Monday, October 21, 2002

Remora

"Now, this bill also represents the first step in our administration's comprehensive program of financial deregulation. I particularly want to commend the leadership of the chairman, Senator Garn, and Chairman St Germain, along with Secretary Regan and his fine team at Treasury. They did a remarkable job forging a consensus within the Congress and among affected industries in favor of the bill's deregulatory provisions. I'd like to also thank Congressmen Stanton, Wylie, and LaFalce for their assistance.

What this legislation does is expand the powers of thrift institutions by permitting the industry to make commercial loans and increase their consumer lending. It reduces their exposure to changes in the housing market and in interest rate levels. This in turn will make the thrift industry a stronger, more effective force in financing housing for millions of Americans in the years to come."

These words of Ronald Reagan's, spoken at the signing of the Garn-St. Germain act, have echoed down the years, much like the last words of Kim Novak going through Jimmy Stewart's brain in Vertigo. Andrew Sullivan recently observed that Bartlett's Book of Quotations had too few Reagan quotes, proving an underlying left leaning bias. Surely, If LI were to edit a book of quotations, we'd select a few choice R.R. quotes. The lines from the speech above, for instance, would be place, on thematic lines, in the same section that included Willie Sutton's famous dictum that he robbed banks because that's where the money is. Yes, wasn't "reducing their exposure" and "expanding the powers of the thrift institutions" a nice way of saying, we're putting the tommyguns in the hands of the bank presidents? No need for a getaway car when you can't get the company to buy you a nice, corporate Lear jet. Indeed, it was that lot, from Charlie Keating to Herman Beebee, who proved that Sutton was a piker in the way of all freelance robbers. What you really need, when it comes to looting on an imperial scale, is friends in high places and a seat at the board. The best part is the lack of punishment. Not even lack -- the rewards that are heaped upon the larcenous are rich, rich indeed. Because bank robbery by bankers is met not with that ultimate social disapprobium, pinstripes and legchains, but by bail-outs, Reagan's stirring words eventually cost about 32 billion dollars a year to American taxpayers.

For the act that Reagan called the greatest "reform" of the financial industry in 50 years operated, as deregulatory reforms have operated since then, to create systemic problems, both in the S&Ls and then, by an easily tracked contagion, to the composition of corporate ownership as a whole, that eventually brought about a collapse. It was a collapse that, as conservative commentators like to say, was due to the government. Although what they don't say is that it was due to the Government deregulating an industry in a manner that was corrupt at the very root.

We bring up ancient history -- LI was once told we were all woulda, shoulda, coulda cause we keep bringing up ancient history, but you know what? We like it that way -- because we think the shape of the S&L crisis is very similar to the shape of the current crisis of confidence in the market, especially as it has to do with regulatory oversight, or the lack of it. LI wonders if there is a wave pattern here that speaks to a greater structure -- a long-term pattern of corruption that indicates structural invariants extending from the beginning of the Reagan years to now -- extending, that is, through the length of the post-Keynsian era. The contours of it, and the mechanisms that brought it about, have very little to do with the categories that are tossed around in public discourse. Especially unhelpful is the idea that the "government" is somehow opposed to "private enterprise." What happens in capitalism in our time is that alliances of interests, cutting across government and private lines, will marshall resources -- rule changes in regulatory agencies, Senatorial pressures on individual regulators or regulatory bodies, capital from banks, offshore entities, gaps in corporate governance, disguises made available by creative accounting, etc., to create systems of malfeasance that push great amounts of money into the hands of a few. Borrowing a term from Burroughs, let's call this the capitalist Interzone. This machinery is such that it can't last forever. It eventually implodes. The periodic crises in the system are explicitly linked to the high degree of inequity in the system, the corruption of the electoral process, and the inability to replace the money taken out of the system. The moment of implosion, though, will be unevenly distributed throughout the system, burdening those who benefitted least from it by way of taxes, looted pensions, firings, etc. During the S&L crisis, there was a window during which the D.C. co-conspirators of the process were actually held up to the light. Well, a few of them -- the infamous Keating five. This was entirely inadequate, of course. Everyone knew that the legislative orignators of the S&L deregulation process, Fernand St. Germain and Jake Garn, had benefited in the most outrageous ways from S&L largesse. But back then, there actually were symbols that represented a crucial part of the system.

