Give the Finance Sector an Inch, and Let Fly the Mile-- IPO Transparency Takes a Hit

Breaking Point, by K.M. Ramich

-by Skip Kaltenheuser

"The evil that men do lives after them, The good is oft interred with their bones..." Updated, Shakespeare's Mark Anthony might have included mischief done while scrambling for campaign funds as the finance sector obliges those doing its bidding. That mischief stumbles on like a zombie. This tortured comparison came to mind after reading a Naked Capitalism post by former derivatives trader Jerry-Lynn Scofield, Doubling Down on Deregulation: SEC Extends JOBS Act Benefit in Elusive Quest to Goose IPO Market. The post notes a bellwether of the speed of deregulation under SEC Chairman Jay Clayton.

Clayton is currently seeking to expand a degree of confidentiality to all IPO's that was previously available only to so-called emerging growth companies under the Jumpstart Our Business Startups (JOBS) Act that passed in 2012. The result of the SEC extending aspects of the Act to all companies appear to include putting off filing information in financial statements when seeking an initial public offering, and allowing confidentiality until a mere fifteen days before trading begins. According to a sub-linked memo from Sullivan & Cromwell-- Clayton's former law firm-- the effort seems to imply very user-friendly treatment to requests for waivers of information in financial statements. To better parse it, read the sub-links in Scofield's post, but among the writer's concerns is reduced protection for investors.

Indeed, the bedrock of investor protection-- and investor confidence-- is transparency, particularly on matters where companies might be tempted to cook the books. Transparency appeared to be targeted by the JOBS Act, which loosened reporting and other requirements to facilitate small investor "crowd-funding" of IPO's by "emerging growth companies", characterized as small businesses. EGC's were able to claim their status despite having annual revenue of up to a billion dollars, which would include the vast majority of companies that might go public.

Jay Clayton is another denizen of the revolving door. You can read a quick background piece on him by Matt Taibbi here.

State capture is a theme not unknown to readers of DownWithTyranny. Maintaining continuity from the last administration, the SEC remains Exhibit A. You can explore the theme more generally at this post, At The Intersection of Stiglitz and Art.

Trump in the Driver's Seat, by Nancy Ohanian

For several years I wrote columns and cover pieces aimed at explaining Washington influence and dysfunction to a group of international lawyers. Here was what the JOBS Act looked like to me in March of 2012, in my column Legislating to create the next Enron. I quoted Carl Levin, then Chair of the Senate's Permanent Subcommittee on Investigations-- 'The so-called "JOBS Act" will lower accounting standards and transparency in our markets, which I suspect may result in fewer IPOs, higher costs of capital for businesses, and fewer jobs.'

Motivations to grease easier IPO's may connect with the considerable drop over the last two decades in the number of companies publicly trading stock in US markets, a drop I assume isn't welcomed by Wall Street. The JOBS Act hasn't appeared to turn that decline around. There are various reasons-- mergers and the ability to raise venture capital-- but in any case I doubt mucking up transparency on a broader scale is the answer.

The JOBS Act is one of those onerous pieces of legislation useful to scrutinize members of Congress by checking if they voted for it. When there's finance sector money on the table, and the issues are too complex and archaic for most of the public to latch on to, what might politicians think they can get away with under cover of going along with the crowd? Legislation like the JOBS Act. When the (Democratic!) Senate voted in March of 2012, only 26 Senators voted against the Act. Not a Republican among them, but although they were in the majority not enough Democrats voted to stop it. In the House, only 23 members voted against it, against 390. Wisdom of crowds, like investors in Dutch Tulips in 1637. The Act also garnered the early blessing of Obama's White House, no stranger to Wall Street largess.

This wasn't because Washington wasn't warned. Here's a memo from Public Citizen, urging Congress to vote against the JOBS Act. I take comfort that Bernie Sanders did his best to oppose the bill. Although some amendments by Senator Jeff Merkley (D-Oregon) were accepted, making the bill less onerous than Wall Street pirates originally sought, Merkley still judged it too dangerous and ultimately voted against it.

With the JOBS Act, another Wall Street camel got its nose under the SEC tent. Now the SEC is making room on its bedroll.

Sean Spicer, The Swamp Deepens, by Nancy Ohanian

If I can digress (still can!), It's hard for me to damp down the feeling that regulatory power-grabs by the finance sector are evermore driven by a backstory of quiet desperation. Tangential to that feeling are several recent posts at the always interesting and concise WallStreetOnParade, written by Pam Martens and Russ Martens.

• These Charts Show the Fed’s Stress Tests as a Dangerous Illusion
• Financial System of U.S. Rests on Health of Just Five Mega Banks
• Why Wall Street Should Be Viewed as a Major National Threat
• New York Times Runs Editorial Today on the Mega Banks: You Need to Pay Attention
• After Passing Stress Tests, Wall Street Banks to Spend Like a Drunken Sailor-- on their Own Stock Buybacks
• Fed Chair Janet Yellen Seriously Misleads in London on U.S. Banking Reform
• Media Focus on Trump Blindsides the Public from Rising Wall Street Risks

Give them a quick read. Though maybe not at night if you suffer insomnia, or dreams of night rider derivatives.

Trump New Year 1984, by Nancy Ohanian

A DOJ Lawsuit Against Exxon, a "Slam Dunk" to Win, Would Threaten Investors and Possibly Executives

Collapses, once they start, often happen quickly (chart source)

by Gaius Publius

Sorry about the long title, but all three pieces of it — the "slam dunk," the threat to investors, the threat to executives — are important.

Your background. Bernie Sanders and Sheldon Whitehouse in the Senate, and Ted Lieu and Mark DeSaulnier in the House, have called on the Department of Justice to investigate ExxonMobil for possibly perpetrating fraud, and if warranted, launch a RICO investigation of the company (and other fossil fuel companies) similar to the tobacco industry lawsuit it launched, and won, more than a decade ago. In addition, four House members including Ted Lieu have also called on the SEC to investigate Exxon for fraud, perhaps under the Sarbanes-Oxley law.

From Sen. Sanders' letter (quoted here):

"I am writing regarding a potential instance of corporate fraud - behavior that may qualify as a violation of federal law."

I've written about this a number of times, as have others, notably Bill McKibben. Here I want to look at what a set of investigations might mean. My source is this piece from Seeking Alpha, an investor-oriented site. At the end, I've appended a request for our Democratic candidates for president in the form of a speech I'd like one of them to give.

A "Slam Dunk" to Win

The first point from my headline is this: So many damaging Exxon documents have already been made public, that according to Seeking Alpha, a Department of Justice lawsuit would be a "slam dunk" to win. Duane Bair at Seeking Alpha:

On October 20, 2015, Vermont Senator Bernard Sanders sent a letter to Attorney General Loretta Lynch asking the Department of Justice to investigate allegations made public through an in-depth expose by InsideClimate News. The Pulitzer Prize winning group is dedicated to providing objective facts regarding the debate around energy and climate change. The reporters spoke with hundreds of former Exxon scientists and executives, combed through thousands of pages of scientific studies and thousands of in-house memos. Their findings are astonishing. [...]

Here Bair details why those findings are "astonishing." I urge you to click through if you want a fast summary of the extend of the wrong done by Exxon executives, and how far back that wrong-doing goes.

