Tag Archives: SEC

Rep. Amodei’s Wonderful Record: January De-Regulation Edition

Representative Mark Amodei’s (R-NV2) record in the 115th Congress is as dubious as the institution itself.  For a group touting their “accomplishments” the actual record doesn’t quite hit that level.  Post Office namings, and other minutiae are not included in this list.

Roll Call 8, January 4, 2017:  Midnight Rules Relief Act — “This bill amends the Congressional Review Act to allow Congress to consider a joint resolution to disapprove multiple regulations that federal agencies have submitted for congressional review within the last 60 legislative days of a session of Congress during the final year of a President’s term. Congress may disapprove a group of such regulations together (i.e., “en bloc”) instead of the current procedure of considering only one regulation at a time.” Representative Amodei voted in favor of this bill (238-184).   But, wait, there’s more:

“According to the CRA, resolutions of disapproval not only nullify the regulation in question; they also prohibit a federal agency from issuing any other regulation that is “substantially the same” in the future, unless specifically authorized to do so by a future act of Congress. As a result, these mass-disapproval resolutions would permanently block agencies from addressing threats to public health and safety.”  (emphasis added)

Those who believe that things like corporate accountability, safe working conditions, clean air, and clean drinking water are important wouldn’t find this very appealing.  However, that didn’t stop Rep. Mark Amodei from supporting this bill, which was essentially a solution in search of a problem.

Roll Call 23, January 5, 2017:  “Regulations from the Executive in Need of Scrutiny Act of 2017”  Representative Amodei voted in favor of this bill.  “(Sec. 3) The bill revises provisions relating to congressional review of agency rulemaking to require federal agencies promulgating rules to: (1) identify and repeal or amend existing rules to completely offset any annual costs of new rules to the U.S. economy.” [Cong]  This is vague to the point of ridiculousness.  There are several ways to do a cost analysis, and we can bet that the GOP has in mind only the most stringent, even if there is an obvious benefit to public health, safety, or general well being.  Frankly, there are some rules we have put in place which are expensive in terms of commercial and industrial calculations, but necessary in terms of public health and safety — we do not allow, for example, the unlimited release of arsenic into supplies of drinking water.   It’s hard to imagine this as a “major piece of legislation” without considering the potential hazards it creates for local governments and citizens who have to live with the pollution, work rules, and other regulations which place them at risk.

Roll Call 45, January 11, 2017: “(Sec. 103) This bill revises federal rulemaking procedures under the Administrative Procedure Act (APA) to require a federal agency to make all preliminary and final factual determinations based on evidence and to consider: (1) the legal authority under which a rule may be proposed; (2) the specific nature and significance of the problem the agency may address with a rule; (3) whether existing rules have created or contributed to the problem the agency may address with a rule and whether such rules may be amended or rescinded; (4) any reasonable alternatives for a new rule; and (5) the potential costs and benefits associated with potential alternative rules, including impacts on low-income populations.”  Here we go again!  Yet another way to tie the hands of executive branch departments and agencies, and a GOP tenet for some time now.  Remember, the rules don’t have to be in one category (for example, environmental regulation) they can also cover such things as SEC rules and regulations, banking, and other financial regulations.   Representative Amodei, voted in favor of this bill and perhaps needs to explain if he meant this to handcuff the financial regulators who are responsible for seeing that Wall Street doesn’t replicate its performance in the run up to the Housing Crash of 2007-2008.

Roll Call 51, January 12, 2017:  SEC Regulatory Accountability Act, and yet another House attempt to slap a “cost-benefit” analysis on SEC regulations on financial market transactions.  Representative Amodei voted in favor of this bill.    There were objections to this bill at the time, and this is one of the more cogent:

“The most prominent new requirement would mandate that the SEC identify every “available alternative” to a proposed regulation or agency action and quantitatively measure the costs and benefits of each such alternative prior to taking action.  Since there are always numerous possible alternatives to any course of action, this requirement alone could force the agency to complete dozens of additional analyses before passing a rule or guidance. Placing this mandate in statute will also provide near-infinite opportunities for Wall Street lawsuits aimed at halting or reversing SEC actions, and would be a gift to litigators who work on such anti-government lawsuits. No matter how much effort the SEC devotes to justifying its actions, the question of whether the agency has identified all possible alternatives to a chosen action, and has properly measured the costs and benefits of each such alternative, will always remain open to debate.”

Speaking of a “Lawyers Full Employment Bill,” this is it.  Imagine voting in favor of allowing an infinite and interminable number of lawsuits demanding that the SEC consider ALL available options before promulgating a rule.  That didn’t stop Representative Amodei from voting in favor of it.

If you’re seeing a pattern, you’re right.  “De-regulation” has been a Republican talking point for the last 40 years.  However, while the term sounds positive when it’s generalized the devil, as they say, is in the details.  The January flood of deregulation bills in the 115th Congress wasn’t designed to tamp regulations on ordinary citizens, but on the corporations (especially in terms of environmental issues) and Wall Street players who want more “flexibility” in their transactions.

What the Republicans have yet to provide are instances of jobs lost because of environmental regulations.  Since this evidence is scarce, the next ploy is to argue that the costs outweigh the benefits.  By emphasizing the short term monetary costs the GOP minimizes the importance of long term economic or environmental costs, and the impact deregulation has on residents in our states and communities.

We can point to jobs lost after financial deregulation — Nevada was one of the poster children for financial sector deregulation impact.  Eight months later, Representative Amodei has yet to offer more than the usual highly generalized platitudes about the significance of the deregulation fervor during the first month of the 115th Congress.

We’ll be taking a look at some other “important” votes taken by our 115th Congress.  In the mean time, it’s depressing but productive to watch what this current Mis-administration is doing in regard to North Korea, Iran, women’s issues, common sense gun control legislation, and the various and sundry scams and grifts associated with the Cabinet.