This time around, nothing like that has happened. That is because the system has become much too pervasive to pick out five senators. There was a halfhearted attempt to hold Bush and Cheney symbolically responsible; it was half-hearted because no Senator or Representative -- nobody on the political scene -- can really afford to go after symbols of the system. This is especially noticeable in the case of Phil Gramm. If anybody represented a point man for Enron in the Senate, it was the horrid Gramm. He seems almost devised by some Dickensian god to recieve the slings and arrows of an outraged society, so porcine are his features, and his appetite, so open are his ties to the most corrupt American business to have gone under since Vesco days of yore. His wife's role in the Enron affair is common knowledge. Yet he's slipped out quietly, with no fuss made about his jumping ship to UBS Warburg.

The first phase of the current crisis is over. There are signs that the second phase has kicked in. In this phase, the system reverts back to its corrupt norm. There was much todo made in the conservative press that the reforms enacted this summer went "too far." This noise provides cover for the actual cutting back of those reforms. A story in the NYT this weekend heralds one sign of the reversion to the corrupt norm: the refusal to adequately fund the SEC.

"WASHINGTON, Oct. 18 � Less than three months ago, President Bush signed with great fanfare sweeping corporate antifraud legislation that called for a huge increase in the budget of the Securities and Exchange Commission to police corporate America and clean up Wall Street.

Now the White House is backing off the budget provision and urging Congress to provide the agency with 27 percent less money than the new law authorized.'

Bush and his congressional allies had no intention of stiffening the regulatory mechanisms that oversee corporate governance, accounting, and the markets until they had to, and they have no intention of seeing those new laws work. The last couple weeks, much has been made of the rollover at the new Public Company Accounting Oversight board. Jane Quinn's story, Is Reform a Bad Joke? is mis-named. It is a very good joke.



"At issue is the new Public Company Accounting Oversight Board, created by Congress and signed into law with a flourish by President Bush in July. It�s supposed to set new and higher standards for auditors, who check corporate books. To succeed, it will need a true reformer at its head.

The Securities and Exchange Commission will name the board�s members. As head, SEC chairman Harvey Pitt chose John Biggs�the respected CEO of the giant teacher�s pension fund, TIAA-CREF�say people in a position to know. But the big accounting firms (yes, like the ones that abetted Enron, Tyco, Xerox and WorldCom) scorn goody-goody reformers, and promptly called their political pals. Rep. Michael Oxley (R-Ohio) complained about Biggs and Pitt pulled back. (Oxley�s House committee just happens to oversee the SEC.)"

The SEC funding storry, coming on the heels of the Biggs debacle, isn't exactly a surprise. What does surprise us is the grossness of the maneuver. The Bush regime has consistently lived up to its coup origins: it's grand gestures are coup-like; it's spokesmen of a type made depressingly familiar in Latin America in the seventies, thuggish, happiest when employing junta-like categories in which a manichean world justifies a manichean hunt for subversives. But juntas usually take three to four years to go completely corrupt -- the Bush people are ahead of the game, here. The open conspiracy between Cheney's office and various energy company bigwigs to subvert environmental protection and rig the market began almost as soon as Bush hit the White House. The current subversion of corporate reform is, like Cheney's meetings with his cronies, covered by tissue thin rationalizations. Here is the reason given by the White house for refusing to fully fund the SEC

"The president does believe the S.E.C. has a substantial mission and we think $568 million is sufficient to carry that out," said Amy Call, a spokeswoman for the White House Office of Management and Budget.

Administration officials say that the budget figure in the law is too high considering the other needs of the budget. They say that the agency would be able to carry out more investigations, increase staff and raise pay levels with the more modest budget proposed by the White House."

The line about other needs of the budget is not quite a lie, but it does creep up to the starting line of falsification and crouches like a racer. For some reason, the article doesn't explain where the SEC's money comes from. Well, it comes from fees taken in by the SEC.

According to Congressional testimony in 2001,

"The current fees the SEC is required to collect � registration fees, transaction fees, and merger and tender offer fees ... will total almost $2.5 billion - an amount more than five times the SEC's current budget."

The Wall Street Journal recently published a five part series on what went wrong in the last three years. Interestingly, especially for a WSJ story, the concentration in the article three days ago was on five instances of either congressional interference, administrative decision, or Fed decisionmaking, that contributed to the slack regulatory posture of the nineties. One of them was Levitt's unsuccessful attempt to get the SEC fully funded -- to get control, that is, over the amount taken in by SEC fees. Phil Gramm quickly put a stop to that. Gramm, who is now going to ex-Enron central (UBS Warburg), is the very spirit of the Bush attitude towards free markets. It is the blind idea that, a., all regulations are the same, and b., that all regulations should be rolled back.

The depressing thing is, the Dems aren't going to fight for SEC funding. What, Joseph Lieberman leaning on his funders to enforce a bunch of pesky rules for the investing rubes? No way.

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