After detailing the many ways this lawsuit would be identical to the tobacco case — the comparison, as Bair lays it out, is striking — he then concludes (my emphasis):

If the DOJ opts to take up the case, as Senator Sanders and several members of Congress have suggested they do, it would appear to be a slam dunk case for the Justice Department.

At this point, it would be almost corrupt (though not in the money sense) for the Justice Department not to investigate.

A Threat to Investors

My second point from the headline is this: As much as a RICO lawsuit would threaten the reputation of all fossil fuel companies (and it would) — and be a true game-changer in the climate debate (it would be that too) — a RICO suit could also destroy the companies' stock valuations. If that's not a threat to investors, I don't know what is.

Now remember the rule about collapses — once they start, they often happen quickly. In addition to the four charts at the top of this piece, I could have shown any number of stock market collapses. In 1933, you could have bought a typical S&P stock for pennies on the dollar, but then you'd have to wait until after Eisenhower was elected president, a full generation, for the price to recover.

The problem with a stock collapse in the carbon industry is that prices may never recover. After all, carbon extraction is a doomed industry. Yes, we'll need carbon for energy for a while, but that while needs to be as short as possible. One of the consequences of a RICO investigation would be that while the suit is going on, its investors are looking at loss of value.

Bair again:

For investors, this [a RICO lawsuit] is a material concern. The cost of defending against a federal investigation will weigh down earnings, distract management and cause public outcry. In the light of a presidential campaign, the intense media attention should be taken seriously. Despite the remaining wide use of tobacco products, American tobacco companies have never recovered from the years of litigation and class action lawsuits. That industry is in a slow decline. If Bernie Sanders has his way, the same fate is imminent for Exxon Mobil.

Three points here:

1. Would you invest in a stock whose price was declining over a protracted period, or collapsing, even if that decline or collapse was deemed temporary? If you wouldn't, who would? Investors in cases like these won't reenter a market until they think the price has found a bottom.
    
2. What kind of turmoil would the fossil fuel industry find itself in, if it could not finance its operations, even if its product was deemed necessary? Would this turmoil itself not accelerate a stock price collapse?
    
3. If investors won't put new money into an industry they deem temporarily toxic, even one as (currently) vital as carbon extraction, wouldn't that accelerate investment in a promising and necessary replacement industry, like renewables?

If investors won't risk their money buying carbon stock; if the industry's stock prices fall precipitously; if there's an accelerated demand for a replacement (again, renewables) whose investment price is deemed likely to rise — how is any of that not good?

And if that weren't enough of an incentive to force this legal action, there's more.

A Threat to Executives

A final point, one that's not made by the Seeking Alpha article but that has to be considered. The Sarbanes-Oxley law makes corporate executives personally and criminally liable for fraudulent statements on annual and quarterly reports that go out under their signature. The value of corporate assets — including, in the case of the carbon industry, its oil, gas and coal reserves — is part of every annual statement. If a corporation knows, for example, that climate change will inevitably "strand" (render valueless) a large percentages of those assets, and yet misdeclares and knowingly overvalues those assets ... well, that sounds like investor fraud to me.

Could this man, Rex Tillerson, Exxon CEO, go to jail for committing criminal fraud under Sarbanes-Oxley? If he's guilty, should he?

Once a Sarbanes-Oxley investigate starts, especially in the roiling climate of a RICO investigation, you may see not just price chaos, but CEO chaos as well — by which I mean the chaos of CEOs mounting their corporate jets for Switzerland, family and numbered bank accounts in hand.

It's Going To Take Force

It's going to take force, not discussion, to end the death grip of the carbon industry, and lawsuits are force. Just ask the tobacco industry.

Look, this business has to die, selling carbon as fuel, and at the fastest possible rate. To ensure the best possible future for ourselves and our children, we need to switch to 100% renewable energy starting now and at a WWII "wartime production" pace. Yet this industry is so wealthy and so "connected" — after all, both Obama and Clinton have supported more extraction, even while speaking against it — that its executives will not stand down, will not stop, until they are forced to.

This is the crucial question, isn't it? Are we willing to force them to stand down? Many of us are; perhaps many of you are as well. If so, god and the U.S. criminal code has given us an incredibly powerful tool. The tool is, in fact, so powerful that on consideration, I fully understand why Loretta Lynch and Barack Obama may be afraid to use it. Given what's been revealed about Exxon already, a RICO suit against the big carbon companies would be a slam dunk.

I'd bet money that the government is afraid to use it ... precisely because it would work.

A Call to Democratic Presidential Candidates

So I make this appeal. If any pro-climate Democratic presidential candidate makes the following statement, she or he would be greeted as a hero by the large majority of the country that is actually starting to see the problem clearly. Here's the statement, as plainly as I can write it, as a series of easy-to-digest bullet points:

▪ If I am elected, I will immediately appoint an Attorney General who will open a RICO investigation into the fossil fuel industry. I do not need Congress to give me permission. Investigating fraud under the U.S. criminal code is the job of the Justice Department, and I will appoint only someone who will do that job, starting on day one.

▪ In addition, if I am elected, and if it is determined that the fossil fuel industry has violated the corporate fraud law known as Sarbanes-Oxley, I will see that law enforced, even against the executives themselves, to the extent the law provides.

▪ Why will I do this? Because as president I'm sworn to enforce the law. It is my duty, and if you elect me to this office, I will do the duties of the office, all of them, in a responsible manner.

▪ But there's more. I am also doing this because I have children and grandchildren. Many of you have children and grandchildren as well. Almost every climate scientist on earth is telling us that we are facing an emergency unlike any our species has ever encountered. Many of you, a great many of you, are coming to that realization as well. It's a simple fact. We see it every day. This planet, our home, is becoming less and less habitable. That degradation has to stop, and it will only stop when we stop emitting carbon into the air. It's that simple ... that easy.

▪ So I am doing my part, and I will do more. I have a duty, we all have a duty, to our children and grandchildren, to leave the planet as habitable as it was when we, your generation and my generation, were born into it.

▪ That is also the duty and the goal of your government, to protect our common inheritance, and I will aggressively pursue that goal with every tool of the executive branch.

You have my word.

It's a simple thing to say, grounded in both simple truths and simple next-step actions. Giving some form of the above speech is almost a no-brainer, assuming a presidential candidate who "gets it" about carbon and the climate. Here's what our future looks like if we don't act.

Atmospheric CO2 for the last 450 million years. Over these time frames, CO2 tracks to average planetary temperature. For most of this period the earth has been hot. The genus Homo is less than three million years old. At no point in our past as a species was CO2 higher than it is today, at 400 ppm. The projected spike in CO2 at the far right correlates to about +7°C warming in a "business as usual" scenario. How warm would you like our planet to become? (source; click to enlarge)

Mr. Sanders, Mr. O'Malley, Ms.Clinton — are you ready to defend the future of our children? Feel free to make this speech on the first day it makes sense to do so.

(If you would like to add your name to a "Prosecute Exxon" petition, click here. Blue America has endorsed Bernie Sanders for president. If you like, you can help him here; adjust the split any way you wish at the link.)