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Filed under Amodei, Economy, financial regulation, Nevada politics, Politics

SLABS: How to make money off someone else’s private student loan

SLABS

SLABs, and no we aren’t talking about the stuff of which patios are made, or the tiles that can be laid on kitchen floors. Nor, are we talking about some Silicon Valley laboratory firm.  Let’s focus on Student Loan Asset Based securities.  Yep, “securitized” assets – like mortgages, auto loans, credit card receivables, etc.  We do remember the mortgage thing? Right?

SLABs were hot in 2013. [WSJ]  In fact, see if you can make sense of the following description:

“Student loans are souring at a growing rate—and investors can’t seem to get enough. SLM Corp., the largest U.S. student lender, last week sold $1.1 billion of securities backed by private student loans. Demand for the riskiest bunch—those that will lose money first if the loans go bad—was 15 times greater than the supply, people familiar with the deal said.” [WSJ]

Why would investors be banging on the doors for those loans which are the most likely to go into default?  I think we’ve seen this movie before, and the ending (2007 – 2008) wasn’t pleasant for anyone.

The Basic Materials

Once upon a time Sallie Mae or SLM, was a government sponsored lending firm specializing in student or educational loans.  That was the case until 2004 when Sallie Mae went private and it’s now a publicly traded private sector corporation. SLM securitizes private education loan by selling them to the SMB Private Education Loan Trusts. The Loan Trusts (2014 and 2015) show “issuance details” online (here’s 2014-A)  There was $382 million in the August 7, 2014 records; divided into five categories with varying rates of return. Scrolling down we find the ‘master servicer’ as Sallie Mae Bank, the sub-servicer as Navient Solutions, Inc., the indentured trustee being Deutsche Bank National Trust Company, and the underwriters Credit Suisse and the Royal Bank of Scotland. [SLM]   Navient Solutions, Inc. is simply the name adopted in 2014 for Sallie Mae’s loan management, servicing, and asset recovery operation. [Bloomberg]  An ‘indentured trustee’ is:

“A financial institution with trust powers, such as a commercial bank or trust company, that is given fiduciary powers by a bond issuer to enforce the terms of a bond indenture. An indenture is a contract between a bond issuer and a bond holder. A trustee sees that bond interest payments are made as scheduled, and protects the interests of the bondholders if the issuer defaults.” [Investopedia]

The underwriters, in this instance Credit Suisse and RBS, are the firms which act as sales personnel for the bonds bases on securitized private student loans.  So, we have SLM issuing the bonds, Deutsche Bank National Trust acting as the agency responsible for bond registration, transfer, and payment of bonds, while Credit Suisse and RBS are the ones selling the bonds.   Sounds impressive, however those private loans comprise only about 8% of the total student loan market – the remaining 92% are Federal Stafford and PLUS program loans.  But – the numbers are still sufficiently high to interest SLM, Deutsche Bank, Credit Suisse and RBS, because there’s about $92 billion involved in the private student loan market. [PSL]

Slabs without much mortar

Recall for the moment what got Wall Street in major trouble during the Housing Bubble.  Investment firms issued bonds, and then played with derivatives based on those mortgage based bonds, without being all that sure the loans were going to be paid off.  Thus, it was extremely difficult, and in some instances impossible, to calculate what the bonds were actually worth. Enter the credit rating agencies who (for a nice fee) stamped AAA+++ on what should have been recognized as piles of garbage; the investors couldn’t get enough of these, so even more garbage piled up as the investment houses bet on whether or not the assets were worth anything.  Enough garbage was included in the piles of paper that the whole pillar of paper crashed.

What’s saving us from the prospect of another bubble of epic proportions is that the market in private student loans is very small – that $92 million is a drop in a very large bucket of corporate and commercial debt. [Atlantic]  Another bit of good news is that because of the Dodd-Frank Act there is more transparency required in dealings in asset based securities.  [SEC]  [WSJ] The bad news is that Republicans in Congress have been wailing for the repeal of the Dodd-Frank Act as “burdensome regulation” of the banking industry.  Or, “make the SEC back off and let us get back to trading asset based securities like we used to in the Good Old Days.”

Who’s holding up the scaffolding?

Another bit of bad news is that while lenders are looking for new customers (students willing to take on private loans) we’re not tracking some important information about those loans.  For example, the default rate for Harvard is less than 2%, while the default rate for the Arizona Automotive Institute is nearly 42%.  [Bloomberg] Interestingly enough, there’s a long list of for-profit educational institutions with default rates higher than 28%. What we don’t need to see are more for-profit training schools encouraging more private student loan debt, debt which someone somewhere hopes will be hedged with private loans more likely to be paid off – because at bottom the funds to pay investors have to come from students paying off the loans.

Don’t panic yet, yes – there’s a hungry market for student loan asset based securities (perhaps in part because some old Federally backed loans were in the pipeline originally) and the market is relatively small albeit subject to some of the valuation mistakes of the Old Investment Houses – the ones who went bust in 2007-2008.   There’s another reason for hope: The Consumer Financial Protection Bureau – the agency the Republicans can’t seem to wait to dismantle. [DB 7/30/14]

One of the provisions of the Dodd-Frank Act was the creation of an ombudsman for student loans which is part of the CFPB.  In the 2014 annual report (pdf)  it’s of interest to note that the biggest problem area was NOT repaying student loans but in getting financial institutions to cooperate with repayment programs and dealing with servicers and lenders (57%). If this sounds like a reprise from the Mortgage Meltdown Days it might be because some of the same actors are involved, at least in terms of complaint volume: JPMorganChase up 56% from 2013; Sallie Mae Navient up 48%; Wells Fargo up 8%.  The annual report indicates problems in the following areas: (1) There is no clear path to avoid default. (2) Proactive outreach from borrowers was too often unsuccessful. (3) When repayment options are made available they are too often too little too late. (4) In some cases repayment options were allowed only after the loan went into default. (5) Short term forbearance options were often associated with processing delays, unclear requirements, and unaffordable fees. (6) Many lenders force a choice between staying in school and repaying the loans.   There is a reason for the Ombudsman’s concern. The Sallie Mae Settlement.

