standards be conducted by specific auditors, or that such audits be conducted for an issuer by different auditors on a rotating basis.”

Sounds simple doesn’t it?   First, let’s get rid of the superfluous appendage “job protection act” portion of the title — the only jobs protected by the act are those of corporate executives, managers, and supervisors who are involved in the auditing process of corporations.

Secondly, the bill all but wipes out the independent auditing required of U.S. or international companies which have registered equity or debt securities with the Security and Exchange Commission, AND the accounting firms which do business with those corporations.

The current statute requires that all financial reports coming from a registered corporation include an internal control report.  According to the SEC an internal control report must contain the following:

 “…  (1) a statement of management’s responsibility for establishing and maintaining adequate internal control over financial reporting for the company; (2) management’s assessment of the effectiveness of the company’s internal control over financial reporting as of the end of the company’s most recent fiscal year; (3) a statement identifying the framework used by management to evaluate the effectiveness of the company’s internal control over financial reporting; (4) and a statement that the registered public accounting firm that audited the company’s financial statements included in the annual report has issued an attestation report on management’s assessment of the company’s internal control over financial reporting.” [SEC] (numbering added)

Note that the last (4th) item in the list requires the independent auditor selected by the corporation to review its books to attest to the adequacy of the internal controls.   Thus, the auditors are supposed to let the public (and the investors who read such things) know that the corporation has been avoiding those questionable practices which brought us the great Enron Debacle.

Now, how do we insure that there’s  no replication of the Enron/Arthur Andersen crash and burn?  We’ve had a tragic object lesson in what happens when the corporation and the auditing firm get too snugly:

“…a firm (Arthur Andersen) that once stood for trust and accountability ended 90 years as an auditor of publicly traded companies under a cloud of scandal and shame. Its felony conviction for obstructing a federal investigation into Enron Corp., its now-notorious client, cost Andersen the heart of its practice. It will continue with a tiny fraction of the 85,000 employees it spread across the globe just months ago.” [ChiTrib 9/01/2002]

The Securities and Exchange Commission adopted rules to preclude these long term love-matches which resulted in the auditing firm being far more concerned with the “health” of its well paying client than with the “wealth” of the investors, shareholders, and the public.  It sought to establish a sturdy curtain, if not exactly a wall, between the auditors and the corporations.

In setting the rules the SEC was to — and did — “establish rules that an accountant would not be independent from an audit client if any “audit partner” received compensation based on the partner procuring engagements with that client for services other than audit, review and attest services.” [SEC]  The SEC went one more logical step and defined the role of the “audit partner.”

“Section 203 of the Sarbanes-Oxley Act specifies that the lead and concurring partner must be subject to rotation requirements after five years. The rules will specify that the lead and concurring partner must rotate after five years and be subject to a five-year “time out” period after rotation. Additionally, certain other significant audit partners will be subject to a seven-year rotation requirement with a two-year time out period.” [SEC]

The reforms were plugging along as of September 19, 2006 when SEC Commissioner Christopher Cox reported to Congress:

“Beyond the independence of audit committees, Sarbanes-Oxley has strengthened auditor independence. The entirety of Title II of the Act is devoted to the topic of auditor independence. The intense focus on this topic reflects Congress’s appreciation that the audit process is most effective when investors are assured that audits are performed by objective and unbiased professionals. The Act bans auditors from providing the kinds of non-audit services to audit clients that could give rise to financial conflicts of interest. It emphasizes the role of audit committees in approving other services provided by auditors. And it requires audit partner rotation. All of this is more protection for investors, and less incentive for the auditors to do anything that detracts from their core mission.” (emphasis added)

The rotation of the audit partners, the selection of a new auditing firm periodically, combined with the prohibition of tacking on more, and often more remunerative, services was specifically intended to prescribe that “intent focus” on the actual financial situation of the corporation, and to proscribe the cozy long term love affairs between corporations and auditing firms that resulted in the collapse of Enron and the demise of Arthur Andersen.

It  would be entirely too easy to dismiss Representative Hurt’s bill as a classic example of historical attention deficit disorder, but Wall Street has been paying attention to the Sarbanes-Oxley Act since its passage in 2002 — paying attention as to how it might be able to gut the law.  What easier way than to prohibit the Public Company Accounting Oversight Board from enforcing the sections and rules promoting independent auditors?