GP

Conservative Victories Next Week Mean More Power To The Banksters-- More Watering Down Of Dodd-Frank

This week, Paul Ryan has been pushing a new GOP talking point about how Dodd Frank is to the banking system what Obamacare is for the healthcare system. In other words, he's way on board with Wall Street whore and House Financial Services Committee chair Jeb Hensarling in wanting to repeal or dismantle the consumer (and societal) protections, as weak as they were, in Dodd Frank. The two clowns claim they just want to liberate people from bureaucracy. Like wrecking the Consumer Financial Protection Bureau which, says Hensarling, is "the single most unaccountable agency in the history of America... We’ve all heard about Wall Street greed. I think people are now starting to be a little bit more sensitized to Washington greed-- the greed for power and control over our lives and our economy."

Ryan's analogy linking the Affordable Care Act and Dodd-Frank may be mostly fodder for grotesquely ignorant GOP base voters but there is a valid point, albeit not one that could have possibly crossed Ryan's teeny-weeny mind. Both were half-assed, timid political solutions to urgent problems. Instead of universal single payer, Obamacare leaves people still at the mercy of predatory insurance and drug companies and instead of an end to "too big to fail," Wall Street (political donors) are still in the cat bird's seat (instead of prison).

This week MarketWatch predicted that if the Republicans get control of the Senate, they will work towards destroying even the incremental reform in Dodd-Frank. New Dems and Blue Dogs are eager to help them, particularly Wall Street's best paid Democratic whores like Jim Himes (New Dem-CT, $955,124 this cycle alone), Joe Crowley (New Dem-NY, $1,018,372 this cycle alone), Patrick Murphy (New Dem-FL, $836,200 this cycle alone), and Steve Israel (Blue Dog-NY, $809,600 this cycle alone).

Republicans will likely target the Consumer Financial Protection Bureau and capital requirements on insurance companies if they take the Senate.

Any changes the Republicans seek will be tempered by the fact they won’t have a veto-proof hold of the U.S. Senate. Democrats also would have the ability to filibuster, points out Ed Groshans, financial advisor to Height Analytics LLC.

But analysts do see room for the Republicans to temper the Dodd-Frank Act, the 2010 law passed in the wake of the financial crisis.

One of the pieces of Dodd-Frank law that Republicans have criticized is the Consumer Financial Protection Bureau, having blocked the confirmation of its director. Eventually, after a rules change in the Senate, Richard Cordray was confirmed to the role.

Aaron Klein, director of Financial Regulatory Reform Initiative at the Bipartisan Policy Center, said there might be more oversight of the bureau by having an inspector general.

Another potential change would be the revision of capital requirements under the law. Earlier this year, the House of Representatives passed a bill that said federal regulators would not to include insurance regulators for capital requirements.

Michael Barr, professor at University of Michigan Law School and the previous assistant secretary of Treasury, said there could be attempts to weaken rules on derivatives and to prevent the Financial Services Oversight Committee from regulating insurance firms. American International Group has fallen under FSOC oversight, and FSOC is looking to extend that to MetLife.

Another possible change to the law could come with changing the amount in assets for systemically important financial institution threshold, which requires banks and bank-holding companies with at least $50 billion in consolidated assets to have more prudential supervision.

Banksters have already been getting away with murder-- whenever conservatives can assert influence over the regulatory process. This week, a news report in Bloomberg asked the simple question: "have regulators been too soft on Wall Street?"

At the SEC, there are three main penalties that banks seek waivers for when they settle cases, with the harshest a ban on managing mutual funds. Another prevents banks from raising money for private companies. The third, and most minor, takes away a privilege that allows a firm to issue its own shares or bonds without SEC approval.

For Bank of America, the biggest hold-up is over the waiver that will allow the bank to continue seeking investors for private firms, such as technology companies that haven’t yet gone public and hedge funds, the people said.

“It seems to me it would be important for them to have that waiver,” said Richard A. Kline, a law partner at Goodwin Procter LLP in Menlo Park, California. When fast-growing companies are seeking to raise money from institutions, “there are often banks that will lead some of those private placements,” he said.

Lawrence Grayson, a spokesman for Charlotte, North Carolina-based Bank of America, declined to comment.

Proponents of issuing waivers say the exemptions are needed, because the punishments behind them are blunt instruments created for egregious frauds, mainly by small-time schemers and boiler-room operators. Penalties kick in automatically when a judge approves a settlement, making it necessary for a company to arrange for an exemption beforehand... Banks have historically sought relief from the extra punishments by arguing that the sanctions are severe, too broad, and target units that had nothing to do with the fraud.

Bank of America’s settlement with the Justice Department, SEC, other agencies and a handful of states resolved allegations that it sold shoddy mortgage securities without disclosing all the risks to investors. Most of the alleged wrongdoing involved Merrill Lynch and Countrywide Financial, companies Bank of America bought.

...The uprising over waivers has been led by SEC Commissioner Kara Stein and her fellow Democrat Luis Aguilar, who argue that additional sanctions are sometimes justified, especially for banks that get in trouble again and again.

“The commission and its staff should not be in the business of rubber-stamping and approving all waiver applications simply because a request is made,” Aguilar said.

In April, he and Stein voted against the commission’s decision to approve a waiver for Royal Bank of Scotland Group Plc after one of its subsidiaries pleaded guilty to rigging benchmark interest rates. Stein went public with her dissent, questioning whether the SEC’s action had “enshrined a new policy, that some firms are just too big to bar.”

She and Aguilar also successfully pushed SEC Chair White to devise new written policies on waivers, which aren’t granted in every case. Credit Suisse and Citigroup Inc. (C), for example, didn’t get exemptions in recent years.

Withholding relief can be a “very powerful” deterrent for bank misconduct, said Stein, who since joining the SEC in August 2013 has voted against five waivers that were all granted by the agency.

“Firms need to understand there are consequences to criminal behavior and bad actions,” she said in an interview.

My own congressman, Blue Dog/New Dem Adam Schiff has taken $1,023,186 from the Finance Sector since first being elected to Congress in 2000. The corrupt, conservative Schiff, who was redistricted into one of the most progressive districts in the country, has no Republican opponent next week. Establishment Republicans love him; he represents their sick worldview. But a progressive independent, Steve Stokes, is fighting a Quixotic battle against him-- and one of the issues Stokes keeps bringing up is the inadequancy of Dodd-Frank. He points out that the act was "Congress' attempt to show voters they were getting tough on lenders. Dodd-Frank was a Trojan horse diversion to make it appear that big banks were being regulated. When the Dodd-Frank Act was passed to regulate the financial industry it did so by placing crippling and unnecessary restrictions on independent financial professionals to the benefit of the large banks. Congress was able to say 'look we reformed the financial system' but all they did was make it even easier for big corporations to dominate the market and more expensive for the American consumer. The part of the law that pertained to regulating big banks was watered down due to the influence of the banking lobby."

With Barbara Boxer retiring in 2016, Schiff is hoping to represent the Republican wing of the Democratic Party in the unseemly scramble for her seat that has begun behind the scenes. A vote for Stokes by CA-28 progressive voters next Tuesday probably won't defeat Schiff in his reelection effort, but it could help slow down his disgusting Senate ambitions.