The FDIC announced a settlement with Sallie Mae on May 13, 2014 in which Sallie Mae was charged with (1) inadequately disclosing its payment allocation methodologies to borrowers while allocating borrower payments across multiple loans in a manner that maximizes late fees; (2) misrepresenting and inadequately disclosing in its billing statements how borrowers could avoid late fees; (3) unfairly conditioning receipt of benefits under the SCRA upon requirements not found in the act; (4) improperly advising servicemembers that they must be deployed to receive benefits under the SCRA; and (5) failing to provide complete SCRA relief to servicemembers after having been put on notice of the borrowers’ active duty status.

The Structure

As long as the private student loan market remains a small part of the total structure we can breathe a bit easier about its effect on capital markets. Secondly, the private student loan market has relatively low yields and thus doesn’t get included in most structured derivatives.  Third, the old ‘recourse loans’ (for those with really low credit scores) are a thing of the past, most private loans now take higher scores into consideration. [QuoraWhat will continue to keep investors whole?

  • Continued monitoring of the private student loan market by the CFPB so that loans taken out will continue to be loans paid off, even if this means some reduction in the revenue streams for the bankers.
  • Continued oversight by the SEC and FDIC under the terms of the Dodd-Frank Act so that we don’t return to the Wall Street Casino of old should there be changes in the private student loan market.
  • Improvement in the servicing of private student loans such that there are clear pathways to avoid default; effective and efficient communication between borrower and lender regarding repayment options; and, that this communication happens in a timely manner.
  • Requiring lenders to make all the term of the private student loan clear at the outset including forbearance conditions, and any and all fees associated with deference, late payments or defaults.

The Foundation

From a Wall Street perspective private student loan asset based securities are a niche market, with some revenue potential – enough to keep the big banks interested – however, not with enough total clout to cause major financial displacement should the Quake happen.  And yes, there are some institutions making nice fees for making student loans, selling student loans, securitizing student loans, servicing student loans, and collecting payments on student loans.  Capitalism works, the trick is to keep free market capitalism from becoming casino capitalism and/or financialism.

A more existential question is how to maintain a system in which students are burdened with so much debt (Federal program/Private loan program) that they are deferring consumer purchases which would contribute to the growth of the overall economy.  Deferred student loans can impact mortgage qualifications. [credit.com]  We know this because the  rate of homeownership among those with student debt is 36% below that of unencumbered home buyers, and we’re losing about $6 billion annually in new car buying capacity.  [Forbes]  And, this is not an inconsequential problem:

“Student loan debt is the only form of consumer debt that has grown since the peak of consumer debt in 2008. Balances of student loans have eclipsed both auto loans and credit cards, making student loan debt the largest form of consumer debt outside of mortgages.” [NYFed]

Given some of the trends reported by the NY Federal Reserve’s study of educational loans, how do we make sense of an economic system in which wages and salaries are stagnant while it is taking those from lower and middle income backgrounds longer to repay student loans?  How do we sustain an economy when 29% of borrowers are paying off their loans, while 34% are making regular payments but the balance is increasing, and 20% have reported credit related problems, with another 6% delinquent and 11% in default?

These are not simply economic issues, they are also political as well. Is there the political will to make post secondary education more affordable for more people?  Are we headed toward the privatization of our public institutions of higher education and post secondary training, and is this trend combined with the rising level of student indebtedness creating cracks in our economic foundations?

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Filed under consumers, Economy, education, financial regulation, privatization

Nevada’s AB 196: The Wall Street Casino Protection Act

AB 196 Let’s talk Repos – since it’s a topic under discussion in the Nevada Legislature, specifically in AB 196 being heard by the Assembly Committee on Government Affairs today.  AB 196 is relatively straight forward:

There’s this part:

“Sections 1-3 of this bill authorize the investment of the money of this State, the State Permanent School Fund, the State Insurance Fund and the governing bodies of local governments in reverse-repurchase agreements if those agreements meet certain requirements, which are similar to the requirements on repurchase agreements, to avoid a violation of Section 3 of Article 9 of the Nevada Constitution. Sections 1-3 also impose additional requirements on reverse- repurchase agreements which depend upon the purpose for which the reverse- repurchase agreement is made.”

If the reaction to this verbiage is “Huh?” Let’s back up a step.  Repurchase agreements (repos) and reverse repurchase agreements are defined as:

“A form of short-term borrowing for dealers in government securities. The dealer sells the government securities to investors, usually on an overnight basis, and buys them back the following day.

For the party selling the security (and agreeing to repurchase it in the future) it is a repo; for the party on the other end of the transaction, (buying the security and agreeing to sell in the future) it is a reverse repurchase agreement.”  [Investopedia]

Still baffled?  Here’s another way to explain the gamble:

“In a repo, borrowers agree to sell primarily government-backed bonds to another party for cash, with the promise to repurchase the bonds at a slightly higher price in the future. Borrowers are often hedge funds, and lenders are typically money-market funds. Banks stand in the middle, moving cash between the two.”  [WSJ]

That “future” is tomorrow morning (more or less) and those government backed bonds are municipal bonds, state bonds, and/or federal treasuries of some form.  If, say, the state insurance fund decided to buy securities of this type and sell them off almost immediately, that would be a “reverse repo” deal.  The next question, of course, is why on God’s Green Earth we’d want to do this?

We really need to ask this question in light of the divestment in “repos” by the major banks, and the instability “repos” tend to create in financial markets.   Gaze back in time, back to 2008, when Lehman Brothers was for all intents and purposes out of securities it could use as collateral to back up the short term loans it needed for its own survival.  Lehman’s mad scramble to stay alive put a spotlight on the Repo Market on Wall Street.  What lit up wasn’t pleasant.

