I learned a very important trick from the Army: when someone tells you to do something, salute, and say Sir, Yes Sir in a confident and appropriately loud voice. It doesn’t matter whether you intend to do it, it matters that you say you will. The bureaucrats in the Department of Justice and the SEC learned this lesson well.
Remember that real estate mortgage-backed securities fraud task force which was created as part of the 49-State settlement of foreclosure fraud? Well, it’s been three months, and there is no sign of life. Mike Gecan and Arnie Graf wrote an op-ed for the New York Daily News Thursday, saying that nothing has happened, despite the Salute and the loud Yes Sir from Eric Holder:
U.S. Attorney General Eric Holder held his own news conference and announced that at least 55 Justice Department lawyers, agents, analysts and investigators would be assigned to the effort. A news release promised 30 staffers would be joining efforts “in the coming weeks.”
Gecan and Graf tried to find out the status of the task force, but they found nothing. No phone number, no office, nothing. That accords with other reports, including this one from Ben Hallman at the Huffington Post. The outlier is George Zornick, reporting for The Nation that New York AG Eric Schneiderman, one of several co-chairs for the task force, denies inactivity. Danny Kanner is Scneiderman’s spokesperson:
Kanner said 50 attorneys, investigators, and analysts across the country are already working on the task force, and that hiring would continue as investigations progressed. He added that the offices of several state attorneys general are also coordinating with the working group.
A Department of Justice official confirmed those staffing numbers, and said that ten U.S. Attorney offices were part of the effort, and that more were expected to join as the investigations progress. The Department of Justice has also asked Congress for $55 million to expand staffing.
Schneiderman and DOJ counted up everyone with a mortgage fraud case and told Zornick they were in the task force. That $55 million isn’t for the task force. According to Zornick’s link, the purpose is to “investigate and prosecute securities and commodities fraud, investment scams, mortgage foreclosure schemes, and other types of financial fraud.” And, of course, what could be a clearer signal that nothing is happening than this:
Finally, both Kanner and the Department of Justice said that the five co-chairs of the task force meet formally on a weekly basis and talk daily.
Sir, Yes Sir. We’ll get right on that task force thing.
At the SEC, we find more examples. The Chair, Mary Schapiro, can’t figure out how to promulgate a rule requiring reporting companies to state the ratio of the median compensation of employees to the compensation of the CEO, but they are “working on it” in the face of terrible technical difficulties. The proposed regulations under the Volcker Rule are another example. The Volcker Rule is designed to stop banks from trading securities for their own accounts using depositor money, because of the danger that presents to the stability of the financial system. That danger is obvious: counterparties to derivative trades get paid before depositors. Probably the FDIC would pay off small depositors, but what about people, and by people I mean corporations, with more than $250,000 in the bank?
Jesse Eisinger at Pro Publica explains the rule-making process:
This has been a Talmudic exercise in reverse: It has taken the clear and simple intent and made it muddy and complicated.
Regulators decided that banks could say that they were hedging for an overall portfolio. And the banks could argue that a hedge was legitimate if it merely had a “reasonable correlation” with the security or position being hedged. It was as if the regulators had not only questioned the basis for the rules of being kosher, but had also served up a cheeseburger — with bacon on top — all very nonkosher.
Eisinger points out that JPMorgan Chase, under the leadership of Jamie Dimon, has increased the trading responsibilities of the treasury department at JPMorgan to accomplish just that result. Roger Lowenstein, writing for Reuters, confirms the Wall Street attack, and adds a discussion of lobbying to repeal the Volcker Rule. The historical section is particularly enlightening: lobbyists have been crushing competent regulators for decades.
Sir, Yes Sir, we’ll get right on that Volcker Rule thing.
The problem is that DOJ and SEC bureaucrats think Wall Street is a bunch of decent people, polished up in pretty clothes and offering helpful information. They think Wall Street is a partner with government in moving the economy forward. They carry out the directions of Wall Street while saluting the electorate. They hide the fact that they are the captives of a corrupting influence behind Sir, Yes Sir.
There is a solution. We put people in charge who think the people on Wall Street are slugs who would wreck the economy if they can make money. There is no reason to respect Jamie Dimon or Lloyd Blankfein or any Wall Street trader or administrative assistant. We need regulators who will cow them into compliance with the law, using the powers they have, including personal liability and criminal charges.
Anything Holder, Schneiderman and Schapiro say is bureaucratic-speak for “I’m not going to do my job and you can’t make me”.