Blue Dog, New Dem, Military Industrial Complex handmaiden

Elizabeth Warren Warns Someone About The Beltway/Wall Street Revolving Door

Elizabeth Warren wrote in Politico that although she likes the idea of technical expertise coming to bear on staff positions in government (and political expertise coming to bear on Wall Street staffs), there is a "peril" to be wary of as well-- especially in Washington.

Big business orthodoxy against rules and regulations can seep into the bones, including the bones of new policymakers who are charged with protecting consumers and strengthening markets. Industry groupthink and overconfidence can prevent clear and evenhanded analysis of problems. The result can be a group of decision makers who are self-confident in the extreme and who end up clearing the path toward the sort of recklessness and excessive greed that have already broken the economy once.

As jobs open up and the shuffle continues, policymakers in Washington ought to think seriously about some key indicators when considering people with industry experience:

1. Who do they listen to and who do they trust?

Not all the expertise and good ideas are on Wall Street. Small banks, credit unions, academics, consumer groups, regional Federal Reserve banks and foreign financial commentators often have important insights. If potential appointees coming from industry don’t show a real willingness-- and even eagerness-- to listen to smart people outside of the industry, that’s a real problem. If they aren’t already having serious conversations with people who are not from Wall Street, the blinders may have grown too big to remove. It matters who they talk to and who they will rely on for advice.

2. Where do they disagree with industry and lobbyist orthodoxy?

No one is perfect; they should be able to see some areas for improvement. If a potential appointee can’t give thoughtful examples of where the lobbyists and the industry have gotten it wrong over the past generation and give specific examples of where they have it wrong now, then they aren’t right for the job.

3. Do they recognize the advocacy imbalance in Washington?

Industry lobbyists are highly specialized, well-funded and enormous in number. That means they can provide important information, but it also means they so outnumber advocates for the public interest that the playing field is badly tilted in their favor. If a potential appointee doesn’t recognize that imbalance and have a thoughtful view about how to address it, that person shouldn’t be under consideration.

4. What their real intention is for getting into government?

Many people get involved because they made money from the industry but know that greed and recklessness in some quarters have given everyone else a bad name-- and they want to see real reforms and changes. Some may have ideas about how to make government work more efficiently. On the other hand, others are just looking to advance their careers and put themselves in line for promotions in the industry. Intentions matter.

5. Are they attuned to the diversity of institutions and actors?

Big banks and small banks operate very differently. Some companies engage in deceptive practices to cheat consumers, but many add enormous value to the financial system. Some create business models that create private benefits and public risks, while others are responsible for both risks and rewards. If a potential appointee isn’t willing to differentiate the virtuous from the villains-- and treat them differently-- then they will make mistakes by over-regulating those who don’t need it and by not cracking down on the real scofflaws.

Transition is afoot in Washington, and if the right people go back and forth, the country will develop smarter, stronger rules. But if the wrong people make the shuffle, then Washington will be rigged even more for Wall Street-- and every middle-class family will pay the consequences.

Great to see someone in Washington talking about ideas instead of just self-serving, partisan bickering. But I don't see Obama taking these particular ideas to heart as he fills out his administration. Let's take his SEC nominee, Mary Jo White, for example. Matt Taibbi writes that appointing her is tantamount to putting the fox in charge of the hen house.

I was shocked when I heard that Mary Jo White, a former U.S. Attorney and a partner for the white-shoe Wall Street defense firm Debevoise and Plimpton, had been named the new head of the SEC.

I thought to myself: Couldn't they have found someone who wasn't a key figure in one of the most notorious scandals to hit the SEC in the past two decades? And couldn't they have found someone who isn't a perfect symbol of the revolving-door culture under which regulators go soft on suspected Wall Street criminals, knowing they have million-dollar jobs waiting for them at hotshot defense firms as long as they play nice with the banks while still in office?

I'll leave it to others to chronicle the other highlights and lowlights of Mary Jo White's career, and focus only on the one incident I know very well: her role in the squelching of then-SEC investigator Gary Aguirre's investigation into an insider trading incident involving future Morgan Stanley CEO John Mack. While representing Morgan Stanley at Debevoise and Plimpton, White played a key role in this inexcusable episode.

As I explained a few years ago in my story, "Why Isn't Wall Street in Jail?": The attorney Aguirre joined the SEC in 2004, and two days into his job was asked to look into reports of suspicious trading activity involving a hedge fund called Pequot Capital, and specifically its megastar trader, Art Samberg. Samberg had made suspiciously prescient trades ahead of the acquisition of a firm called Heller Financial by General Electric, pocketing about $18 million in a period of weeks by buying up Heller shares before the merger, among other things.

...[Paul] Berger was passing notes in class to Mary Jo White about wanting to work for Morgan Stanley's law firm while he was in the middle of quashing an investigation into a major insider trading case involving the C.E.O. of the bank. After the case dies, Berger later gets the multimillion-dollar posting and the circle is closed.

This whole episode highlights everything that's wrong with modern Wall Street. First of all, everybody's buddies with each other-- cops and robbers, no adversarial system at all. As Bill Murray would say, it's dogs and cats, living together.

Here, a line investigator gets a good lead, it's quickly taken out of his hands and the whole thing is negotiated at 50,000 feet by friends and former co-workers of the top regulators now working at hotshot firms.

If Barack Obama wanted to send a signal that he's getting tougher on Wall Street, he sure picked a funny way to do it, nominating the woman who helped John Mack get off on the slam-dunkiest insider trading case ever to cross an SEC investigator's desk.

When I contacted Gary [Aguirre] today, his take on it was simple. "Obama is not going to clean up financial corruption," he said, "by pinning a sheriff's badge on Wall Street's protector-in-chief."

And it makes it so hard for a good guys/bad guys narrative in American politics when almost everyone, regardless of party, is either corrupt or abets a corrupt system as a matter of course.

Will The SEC Finally Force Corporate Bribers To Disclose Political Spending?

Investors-- the owners of corporations-- have demanded for years that corporate managers disclose how they're spending corporate money politically... but to no avail. Now the Securities and Exchange Commission is working to force them to. Public Citizen is one of many good government reform groups applauding the decision.

In one of the last actions of departing SEC Chair Mary Schapiro’s term, the agency announced that it will consider a proposed rule to require that public companies provide disclosure to shareholders regarding the use of corporate resources for political activities. A petition requesting this rulemaking was filed in 2011 by a bipartisan committee of leading law professors.

... The SEC has a responsibility to protect investors by regulating the securities markets to ensure that they have the information they need to make investment decisions. Shareholders have a right to know how the companies in their investment portfolio are spending their invested money, especially where these actions are outside the scope of normal business activities, or where the interests of shareholders and management may diverge. This is particularly true with corporate political spending, where certain choices may diverge from a company’s stated values or policies, or may endanger the company’s brand by embroiling it in hot-button issues.

By putting this rule on its agenda, the SEC has responded in part to the Supreme Court’s ruling in Citizens United v. Federal Election Commission, which struck down laws restricting non-coordinated corporate spending to influence elections. In Citizens United, Justice Anthony Kennedy emphasized the importance of disclosure and accountability for corporate political spending, writing that disclosure requirements “provide shareholders and citizens with the information needed to hold corporations and elected officials accountable for their positions and supporters.”