Enter the Dodd Frank Act, which required banks to maintain more capital in order to absorb potential losses in the Repo Market.  The banks, in turn, have cut back on their participation in the Repo Market game. [WSJ]  However, the Repo Market at present isn’t all rose blossoms, there are still some thorns. As of August 2014, the Boston Fed chief was calling for still more capital reserves to maintain stability in the Repo Market. [NYT Dealbook] (see also: BFR pdf)

Thus we have a Repo Market which is still too volatile for the comfort of the Boston Federal Reserve, in which the major banks are diminishing their participation, and in which the sponsors of AB 196 would have our state and local governments dabble more vigorously.  And, then there’s this:

“Section 3 eliminates the requirement that, when the governing body of a local government purchases commercial paper issued by certain corporations or depository institutions as an investment of its money, the purchase must be made from a registered broker-dealer. Section 3 also eliminates the prohibition against investing the money of the governing body of a local government in a repurchase agreement which involves securities that have a term to maturity at the time of purchase in excess of 10 years.” [AB 196]

Get that? AB 195 eliminates the requirement that the purchases must be made from a registered broker-dealer.  Excuse me, but I get a bit nervous when state and local officials are informed that they can use unregistered broker dealers when those folks  have been under SEC scrutiny since 2013. [Dinsmore] [Kurth]  A registered broker-dealer has to submit to an SEC investigation, and oversight by the SEC and the Financial Industry Regulatory Authority – and yet AB 196 eliminates the need for such certification and oversight when state and local government funds are involved?

When a bill such as AB 196 allows such actions by county commissions, school boards, and county treasurers are invited to indulge in a bit of Wall Street Casino gaming without benefit of a certified, regulated, supervised broker-dealer – What could possibly go wrong? Other than Everything?

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Filed under Economy, financial regulation, Nevada economy, Nevada legislature, Nevada 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

S. 3468: It’s Baaack…and shouldn’t be

Heads Up!  They’re back, againS. 3468 is yet another attempt by the financialists and related banking lobbyists to hamstring efforts to regulate the financial services sector.   It’s not like these interests have ever given up their campaign to revert to Business As Usual  such that the Wall Street Wizards can become yet another font of ill advised, incomprehensible, albeit highly profitable synthetic or otherwise manufactured financial products — You know, things like those adorable synthetic CDO’s which flooded the financial market with valueless toxic paper.

Here’s the CRS summary of the bill submitted by Senator Rob Portman (R-OH) on behalf of the banking sector:

Independent Agency Regulatory Analysis Act of 2012 – Authorizes the President to require an independent regulatory agency to: (1) comply, to the extent permitted by law, with regulatory analysis requirements applicable to other federal agencies; (2) provide the Administrator of the Office of Information and Regulatory Affairs with an assessment of the costs and benefits of a proposed or final significant rule (i.e., a rule that is likely to have an annual effect on the economy of $100 million or more and is likely to adversely affect sectors of the economy in a material way) and an assessment of costs and benefits of alternatives to the rule; and (3) submit to the Administrator for review any proposed or final significant rule.

Prohibits judicial review of the compliance or noncompliance of an independent regulatory agency with the requirements of this Act.

Translation: If any of the financial regulatory agencies, like the SEC, the OCC, the FDIC, or the CFTC wants to approve regulations which might have a “significant effect” on some bank’s bottom line, then the agency would have to present a “cost – benefit analysis,” and submit the rule for administrative (read executive branch) review.

There are some very cogent reason to be extremely skeptical about this bill.

#1.  It dramatically changes the relationship between the administration (executive branch) and the independent financial regulators.   The SEC, et. al. are supposed to be independent of the executive branch, which is why their leadership is subject to confirmation.  To require that the agencies present their proposed rules for executive approval inserts presidential politics directly into the rule making process.

Those who find the diminution of regulatory oversight disturbing will not be pleased with this proposal. Nor will those who decry the transference of yet more power to the executive branch.   There’s nothing here for either end of the political and ideological spectrum.

#2.  It invites endless litigation.  S. 3468 could be alternately named the Wall Street Attorneys’ Full Employment Act.  For those of us who believe that the interminable foot-dragging on CFTC regulations of the derivatives market has gone on long enough, this is entirely too much, [CFTC law] the Portman bill merely serves to add yet another bureaucratic roadblock before regulations can be finalized.  [Lieberman/Collins pdf]

#3. It prevents agencies from acting in a timely manner.  Again, inserting a secondary layer of “review” invites both executive interference and financial sector slow walking before any effective oversight of financial institutions can be effected.

#4. It is redundant.  All the agencies involved, with the single exception of the Federal Reserve, are already required to do formal cost-benefit analyses of proposals.  In case no one had noticed during the attempts to get the provisions of the Dodd Frank Act implemented that the banks have been availing themselves of these requirements to slow down the whole process — they have.  All this bill accomplishes is to slow the process down from a crawl to a drag.   Here’s why:

“The thirteen new analytic requirements this legislation could impose are only the beginning of the delays and burdens it would create. The mandated OIRA review of significant rules would take up to six months. In addition, the review process could force agencies to go back to the drawing board or do a re-proposal of the rule, which could add years to the regulatory process. While agencies could overrule an OIRA determination that a rule or a cost-benefit analysis was inadequate, such a step would render the regulation highly susceptible to court challenge. It would make industry attempts to overturn new rules in court almost inevitable. The increased risk of court reversal will discourage independent financial agencies from finalizing any regulation that receives a negative OIRA review.” [AFR pdf] (emphasis added)

In short, what we have here is a bill that simply refuses to die… and one which is unnecessary, unwarranted, and merely serves to benefit the financialists who don’t want oversight of their speculation in the Wall Street Casino.

Perhaps we might initiate newly elected Nevada Senator Dean Heller’s in-box with a few e-mails indicating that this is not a bill which deserves the support of 99.9% of the American public?

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Filed under conservatism, Economy, financial regulation, income inequality, income tax, tax revenue, Taxation

Deregulation Debacles: And, Heller Wants To Repeal Dodd Frank?