Common sense and history notwithstanding, the House of Representative passed Rep. Hurt’s bill on July 8, 2013 by a vote of 321-62. [roll call 306]  Nevada Representatives Amodei (R-NV2), Heck (R-NV3), and Titus (D-NV1) all voting in favor of the measure. Rep. Horsford (D-NV4) is recorded as not voting.

H.R. 1564 deserves to get buried in the Senate, or find itself the victim of the Veto Pen, along with other so-called “job protection” bills like repealing the Affordable Care Act and Patients Bill of Rights for the umpteenth time….

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Filed under Economy, Politics

I Knew There Was A Reason: The Big N-FIBs

I did have a reason to never join either the Chamber of Commerce or the National Federation of Independent Business, because at the moment N-FIB is a very accurate acronym.  The NFIB has a radio spot which makes three unfounded assertions, presenting them as “facts.”  The N-FIB would also like us to know that they support members of  Congress like Senator Heller and Representative Heck (R-NV3) because they support “job creators.” [NFIB]

N-FIB: We should all support the GOP because, according to N-FIB, the Stimulus (the one under the Obama Administration) was a failure and didn’t create jobs.

FACT:  The American Recovery and Reinvestment Act was successful at saving and creating jobs in the U.S. economy, and there are at least three credible estimates demonstrating the fact.

Those who prefer their information in graph form, should find this illuminating:

N-FIB:  The Affordable Care Act hurts small businesses.

FACT:  The N-FIBbers must have missed a few parts of the Affordable Care Act, like if you have up to 25 employees, pay average annual wages below $50,000, and provide health insurance, you may qualify for a small business tax credit of up to 35% (up to 25% for non-profits) to offset the cost of your insurance. This will bring down the cost of providing insurance.

And this: “Under the health care law, employer-based plans that provide health insurance to retirees ages 55-64 can now get financial help through the Early Retiree Reinsurance Program. This program is designed to lower the cost of premiums for all employees and reduce employer health costs.”

And this: “Starting in 2014, the small business tax credit goes up to 50% (up to 35% for non-profits) for qualifying businesses. This will make the cost of providing insurance even lower.”

And this: “In 2014, small businesses with generally fewer than 100 employees can shop in an Affordable Insurance Exchange, which gives you power similar to what large businesses have to get better choices and lower prices. An Exchange is a new marketplace where individuals and small businesses can buy affordable health benefit plans.”

And this: “Employers with fewer than 50 employees are exempt from new employer responsibility policies. They don’t have to pay an assessment if their employees get tax credits through an Exchange.”  [HHS]

N-FIB: The Obama Administration impedes businesses with burdensome regulations.

FACT:  “Obama’s White House approved 613 federal rules during the first 33 months of his term, 4.7 percent fewer than the 643 cleared by President George W. Bush’s administration in the same time frame, according to an Office of Management and Budget statistical database reviewed by Bloomberg.”  October 25, 2011  [Bloomberg News]  How about 2012?

So far, Obama has actually finalized fewer regulations than either Clinton or Bush at the same point in their terms. A wave of new final regulation is now slated to take effect in 2013. But some of them will be rolled out regardless of who’s in office, due to Obama-passed legislation that’s already in motion.” [WaPo]

If we drill down to specifics we find that there are two categories of rules the Republicans dislike enough to warrant attaching their “job killing” label — (a) Clean Air and Clean Water regulations, and (b) financial sector reform.

Republicans are particularly opposed to the provisions of the Sarbanes-Oxley Act (Bush Administration) enacted in the wake of the Enron Debacle to prevent further corporate frauds and shenanigans.  They are opposed to the enforcement of the Dodd-Frank Act, Senator Heller would like to see the bill restraining Casino Capitalism repealed even though only about 31% of the provisions have been implemented.

Those believing that a return to the Casino Capitalism of Enron, Lehman Brothers, the Housing Bubble, and the consequent collapse of investment banking in the United States in 2008 is desirable should definitely vote for Republicans like Representative Heck and Senator Heller.

Those who believe that some common sense restraint is in order to prevent the Wall Street Casino from re-opening to create the next artificial bubble out of “an excess of enthusiasm” — and who are mindful of what happened to the financial sector beginning in 2007 — will probably find the Democratic Party position more sustainable.

The exploiters and polluters don’t care for regulations on emissions and dumping.   It would certainly help the corporate bottom line to avoid paying for emission control devices, and to be able to dump coal ash anywhere that might be convenient.

However, those who prefer to drink clean water and breathe clean air should look carefully at what the Republicans are proposing.  Those who like hunting or fishing in unpolluted surroundings will find the Democratic Party positions more amenable to their interests.