Unfortunately, the current public reporting regime does not actually require disclosure of all relevant sources of corporate political spending, and post-Citizens United secret corporate political spending has been on the rise. Corporate funds are frequently funneled through third-party groups such as the U.S. Chamber of Commerce, which refuse to disclose the underlying donors who provide the financial resources for their political activities. The Chamber of Commerce was the single largest outside spender in the 2010 elections, and spent more than $36 million on the 2012 elections.

Americans across the political spectrum strongly support requiring transparency and accountability in corporate political spending. A record number of public comments-- more than 322,940 and counting-- have been filed with the SEC in support of the petition requesting a rule requiring disclosure of corporate political spending. These comments have come from such diverse sources as a large group of firms managing more than $690 billion in assets, the Maryland State Retirement Agency, U.S. Rep. Gary Ackerman (D-N.Y.) and 42 other members of the House, Sen. Robert Menendez (D-N.J.) and 12 other senators, John Bogle (former CEO of the Vanguard Group), five state treasurers, US SIF: The Forum for Sustainable and Responsible Investment, the Sustainable Investments Institute, and many more.

In a recent poll, eight out of 10 Americans (81%) believe that corporations should only spend money on political campaigns if they disclose their spending immediately (including 77 percent of Republicans and 88 percent of Democrats). Eighty-six percent of Americans agree that prompt disclosure of political spending would help voters, customers, and shareholders hold companies accountable for political behavior (support ranged from 83 percent to 92 percent across all political subgroups). Eighty one percent of Americans agree that the secret flow of corporate political spending is bad for democracy, and 84 percent agree that corporate political spending drowns out the voices of average Americans. Seventy-five percent of respondents said they would sign a petition to the SEC in support of corporate disclosure.

The Chamber of Commerce, needless to say, is leading an anti-democracy coalition to oppose the measure. The L.A. Times coverage explains why the Chamber is so opposed. Their thuggish power depends on secret cash that is used to threaten candidates who fight for working families.

The new rule would provide the fullest picture yet of how much corporations have become engaged in campaigns since the 2010 Supreme Court Citizens United ruling made it legal for them to spend unlimited sums on independent political activity.

In the 2012 campaign, federal “super PACs” reported receiving $42.4 million from corporations, most of them privately held, according to a tally by the Sunlight Foundation. But tax-exempt groups, which do not have to report their contributors, spent hundreds of millions of dollars more on election-related activity. It remains a mystery exactly how much money they raised-- and from whom.

...[T]he proposed rule is sharply opposed by the Chamber of Commerce and other business groups, which argue-- among other things-- that the SEC does not have the authority to issue such a broad regulation and that information about political spending is not material to a company’s bottom line.

“This rule-making petition is being pushed by groups who do not have the best interests of investors in mind,” said chamber spokeswoman Blair Latoff Holmes. “Instead, they are pushing for a rule because they ultimately want to drive the business community out of the political and public policy arena.”

...“People are really outraged right now with the dominance, the influence that big money is having on our politics,” said Rep. John Sarbanes (D- Md.). “They are looking to push back in a number of different ways.”

In recent months, officials in states such as California and New York have put new scrutiny on politically active nonprofits.

And last week, New York’s public pension fund filed a suit against the wireless company Qualcomm seeking information about its political spending. The New York public pension fund owns $378 million of Qualcomm stock, making it the company’s biggest public pension investor. The fund has spearheaded an effort to get the companies in which it invests to disclose their political spending, striking deals with 10 corporations so far.

Meanwhile, disclosure advocates on the Hill have renewed their efforts to pass legislation requiring politically active groups disclose their major donors. Rep. Chris Van Hollen (D-Md.), who reintroduced the DISCLOSE Act last week, said he is also exploring ways to limit candidate-specific super PACs that effectively serve as extensions of official campaigns.

“The public is on our side” when it comes to requiring more transparency, Van Hollen said in an interview Monday. “The challenge is elevating this issue to the point where we’re putting political pressure on people to support it.”

A New Way To Mitigate The Flood Of Corporate Money Into Our Political System?

According to a new survey by Pew, the Supreme Court is held in greater contempt by Americans than in anytime in the last quarter century. After a favorability rating as high as 80%, as the court has become more and more corporately oriented and more obviously partisan and more obviously in thrall to the one percent, that favorability rating has plummeted to 52%. And "[u]nlike evaluations over much of the past decade, there is very little partisan divide. The court receives relatively low favorable ratings from Republicans, Democrats and independents alike."

Many groups have different beefs with the Supreme Court but the one that almost everyone agrees was most horrendous is the 5-4 Citizens United decision ceding our nation's political system to wealthy, unaccountable corporations. The idea of a constitutional amendment was immediately embraced by many opponents of the decision-- but that takes a long, long time and is not very easy-- especially with the Koch-financed, anti-democracy organization ALEC in control of so many state legislatures. A couple of weeks ago E.J. Dionne wrote about a plan to get around it that New Yorkers are looking at:

One would like to think that the court will eventually admit the folly of its 2010 ruling and reverse it. But we can’t wait that long. And out of this dreary landscape, hope is blossoming in the state of New York. There’s irony here, since New York is where a lot of the big national money is coming from. No matter. The state is considering a campaign finance law that would repair some of the Citizens United damage, and in a way the Supreme Court wouldn’t be able to touch.

The idea is that to offset the power of large donors, citizens without deep pockets should be encouraged to flood the system with small contributions that the government would match. Gov. Andrew Cuomo (D) has pledged to a state overhaul of this sort, based on the one already in force for New York City elections. In his state of the state address in January, Cuomo spoke of how urgent it is to “reconnect the people to the political process and their government.” He could make himself into a reform hero across the country if he and the Legislature created a model law for other states, and the nation.

The New York City program is straightforward: The government gives participating candidates $6 in matching funds for every dollar raised from individuals who live in the city, up to the first $175. At a maximum, this means a $175 contribution is augmented by $1,050 in public funds. That’s a mighty incentive for politicians to involve more citizens in paying for campaigns. In the city system, participating candidates have to live within certain spending and contribution limits. In a new statewide system, there are likely to be no spending restrictions but lower limits on contributions.

The beautiful thing is that this approach should answer most of the criticisms offered by those who defend the Citizens United world. I say “should” because advocates of current arrangements will find a way to oppose any reforms. But the New York Revolution, if it happens, would undercut many of their arguments — including their constitutional claims.

The New York reform does not limit anyone’s capacity to participate. It creates incentives for more people to participate. It does not reduce the amount of political speech. It expands the number of people speaking through their contributions. It does not protect incumbents. On the contrary, it opens the way for candidates who might otherwise be driven from the competition by established politicians with access to traditional funding sources.

In short, it makes our democracy democratic again.

But there's still another route to the same goal that people haven't been talking about much but that seems very promising to me. Public Citizen alerted me to a corporate reform approach that would go through the Securities and Exchange Commission. It's all about transparency and accountability.

A record number of people agree: The Securities and Exchange Commission (SEC) should regulate corporate political spending.

As of today, more than 178,000 comments have flowed into the agency, thanks largely to the unique bedfellows in our Corporate Reform Coalition, which includes institutional investors managing a combined total of $800 billion in assets, as well as public officials, legal scholars, good government groups, environmental organizations and more. This is a huge milestone: We have set the all-time record for comments submitted to the SEC.