** Altogether too many Nevadans were happy to sign adjustable rate mortgages based on the COFI.    COFI is the Cost of Funds Index, i.e. a monthly weighted average interest paid on checking and savings accounts offered by financial institutions in California, Arizona, and Nevada.  [QNA]   It could have been worse, the loans could have been based on LIBOR,  the London Interbank Offered Rate.   Barclays Bank (as in Premier League) has now settled with U.S. and British financial authorities for $453 million. Why? “Barclays admitted to trying to make Libor look artificially low, to avoid signaling the bank’s distress to markets during the financial crisis. The bank also manipulated borrowing rates to benefit its trading positions.” [Reuters] (emphasis added)  Before anyone gets too comfortable about the shakeout from the financial meltdown of 2008, refer to Gradman’s Top Five RMBS Cases now winding their way through the courts.

And, Senator Heller (R-NV) believes we should repeal the Dodd Frank Act which sought to reform financial sector regulation.  [GovTrack]

** Meanwhile, the SEC has filed allegations that Philip Falcone, hedge fund manager of Harbinger Funds, manipulated the market, gave preferential treatment to Goldman-Sachs, and got a company loan to pay his taxes. [Bloomberg]

And, Senator Heller (R-NV) believes we should repeal the Dodd Frank Act which sought to reform financial sector regulation.  [GovTrack]

**  Then, we have MBIA v. Countrywide, Bank of America, in the NY Supreme Court.  “MBIA has been looking for just this type of smoking gun (documentation of knowledge, reliance on fraud)  since the beginning of their case, and it appears they believe they’ve found it, in the form of internal Countrywide documents relating to its fraud hotline and internal fraud investigations.  If Countrywide knew there was widespread fraud in its loan origination processes, and covered up that information, it could certainly form the foundation for a finding that it intentionally misled MBIA into providing insurance coverage.  And Countrywide has certainly acted like MBIA is knocking on the door of a treasure trove of damaging evidence, as it has fought like crazy to avoid producing these documents.”   [IGrad]

And, Senator Heller (R-NV) believes we should repeal the Dodd Frank Act which sought to reform financial sector regulation.  [GovTrack]

** The Securities and Exchange Commission opened a preliminary  investigation into the JPMorganChase “London Whale” debacle, “An important avenue for the S.E.C. investigation, the people said, is the firm’s accounting methods relating to the trades. Investigators could take a close look at a measure known as value-at-risk. The company disclosed earlier this year that it changed the way it calculates the metric, which may have masked some of the risk surrounding this trade.” [DealBook]

And, Senator Heller (R-NV) believes we should repeal the Dodd Frank Act which sought to reform financial sector regulation.  [GovTrack]

** The SEC is also looking into possible NASDAQ improprieties in the Facebook IPO.  [CNBC] “The S.E.C. is also examining whether some exchanges give undue priority to high-frequency trading firms and big institutional investors through its order types and data disclosure.” [DealBook]

And, Senator Heller (R-NV) believes we should repeal the Dodd Frank Act which sought to reform financial sector regulation.  [GovTrack]

** On June 7, 2012 the CFTC filed charges against a Florida “Wealth Management LLC; ” The U.S. Commodity Futures Trading Commission (CFTC) today announced that it filed a civil enforcement action against Jose S. Rubio (Rubio) and Rubio Wealth Management, LLC (RWM) of Surfside and Coral Gables, Fla., respectively. The CFTC complaint charges Rubio and RWM with defrauding investors in connection with operating a commodity pool to trade commodity futures and off-exchange foreign currency (forex) contracts. The CFTC complaint also charges Rubio with making false statements to pool participants, misappropriating pool funds, commingling investor funds with those of RWM, failing to register as a commodity pool operator, and failing to produce documents to the CFTC.”

And, Senator Heller (R-NV) believes we should repeal the Dodd Frank Act which sought to reform financial sector regulation.  [GovTrack]

On June 25, 2012 the SEC announced a settlement with Ayuda Equity Funding:   “According to the SEC’s complaint, Ayuda and AmeriFund reaped more than $3.2 million of illegal gains on loans to public company officers and directors who put up stock as collateral. Although some borrowers received written and oral assurances that the stock would not be sold as long as they did not default on their loan payments, Ayuda and AmeriFund sold the shares before or soon after making the loans, the SEC alleged.”

And, Senator Heller (R-NV) believes we should repeal the Dodd Frank Act which sought to reform financial sector regulation.  [GovTrack]

On June 26, 2012, the Securities and Exchange Commission filed a civil injunctive action in the United States District Court for the Southern District of New York charging Tai Nguyen, the owner of the California-based equity research firm Insight Research, with insider trading.  The charges stem from the SEC’s ongoing investigation of insider trading involving so-called “expert networks” that provide specialized information to investment firms.”

And, Senator Heller (R-NV) believes we should repeal the Dodd Frank Act which sought to reform financial sector regulation.  [GovTrack]

Enough Said?

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Filed under financial regulation, Heller

More Fun with FRED: Someone’s Doing Fine, The Banks

Nudge, nudge, shove, shove. If you’ve not already found FRED, it is a veritable Eden of make your own graph fun from the Federal Reserve Bank of St. Louis.

Since the horrific moments when the banking system in the United States almost melted down under the weight of its own toxic assets, the result of their avaricious appetite for mortgages to transform into CDOs, and the consequent collapse of the Wall Street Casino in 2008, some sectors of the economy are doing better than others.  The banking sector’s lines seem to be headed in the right direction.

Consider the following graphs:

Their returns are going up, their nonperforming loans and net loan losses are going down.  Their profits are over the moon. So, why are the bankers worried about another four years of the Obama Administration?  A quick answer: The Dodd-Frank Act.