Suggesting that mileage standards for automobiles should be clawed back makes absolutely no sense at all.  American and global vehicle manufacturers are touting their fuel-saving products.   The 2013 Dodge Dart advertises its 41 mpg capability [AutoBlog] Nissan is planning on building its Leaf in American plants,  Subaru wants to launch more STI models, Mazda plans a 2014 Mazda6 model mid-size sedan with better fuel mileage. [TCCGeneral Motors is pleased tell its customers that “Our engineers are reinventing the automobile, developing advanced technologies that lead to improved fuel economy, less emissions and a reduced dependence on petroleum.”   Among GM’s goals are the development of 12 vehicles having at least 30 mpg capability, the development of two mode hybrids, further development of fuel cell technology, and the expansion of its Opel Ampera and Chevrolet Volt models.

The ultimate irony may be that while the Republicans want to roll back fuel standards, the automobile manufacturers are hiring people to work on new models with fuel efficiency capability higher than the proposed standards.

At some point a small business owner would have to ask — What is achieved by “unburdening” the oil companies if the result is a fleet of delivery trucks  or even personal vehicles, which cost more to operate?

There are three parts to the N-FIB radio ads, and all three are demonstrably false.  Little wonder I never paid any dues into the organizations that purport to have my best interests at heart — but continue to lie to me, and others.  No amount of advertizing can buy integrity.

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Filed under 2012 election, Economy, employment, financial regulation, Heck, Heller, manufacturing, Nevada politics, pollution, Republicans

Nibbling Away At Sarbanes Oxley 2002

Wall Street funds and investment bankers have been straining at the Sarbanes-Oxley Bit since the enactment of the law to rein in the excesses and downright frauds associated with corporate auditing and financial reporting in the wake of the Enron (and other) debacles.  Here are some of the bills awaiting passage in the 112th Congress which mean to vitiate the Sarbanes-Oxley Act.

H.R. 3476 Amends the Sarbanes-Oxley Act of 2002 to exempt certain small issuers of securities from the internal control reporting and assessment requirements of such Act.
H.R. 3606 Amends SA to state that an emerging growth company need not present more than two years of audited financial statements in order for its registration statement, with respect to an initial public offering of its common equity securities, to be effective.

Amends the the Sarbanes-Oxley Act of 2002 to exempt a registered public accounting firm that prepares or issues a report on its audit of an emerging growth company from the requirement that it attest to, and report on, any assessment of internal controls the company’s management has made.

Amends SA to deem not to constitute an offer for sale or offer to sell a security, for the purposes of prospectus and specified registration requirements, a broker’s or dealer’s publication or distribution of a written, electronic, or oral research report about an emerging growth company that is the subject of a proposed public offering of its common equity securities pursuant to a registration statement the issuer proposes to file, or has filed, or that is effective, even if the broker or dealer is participating or will participate in the registered offering of the issuer’s securities.

*Bill is in Conference Committee

H.R. 1697 Revises regulatory requirements for community banks, including through amendments to: (1) the Federal Deposit Insurance Act to permit certain insured depository institutions to submit a short form report of condition, and (2) the Sarbanes-Oxley Act of 2002 to exempt certain small-sized depository institutions from the annual management assessment of internal controls requirements.
H.R. 2941 Amends the Sarbanes-Oxley Act of 2002 to revise an exception to rules prescribed by the Securities and Exchange Commission (SEC) that require the annual reports of certain publicly traded securities issuers to contain: (1) an assessment of the issuer’s internal control structure and procedures for financial reporting, and (2) an attestation to such assessment by each registered public accounting firm that prepares or issues an audit report for the issuer.
H.R. 3213 Amends the Sarbanes-Oxley Act of 2002 to revise the small issuer exemption from the requirement that each registered public accounting firm that prepares or issues the audit report for a securities issuer attest to, and report on, the issuer’s management assessment of the effectiveness of its internal control structure and procedures for financial reporting. Specifies that this requirement shall not apply to an issuer that has a total public float for the relevant reporting period of less than $350 million.
H.R. 3655 Amends the Sarbanes-Oxley Act of 2002 to revise the small issuer exemption from the requirement that each registered public accounting firm that prepares or issues the audit report for a securities issuer attest to, and report on, the issuer’s management assessment of the effectiveness of its internal control structure and procedures for financial reporting. Specifies that this requirement shall not apply to an issuer that has a total public float for the relevant reporting period of less than $1 billion.

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Filed under financial regulation