Coalition members urged the agency-- and encouraged their members and the public to weigh in-- to create rules that would push corporate political spending into center stage. Specifically, the SEC should shine light on the corporate political activity of all publicly traded companies.

U.S. Supreme Court Justice Anthony Kennedy’s opinion in Citizens United v. Federal Election Commission-- the case that opened the floodgates to corporate cash in elections-- strongly endorsed comprehensive disclosure requirements. The SEC could and should put these assumed requirements in place for the publicly traded companies they oversee.

Several prominent law professors filed a petition with the SEC in August, urging it to require publicly traded companies to disclose their political spending. Numerous others have joined their voices to the call for SEC action, from state treasurers to representatives and senators to the former CEO of one of the country’s biggest mutual funds, John Bogle of Vanguard. Now,  average investors and the public are getting in on the act and are calling for reform as well.

Mandating transparency is well within the SEC’s authority. The SEC should help the public and shareholders hold CEOs accountable for what they spend in politics. 

One SEC Commissioner, Luis Aguilar, is already on board. "Investors," he said, "are not receiving adequate disclosure, and as the investor’s advocate, the commission should act swiftly to rectify the situation.” They need two more votes. It seems like an effort worth backing in addition to a much more burdensome fight for a constitutional amendment.

Is There Such A Thing As An Austerity Riot That Isn't "Political"... Anywhere?

While Matt Taibbi, on this side of the Atlantic, asks the question we all know the answer to-- Is the SEC covering up Wall Street crimes?-- and an increasingly uncomfortable English public on the other side of the Atlantic wants to understand what happened to the independence of their judiciary, Naomi Klein bridges the vast expanse of ocean by explaining just how "political" Austerity Riots are. Let's start with the massive looting in post-invasion Baghdad.

Back then the people on cable news thought looting was highly political. They said this is what happens when a regime has no legitimacy in the eyes of the people. After watching for so long as Saddam and his sons helped themselves to whatever and whomever they wanted, many regular Iraqis felt they had earned the right to take a few things for themselves. But London isn’t Baghdad, and British Prime Minister David Cameron is hardly Saddam, so surely there is nothing to learn there.

How about a democratic example then? Argentina, circa 2001. The economy was in freefall and thousands of people living in rough neighborhoods (which had been thriving manufacturing zones before the neoliberal era) stormed foreign-owned superstores. They came out pushing shopping carts overflowing with the goods they could no longer afford-- clothes, electronics, meat. The government called a “state of siege” to restore order; the people didn’t like that and overthrew the government.

Argentina’s mass looting was called El Saqueo-- the sacking. That was politically significant because it was the very same word used to describe what that country’s elites had done by selling off the country’s national assets in flagrantly corrupt privatization deals, hiding their money offshore, then passing on the bill to the people with a brutal austerity package. Argentines understood that the saqueo of the shopping centers would not have happened without the bigger saqueo of the country, and that the real gangsters were the ones in charge.

But England is not Latin America, and its riots are not political, or so we keep hearing. They are just about lawless kids taking advantage of a situation to take what isn’t theirs. And British society, Cameron tells us, abhors that kind of behavior.

This is said in all seriousness. As if the massive bank bailouts never happened, followed by the defiant record bonuses. Followed by the emergency G-8 and G-20 meetings, when the leaders decided, collectively, not to do anything to punish the bankers for any of this, nor to do anything serious to prevent a similar crisis from happening again. Instead they would all go home to their respective countries and force sacrifices on the most vulnerable. They would do this by firing public sector workers, scapegoating teachers, closing libraries, upping tuitions, rolling back union contracts, creating rush privatizations of public assets and decreasing pensions-- mix the cocktail for where you live. And who is on television lecturing about the need to give up these “entitlements”? The bankers and hedge-fund managers, of course.

This is the global Saqueo, a time of great taking. Fueled by a pathological sense of entitlement, this looting has all been done with the lights left on, as if there was nothing at all to hide. There are some nagging fears, however. In early July, the Wall Street Journal, citing a new poll, reported that 94 percent of millionaires were afraid of "violence in the streets.” This, it turns out, was a reasonable fear.

Of course London’s riots weren’t a political protest. But the people committing nighttime robbery sure as hell know that their elites have been committing daytime robbery. Saqueos are contagious.

The Tories are right when they say the rioting is not about the cuts. But it has a great deal to do with what those cuts represent: being cut off. Locked away in a ballooning underclass with the few escape routes previously offered-- a union job, a good affordable education-- being rapidly sealed off. The cuts are a message. They are saying to whole sectors of society: you are stuck where you are, much like the migrants and refugees we turn away at our increasingly fortressed borders.

David Cameron’s response to the riots is to make this locking-out literal: evictions from public housing, threats to cut off communication tools and outrageous jail terms (five months to a woman for receiving a stolen pair of shorts). The message is once again being sent: disappear, and do it quietly.

At last year’s G-20 “austerity summit” in Toronto, the protests turned into riots and multiple cop cars burned. It was nothing by London 2011 standards, but it was still shocking to us Canadians. The big controversy then was that the government had spent $675 million on summit “security” (yet they still couldn’t seem to put out those fires). At the time, many of us pointed out that the pricey new arsenal that the police had acquired-- water cannons, sound cannons, tear gas and rubber bullets-- wasn’t just meant for the protesters in the streets. Its long-term use would be to discipline the poor, who in the new era of austerity would have dangerously little to lose.

This is what David Cameron got wrong: you can't cut police budgets at the same time as you cut everything else. Because when you rob people of what little they have, in order to protect the interests of those who have more than anyone deserves, you should expect resistance-- whether organized protests or spontaneous looting.

And that’s not politics. It’s physics.

Extra credit if you put together Taibbi's hypothesis with Naomi's:
For the past two decades, according to a whistle-blower at the SEC who recently came forward to Congress, the agency has been systematically destroying records of its preliminary investigations once they are closed. By whitewashing the files of some of the nation's worst financial criminals, the SEC has kept an entire generation of federal investigators in the dark about past inquiries into insider trading, fraud and market manipulation against companies like Goldman Sachs, Deutsche Bank and AIG. With a few strokes of the keyboard, the evidence gathered during thousands of investigations-- "18,000 ... including Madoff," as one high-ranking SEC official put it during a panicked meeting about the destruction-- has apparently disappeared forever into the wormhole of history.

...Many of the destroyed files involved companies and individuals who would later play prominent roles in the economic meltdown of 2008. Two MUIs involving con artist Bernie Madoff vanished. So did a 2002 inquiry into financial fraud at Lehman Brothers, as well as a 2005 case of insider trading at the same soon-to-be-bankrupt bank. A 2009 preliminary investigation of insider trading by Goldman Sachs was deleted, along with records for at least three cases involving the infamous hedge fund SAC Capital.

Even Chuck Grassley (R-IA) seems to have noticed that "it looks as if the SEC might have sanctioned some level of case-related document destruction... "It doesn't make sense that an agency responsible for investigations would want to get rid of potential evidence. If these charges are true, the agency needs to explain why it destroyed documents, how many documents it destroyed over what time frame and to what extent its actions were consistent with the law."

No rioters or looters will have this in mind when they're rioting and looting, but no understanding of the cause will be complete without it. And Joel Kotkin over at Forbes seems as pessimistic as I am about anything ameliorating the roots causes of what looks like will be some pretty bad upheavals worldwide.