One of the goals of the financial regulation reforms included in the Dodd-Frank Act was to create more transparency in the trading of credit default swaps.   There was a reason investor extraordinaire Warren Buffett called such trades “financial weapons of mass destruction.”   Opponents of regulation argue that if the swaps must be made through an exchange the transparency might make them less attractive to investors, and less suited to their purposes.   What purpose is served if the trades are secret?  If an investment has to be secret in order to be attractive, then we’d have to ask why the purpose can’t be exposed to the light of day?  This isn’t to argue that the Dodd-Frank Act was perfect, far from it, but at least it lets a bit of sunlight into the shadows of the investment banking system.

Another goal of the Dodd-Frank Act was to mitigate the possibilities that bank holding companies who have the protection of the FDIC would abuse depositor’s funds by using them for or to backstop the activities of their trading desks.  Those who didn’t like the Bank Bailouts begun under the Bush Administration,  really shouldn’t like the attempts by the banking lobby to water down or delay the implementation of the Volcker Rule.

The GOP talking point du jour about “unnecessarily burdensome regulations” goes back to early 2011:

“House Republicans on Monday said they are drafting five bills to repeal or change parts of the Dodd-Frank financial-overhaul law that have been opposed by business groups.

The bills are to be discussed at House subcommittee hearing on Wednesday. The hearing “will provide an opportunity to discuss several proposals that address some of the act’s damaging provisions,” Rep. Scott Garrett (R., N.J.) said in a statement.” [WSJournal]

Let’s take a look at some specific Republican/Banking Lobby points of attack, i.e what do they allege are “damaging?”

Republicans aim to eliminate a piece of the law attempting to make credit-ratings firms such as Standard & Poor’s, Moody’s Investors Service and Fitch Ratings liable if their initial ratings turn out to be faulty.

House Republicans will also seek to exempt companies that use derivatives to hedge commercial risk from new requirements that they route their transactions through clearinghouses. Those companies have been lobbying for the change, arguing that the Dodd-Frank law leaves uncertainty about whether they would have to clear their derivatives trades.

They would seek to exempt private-equity fund managers from a Dodd-Frank requirement that they register with the SEC. While many larger private-equity funds are already registered with the SEC, small and midsize fund advisers have been arguing that the registration requirement is expensive and burdensome.

Republicans also aim to cancel another provision requiring publicly traded companies to disclose the median annual total compensation of all employees and calculate a ratio of how employee compensation compares with that of the chief executive.

Finally, Republicans will introduce legislation to boost the offering threshold for companies that don’t need to register with the SEC to $50 million from $5 million. Republicans say this change will make it easier for smaller companies to raise money for investment.  [WSJournal]

(1) As noted herein many times, the ratings agencies weren’t just “faulty” in the run up to the Great Bubble Bust of 2008.   Ratings agencies were paid by the issuers of the bonds (CDOs) and the better the rating the more likely they were to get paid.   Not only was the conflict of interest obvious, in some cases it was blatant.

(2) If uncertainty is a problem, then why not allow the CFTC and other regulators to make the rules and get on with it.  The Banking Lobby has all but moved Heaven and Earth to impede regulatory action.  It doesn’t do to argue that the lack of regulation clarity is a reason for deregulation when you’re doing all you can to prevent the drafting of regulations much less the implementation thereof.

(3) Why would anyone want to operate away from SEC scrutiny, if the idea is that the hedge fund is advertising itself as a good place to invest?  Yes, it may cost some money for some of the smaller funds to fill out the paperwork for SEC registration.  However, which fund is obviously a better place to park one’s money — the fund that’s registered with the SEC and accepts oversight of its operations, or the fund that isn’t registered and isn’t overseen by anyone? Are smaller hedge funds really arguing that they can’t raise money for investments because they’d have to register if they had $5 million under management?  It should appear obvious that one of the selling points of their management would be “We Are Not The Fly By Night” types — we are registered with the SEC — you can trust us.

(4) And why would any shareholder or investor not want to know if the executive compensation packages bestowed upon management are completely out of whack?  If the major money is moving to the top, and the  employees aren’t getting a fair shake, then what’s happening to the shareholders and other investors?

Senator Dean Heller (R-NV) is on record favoring the repeal of the Dodd-Frank Act because of the aforementioned “burdensome regulations.”  However, someone somewhere along the line during the 2012 campaign season ought to be asking:

(a) Do you favor a return to the system in which ratings agencies could stamp CDOs with a AAA rating without any repercussions if it were demonstrated later that the ratings were the result of a conflict of interest?

(b) Do you favor a system in which some hedge funds are allowed to operate without supervision by the SEC?  Even if they have as much as $50 billion under management?

(c) Do you favor a system in which executive compensation ratios are hidden from employees, shareholders and investors?

(d) Do you agree with the Banking Lobby’s strategy of impeding the drafting and implementation of regulations while contending that any  delay creates uncertainty?

 

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Filed under banking, Economy, financial regulation, Heller, Obama, Romney

Monday Morning Roundup

##  Is Nevada ready for it’s close up?  Take a look at Nevada Progressive today.   Meanwhile, Senator Dean Heller (R-NV) and Governor Sandoval didn’t seem to want to get anywhere close to the state GOP convention:

“And around the country, Republican officials and the powerful interests that own them worry that their party’s ongoing drift to the Island of Whackadoodledoo could seriously damage their electoral, and hence financial, interests in 2012 and beyond.”  [More From The Gleaner]

While you are at it, and speaking of expunging some of the Whackadoodledoo, take a gander at the NVRDC’s post on same-sex marriage equality. This is one of the better compilations of the current situation you’ll find recently.  No hype, no emotionality, just good old fashioned relevant facts.

## As our Republican Representatives in Congress were voting to shave the national indebtedness by sticking it to working families who need the SNAP program to help with the groceries, the Sin City Siren reports of Nevada’s food insecurity problems,” Unless my eyes are failing me, it looks like the lowest percentage is 8.5%, sadly a real anomaly in our valley (in terms of how low it is), and a high hunger mark of 27.6% (holy crap!). And don’t think that it’s all bad in the valley’s core and cream puff dreams in the suburbs. There’s a 10 to nearly 15% rate in Summerlin zip codes and 11 to 15% range in Henderson. 89109, which is fairly close to center of the valley is 18.3%. The take-away: Hunger doesn’t care where you live.”