The riots that hit London and other English cities last week have the potential to spread beyond the British Isles. Class rage isn’t unique to England; in fact, it represents part of a growing global class chasm that threatens to undermine capitalism itself.

The hardening of class divisions has been building for a generation, first in the West but increasingly in fast-developing countries such as China. The growing chasm between the classes has its roots in globalization, which has taken jobs from blue-collar and now even white-collar employees; technology, which has allowed the fleetest and richest companies and individuals to shift operations at rapid speed to any locale; and the secularization of society, which has undermined the traditional values about work and family that have underpinned grassroots capitalism from its very origins.

All these factors can be seen in the British riots. Race and police relations played a role, but the rioters included far more than minorities or gangsters. As British historian James Heartfield has suggested, the rioters reflected a broader breakdown in “the British social system,” particularly in “the system of work and reward.”

In the earlier decades of the 20th century working class youths could look forward to jobs in Britain’s vibrant industrial economy and, later, in the growing public sector largely financed by both the earnings of the City of London and credit. Today the industrial sector has shrunk beyond recognition. The global financial crisis has undermined credit and the government’s ability to pay for the welfare state.

With meaningful and worthwhile work harder to come by-- particularly in the private sector-- the prospects for success among Britain working classes have been reduced to largely fantastical careers in entertainment, sport or all too often crime. Meanwhile, Prime Minister David Cameron’s supporters in the City of London may have benefited from financial bailouts arranged by the Bank of England, but opportunities for even modest social uplift for most other people have faded.

The great British notion of idea of working hard and succeeding through sheer pluck-- an idea also embedded in the U.K.’s former colonies, such as the U.S.-- has been largely devalued. Dick Hobbs, a scholar at the London School of Economics, says this demoralization has particularly affected white Londoners. Many immigrants have thrived doing engineering and construction work as well as in trades providing service to the capital’s affluent elites.

A native of east London himself, Hobbs maintains that the industrial ethos, despite its failings, had great advantages. It centered first on production and rewarded both the accumulation of skills. In contrast, by some estimates, the pub and club industry has been post-industrial London’s largest source of private-sector employment growth, a phenomena even more marked in less prosperous regions. “There are parts of London where the pubs are the only economy,” he notes.

What’s the lesson to be drawn? The ideologues don’t seem to have the answers. A crackdown on criminals-- the favored response of the British right-- is necessary but does not address the fundamental problems of joblessness and devalued work. Similarly the left’s favorite panacea, a revival of the welfare state, fails to address the central problem of shrinking opportunities for social advancement. There are now at least 1 million unemployed young people in the U.K., more than at any time in a generation, while child poverty in inner London, even during the regime of former Mayor “red Ken” Livingstone last decade, stood at 50% and may well be worse now.

Hobbs claims that the current “pub and club,” with its “violent potential and instrumental physicality,” simply celebrates consumption often to the point of excess. Perhaps it’s no surprise that looting drove the unrest.

This fundamental class issue is not only present in Britain. There have been numerous outbreaks of street violence across Europe, including in France and Greece. One can expect more in countries like Italy, Spain and Portugal, which will now have to impose the same sort of austerity measures applied by the Cameron government in London.

And how about the United States? Many of the same forces are at play here. Teen unemployment currently exceeds 20%; in the nation’s capital it stands at over 50%. Particularly vulnerable are expensive cities such as Los Angeles and New York, which have become increasingly bifurcated between rich and poor. Cutbacks in social programs, however necessary, could make things worse, both for the middle class minorities who run such efforts as well as their poor charges.

A possible harbinger of this dislocation, observes author Walter Russell Mead, may be the recent rise of random criminality, often racially tinged, taking place in American cities such as Chicago, Milwaukee and Philadelphia.

Still, with over 14 million unemployed nationwide, prospects are not necessarily great for white working- and middle-class Americans. This pain is broadly felt, particularly by younger workers. According to a Pew Research survey, almost 2 in 5 Americans aged 18 to 19 are unemployed or out the workforce, the highest percentage in three decades.

Diminished prospects-- what many pundits praise as the “new normal”-- now confront a vast proportion of the population. One indication: The expectation of earning more money next year has fallen to the lowest level in 25 years. Wages have been falling not only for non-college graduates but for those with four-year degree as well. Over 43% of non-college-educated whites complain they are downwardly mobile.

Given this, it’s hard to see how class resentment in this country can do anything but grow in the years. Federal Reserve Chairman Ben Bernanke claimed as early as 2007 that he was worried about growing inequality in this country, but his Wall Street and corporate-friendly policies have failed to improve the grassroots economy.

The prospects for a widening class conflict are clear even in China, where social inequality is now among the world’s worse . Not surprisingly, one survey conducted the Zhejiang Academy of Social Sciences found that 96% of respondents “resent the rich.” While Tea Partiers and leftists in the U.S. decry the colluding capitalism of the Bush-Obama-Bernanke regime, Chinese working and middle classes confront a hegemonic ruling class consisting of public officials and wealthy capitalists. That this takes place under the aegis of a supposedly “Marxist-Leninist regime” is both ironic and obscene.

This expanding class war creates more intense political conflicts. On the right the Tea Party-- as well as rising grassroots European protest parties in such unlikely locales as Finland, Sweden and the Netherlands-- grows in large part out of the conviction that the power structure, corporate and government, work together to screw the broad middle class. Left-wing militancy also has a class twist, with progressives increasingly alienated by the gentry politics of the Obama Administration.

Many conservatives here, as well as abroad, reject the huge role of class. To them, wealth and poverty still reflect levels of virtue-- and societal barriers to upward mobility, just a mild inhibitor. But modern society cannot run according to the individualist credo of Ayn Rand; economic systems, to be credible and socially sustainable, must deliver results to the vast majority of citizens. If capitalism cannot do that expect more outbreaks of violence and greater levels of political alienation — not only in Britain but across most of the world’s leading countries, including the U.S.

Scary to think of the mediocre individuals offering themselves up for leadership at this time-- Obama and Romney-- or the much less than mediocre-- a Michele Bachmann or Rick Perry. Why not the very best for a change, someone with real vision and real political courage... a Bernie Sanders?

Crooked Banksters And Their Congressional Shills Still Trying To Kill Regulations That Protect The Public

Our weekly guest at FDL this past Saturday was South Carolina Democrat Linda Ketner, an attractive candidate in 2008 who came within 2% of beating reactionary barnacle Henry Brown in a district that was created to elect conservative white Republicans. Now that Linda has shown how weak Brown is, other Republicans smell blood in the water and are circling. Strom Thurmond's kid wants the job but he won't primary Brown. Carroll Campbell's kid, on the other hand, is a crazed coke freak and whoremonger with no such compunctions-- nor would, Katherine Jenerette, "the Sarah Palin of the South," hesitate for one moment to deal the wounded and flailing Brown a knockout blow. I asked Linda who she would prefer to run against in 2010, the drug-addicted adulterer, the right-wing whacko whose stepdaughter claims she's been sexually abused by Katherine's hubby Van (another GOP politician) or the entrenched incumbent. She didn't hesitate for a second-- "Brown."