##  Hey We’re Number ___! Oh, who cares?  The U.S. is falling behind the rest of the globe in providing health care, and many important measures included in the Affordable Care Act aren’t scheduled to kick in until 2014.

China, after years of underfunding health care, is on track to complete a three-year, $124 billion initiative projected to cover more than 90 percent of the nation’s residents.  Mexico, which a decade ago covered less than half its population, completed an eight-year drive for universal coverage that has dramatically expanded Mexicans’ access to life-saving treatments for diseases such as leukemia and breast cancer.  In Thailand, where the gross domestic product per person is one-fifth that of the United States, just 1 percent of the population lacks health insurance. And in sub-Saharan Africa, Rwanda and Ghana — two of the world’s poorest nations — are working to create networks of insurance plans to cover their citizens.  [WaPo] (emphasis added)

Unfortunately, “American Exceptionalism,” is rapidly coming to mean that everyone EXCEPT Americans can expect basic services from their governments.   Speaking specifically to the ACA, FactCheck finds the Chamber of Commerce advertising on the ACA “misleading.”   Surprised?

## How’s that Austerity Thingie working for you?  Not all that well for German Chancellor Angela Merkel.  “Yesterday was a bitter day, it was a bitter, painful defeat,” Merkel said after results showed the SPD won 39.1 percent against 26.3 percent for the CDU.”  [Reuters] The voters seem annoyed. Additionally, an overly complex system perpetuates mistakes in the Eurozone?  More from Reuters.

## ICYMI:  The Congressional Budget Office has some very pertinent and cogent comments to make on the national debt, among them the following:

“There is no commonly agreed-upon amount of federal debt that is optimal. Higher debt has a number of negative consequences that CBO discusses regularly, but reducing debt or constraining its growth will require some combination of tax increases and spending reductions, and those policy changes can have negative consequences themselves.”

Negative consequences like cutting off the SNAP program and diminishing the automatic economic stabilizer effect maybe?

##  JP Morgan Chase isn’t the only bank having “a problem.”  There’s still some fall out from the GMAC (ALLY) venture into the mortgage market during the Bubble, “Ally’s mortgage unit, called Residential Capital, or ResCap, filed for bankruptcy protection in federal court in Manhattan under a plan that has the support of some of its creditors, although it was still expected to be a drawn-out and litigious process.”  [Reuters]

In view of the mess over at JP Morgan Chase, perhaps this isn’t exactly what we want to be hearing from the CFTC?

The Commodity Futures Trading Commission (CFTC) today voted to propose an Order regarding the effective date for swap regulation.  The Order is a six-month extension from certain provisions of the Commodity Exchange Act that otherwise would have taken effect on July 16, 2011, the general effective date of Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act .  Today’s order further narrows the scope of the Order because some rules, for example the further definition of swap dealer and major swap participant, have become effective.

Today, the Commission is extending the effective date for swap regulation until December 31, 2012, or until the Commission’s rules and regulations go into effect, whichever is sooner. The Order proposed today would allow the clearing of agricultural swaps; and remove any reference to the exempt commercial market; and exempt board of trade grandfather relief previously issued by the Commission.   (emphasis added)

How long can the traders’ lobby keep dragging out the regulations?

## Some good news: “The Securities and Exchange Commission today suspended trading in the securities of 379 dormant companies before they could be hijacked by fraudsters and used to harm investors through reverse mergers or pump-and-dump schemes. The trading suspension marks the most companies ever suspended in a single day by the agency as it ramps up its crackdown against fraud involving microcap shell companies that are dormant and delinquent in their public disclosures.”  [SEC]

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Filed under Amodei, Economy, financial regulation, gay issues, Health Care, Heath Insurance, Heck, Heller, Nevada economy, Nevada news, Nevada politics

H.R. 3606 and Little Billion Dollar Shops of Horrors

When does JOBS not mean JOBS? When it is attached to H.R. 3606 for which all three members of the Nevada Congressional delegation voted. [RC110] The bill can be summarized as follows:

“Ah, yes, the JOBS Act. JOBS stands for Jump-start Our Business Start-ups. Basically, it relieves businesses that are preparing to go public from some of the most important auditing regulations that Congress passed after the Enron debacle. Also, new public companies could delay following the rules on disclosing executive compensation that were passed after the 2008 Wall Street implosion. And salesmen could market stock in new companies to small investors on the Internet. You could also call it the Just Open Bucket Shops Act.”  [NYT](emphasis added)

And, we ask by giving up “important auditing regulations,” “delaying rules on disclosing executive compensation,” and allowing corporations to market stocks on the Internet to small investors (more about this later), how many jobs can we expect? “Republican leaders couldn’t say how many jobs the JOBS Act would actually create.” [WaPo]

Senate Minority Leader McConnell’s comments daring the Democratically controlled Senate not to pass a JOBS bill notwithstanding, there is very little about H.R. 3606 that’s about jobs, as House GOP members admitted, and very much in the bill that undercuts reforms made since the collapse of the Dot.Com Bubble.

A significant part of the bill pertains to what documentation a corporation must provide to the Securities and Exchange Commission before “going public” with an IPO.

#1.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 both SA and SEA to state that, in any other registration statement to be filed with the Securities and Exchange Commission (SEC), an emerging growth company need not present financial data for any period before the earliest audited period presented in connection with its initial public offering.”   Translation:  All you need  to present to the investing public is 24 months of audited financial statements.   And, about all you need to recall is what happened during the Dot.Com Bubble when start-up companies with highly questionable business plans launched Initial Public Offerings with all the substance of molded Jello.

But wait! It gets better (or worse).

#2.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.”    Get this? An accounting firm — can we say Arthur Andersen — doesn’t have to attest to, or report on, “any assessment of internal controls the company’s management has made.”   So, who is  going to attest to, or report on, the internal controls of the start up company?

OK, why should we get our knickers in a twist about something as arcane as “internal controls?”  Because “internal controls” consist of some rather basic financial standards.   Internal Controls are necessary in order to (a) reveal errors and omissions, (b) discourage employee theft, and (c) protect corporation assets. [TEHCPA.net pdf]

One of the things the accounting firm should have to note for the investors’ protection is whether or not a corporation has an internal set of checks and balances.  If a single person is tasked with multiple fiscal assignments then those checks and balances are lost.  A prospective shareholder should be made aware of such management decisions as — Is only one person responsible for reviewing monthly financial statements?  Is the person handling cash or other forms of revenue also the one who records the transactions? Are bank reconciliations performed by one person and then independently checked by another?

When we start talking about corporate IPOs we also need to make potential investors aware of the risk management policies decided upon by the corporate management.  Definitely not the least among these policies would be an auditor’s review of whether or not information regarding reliable internal and external information concerning risks are being forwarded to the correct personnel, in complete form, and on a timely basis.  [JofA]

As potential investors we’d want to be assured that the corporation had an audit committee, and better still that the audit committee functioned independently of management, and even more importantly was responsible for the oversight of both the existence of and compliance with a firm policy describing corporate ethical standards.  [JofA] Why would we want publicly traded firms to have less?

#3.Exempts an emerging growth company from any such rules requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the issuer’s financial statements (auditor discussion and analysis).” [HR 3606]  This is demonstrably less. Management and the accounting firm are exempted from rules designed to prevent cozy relationships over time in which the accountancy firm got the contracts from the management for “making nice,” and not necessarily being honest.

#4.Prohibits the SEC and any registered national securities association from adopting or maintaining any conflict-of-interest rule or regulation in connection with an initial public offering of the common equity of an emerging growth company that restricts: (1) which associated persons (based on functional role) of a broker, dealer, or member of a national securities association may arrange for communications between a securities analyst and a potential investor; or (2) a securities analyst from participating in any communications with the management of an emerging growth company that is also attended by any other associated person of a broker, dealer, or member of a national securities association whose functional role is other than as a securities analyst.” [HR 3606] Really? No conflict of interest rulings concerning communications about an IPO on much of anyone involved in the process?   This seems an engraved  invitation to the next Predator’s Ball.

#5.  Under the terms of H.R. 3606 an investment bank underwriting an IPO for an “emerging” corporation could do its own “research” on the new firm, and publish this for investors BEFORE the SEC was finished reviewing the information.  [WaPo]  I can’t think of a better way to undercut the authority of the SEC, unless it might be to ignore the SEC findings altogether.

#6.Amends SEA and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 to exempt emerging growth companies from the requirement for separate shareholder approval of executive compensation, including golden parachute compensation. ” [HR 3606] So, if a corporation can get itself classified as an “emerging growth company” then the shareholders have no recourse on such issues as “say on pay?” Or, the deployment of Golden Parachutes? [CFA] And, who might these “little startups be?”

#7.Amends the Securities Act of 1933 (SA) and the Securities Exchange Act of 1934 (SEA) to define “emerging growth company” as an issuer that had total annual gross revenues of less than $1 billion during its most recently completed fiscal year.” [HR 3606]  Yes, that’s Billion with a Big B.

So, forget about what happened to investors when Webvan.Com, Pets.Com, and Kozmo.Com [CNET] and many other enthusiastic participants in the Dot.Com Bubble went POP.  Eliminate from your mind images of employees hauling their personal belongings out of the ENRON building.  Stop thinking about what happened to Arthur Andersen, once a very reputable accounting firm in this nation.

Don’t think about WorldCom, HealthSouth, Tyco, Global Crossing, and Adelphia.  Let not your brow be furrowed by thoughts of such accounting and management disasters like AIG, or the two hedge funds created by Bear Stearns Asset Management, or the infamous Magnetar trade.  [ProPublica]

Potential investors who accept the offer to buy stock over the Internet, who forget momentarily that one can also purchase counterfeit prescription drugs and imaginary cars in the same venue, and wherein one can make contributions to the Nigerian Prince of choice can only lose $10,000 in the process.

In the mean time we are advised to ignore the conclusions drawn by Lynn E. Turner in testimony before the Senate Banking Committee this month (pdf):

“As I review the legislation before the committee, I find it reduces the level of transparency and amount of information investors will receive. It removes critical investor protections put in place to protect against a repeat of past scandals. It decreases the credibility of the information one will receive. It not only allows market participants such as analysts to once again engage in behavior and activities that were associated with prior market disasters, it treads on the independence of independent standard setters such as the Public Company Accounting Oversight Board (PCAOB) established by this Committee, as well as the Financial Accounting Standards Board (FASB). If ill-conceived amendments regulating the cost benefit analysis the SEC would have to perform, that were adopted in the US House of Representatives, I suspect investors would be well served to understand that handcuffs had been put on the SEC, rather than bad actors.”

Current SEC Chair Mary Shapiro added:

“Too often, investors are the target of fraudulent schemes disguised as investment opportunities,” Schapiro wrote. “As you know, if the balance is tipped to the point where investors are not confident that there are appropriate protections, investors will lose confidence in our markets, and capital formation will ultimately be made more difficult and expensive.”

It’s also useful to recall that one of the charges leveled by the banking industry in regard to the Housing Bubble Collapse was that “government regulators failed,” the SEC included.   H.R. 3606 “exempts” so-called small businesses from IPO regulations set by the SEC, thus guaranteeing that if something does go wrong — the SEC will be powerless to prevent it, and Financialist conservatives can the  jump up and wail, “Look, the government regulators failed again!”

The failure in this instance is of political fortitude, enough fortitude to say NO to the investment bankers and their allies inside the Beltway.

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Filed under Amodei, Berkley, Economy, financial regulation, Heck