Brown's voting record is pure poison-- or, from the perspective of an opponent, gold. He's been on the wrong side of every vote he's ever participated in, particularly when it came to protecting consumers from predators. Brown has taken $451,255 in "contributions" from the financial, insurance, real estate sector since getting into Congress in 2000. It's been an excellent investment for the banksters; Brown has never let them down. It hasn't worked out nearly as well for his constituents. And that's the battleground Linda wants to fight on.

"Congress," she told me, "needs to get busy putting a modern regulatory system back in place. We're in a mess because legislation like Glass-Steagall was gutted." Now, Congressman Brown has never come across a piece of deregulation he didn't get behind and because of him and congressmen like him, the country has been taken to the cleaners by financial predators. When I asked Linda about campaign finance reform on Saturday, she got right to the point:

I love this question Howie because I just spoke on it at our local Rotary yesterday! Bottom line-- our government is for sale. If you ever wondered if that were true, just look at what happened last week with the credit card bill. There was so much yapping from politicians about what they were going to do for us, and when it came to a vote on putting a cap on interest rates, only 33 Senators were in favor of a 15% cap. All you have to do is look on OpenSecrets.org to find out why. There are hundreds of millions of dollars going to incumbents from the financial sector.

The result? What’s good for the taxpayer RARELY is the primary motivation of Congressional votes. For incumbents … forget it! Unless you’re VERY wealthy, you can’t match the war chest the incumbent comes in with … generally millions.

In this morning's NY Times Gretchen Morgenson and Don Van Natta, Jr. make the point that despite the cliff they've led the country over-- and despite some setbacks they've taken politically-- the banksters are far from laying down and giving up. No white flags in sight, especially not on Wall Street-- and still plenty of allies in Congress, from small fry like Henry Brown, right up to the worst co-conspirators, from Mitch McConnell (R-KY- $5,093,903), Richard Burr (R-NC- $2,466,422), Chuck Grassley (R-IA- $2,261,480), Arlen Specter (R/D-PA- $5,839,910) Evan Bayh (D-IN- $4,053,616) and Max Baucus (D-MT- $4,676,093) in the Senate to virtually the entire Republican caucus in the House, led by crooked representatives John Boehner (R-OH- $3,107,459), Eric Cantor (R-VA- $3,192,188), Roy Blunt (R-MO- $2,667,605), Paul Ryan (R-WI- $1,593,345) Spencer Bachus (R-AL- $3,815,224), and Mike Pence (R-IN- $958,541).

As the financial crisis entered one of its darkest phases in October, a handful of the nation’s largest banks began holding daily telephone sessions. Murmurs were already emanating from Washington about the need for a wide-ranging regulatory overhaul, and Wall Street executives girded for a fight.

Atop the agenda during their calls: how to counter an expected attempt to rein in credit-default swaps and other derivatives-- the sophisticated and profitable financial instruments that were intended to limit risk but instead had helped take the economy to the brink of disaster.

The nine biggest participants in the derivatives market-- including JPMorgan Chase, Goldman Sachs, Citigroup and Bank of America-- created a lobbying organization, the CDS Dealers Consortium, on Nov. 13, a month after five of its members accepted federal bailout money.

To oversee the consortium’s push, lobbying records show, the banks hired a longtime Washington power broker who previously helped fend off derivatives regulation: Edward J. Rosen, a partner at the law firm Cleary Gottlieb Steen & Hamilton. A confidential memo Mr. Rosen drafted and shared with the Treasury Department and leaders on Capitol Hill has, politicians and market participants say, played a pivotal role in shaping the debate over derivatives regulation.

Today, just as the bankers anticipated, a battle over derivatives has been joined, in what promises to be a replay of a confrontation in Washington that Wall Street won a decade ago. Since then, derivatives trading has become one of the most profitable businesses for the nation’s big banks.

The looming fight over regulation is the beginning of a broader debate over the future of the financial industry. At the center of the argument: What is the right amount of regulation?

...[F]inanciers are aggressively seeking to fend off regulation of the very products and practices that directly contributed to the worst economic crisis since the Great Depression. In contrast, after the savings-and-loan debacle of the 1980s, the clout of the financial lobby diminished significantly.

The current battle mirrors a tug-of-war a decade ago. Arguing that regulation would hamper financial innovation and send American jobs overseas, Congress passed legislation in December 2000 exempting derivatives from most oversight. It was signed by President Bill Clinton.

The law passed despite the strenuous objections of Brooksley Born, a former head of the Commodity Futures Trading Commission, who left the government after her unsuccessful effort to impose more regulation. In a recent speech, Ms. Born said big banks are again trying to water down oversight efforts.

“Special interests in the financial-services industry are beginning to advocate a return to business as usual and to argue against any need for serious reform,” Ms. Born, now a lawyer in private practice, said at the John F. Kennedy Library in Boston, where she received a Profile in Courage Award.

After the 2000 legislation was passed, derivatives trading exploded, helping the biggest traders earn immense profits.

The market now represents transactions with a face value of $600 trillion, up from $88 trillion a decade ago. JPMorgan, the largest dealer of over-the-counter derivatives, earned $5 billion trading them in 2008, according to Reuters, making them one of its most profitable businesses.

Also writing today, Zach Goldfarb, looked at very recent history-- Chris Cox's role as Bush's SEC chair-- for how very badly things can go when the foxes are watching the hen house. When Cox was a California congressman he was a favorite of the banksters-- and one of the few, at that time, who was on the take for over a million dollars ($1,296,091 to be precise, far more than they were paying most of their shills at the time). His complicity with every deregulatory excess in the banking sector made him the ideal candidate for the SEC job in Bush's mind-- and the banksters popped a lot of champagne corks when Cox was confirmed. According to Goldfarb's report, "After Cox became SEC chairman in mid-2005, he adopted practices that undermined the enforcement division's efforts to investigate cases of corporate wrongdoing and punish those involved, according to interviews with 19 current and former SEC officials." The GOP Establishment responded by pushing his name out there as a potential presidential nominee.

During Cox's tenure, investigators who wanted to subpoena documents or compel interviews faced an increasingly cumbersome process to win the commission's approval for each case, according to current and former agency officials.

Cox also required enforcement officials to see the commissioners before approaching a company about a civil settlement. In several high-profile cases, when SEC lawyers were ready to ask the commission to authorize lawsuits or approve settlements, Cox postponed the decisions at the last minute, leaving cases unresolved for months, the sources said. At times, as in the Biovail case, the commission eventually weakened the sanctions sought by the enforcement division... [I]n a report last month, the Government Accountability Office, after interviewing many enforcement lawyers, concluded that the SEC penalty policies in 2006 and 2007 "led to less vigorous pursuit of corporate penalties, may have made penalties less punitive in nature and could have compromised the quality of settlements."

During Cox's tenure, penalties imposed on companies fell 84 percent, from $1.59 billion in 2005 to $256 million in 2008... Cases began disappearing from the agenda shortly after Cox became chairman

And this just as Cox's-- and Bush's-- corporate pals were ramping up for the biggest heist in American history. Luckily for them we have a Justice System that doesn't hold wealthy, powerful and well-connected people-- like a Chris Cox or Dick Cheney or any Bushes-- accountable for ant crimes, no matter how much damage was caused to the country.