Who Has Really Protected American Consumers and Investors Over the Last 8 Years?

Sam Copeland on political strategy. Read Sam Copeland’s well-received articles last week, in Parts I and II: “Obama and the American Lefts: Part I” and “Obama and the American Lefts: Part II.”

Consumer and investor protection is a topic that gets very little attention in political campaigns, but these two areas are vital for our economy and our well-being. As an All-American Liberal, I support capitalism; That means supporting free and fair markets. Rigorous enforcement of consumer and investor protection regulations is essential to maintaining fair markets. Bill Clinton understood this when his administration took on Big Tobacco and Microsoft in an anti-trust suit (among other cases).

For the last 8 years consumer and investor protection has been nonexistent at the federal level.

The philosophy of the SEC – charged with regulating investments – can be summed up in two words: Bernard Madoff.

The first head of Bush’s FTC – charged with protecting consumers and regulating trade – was the key defense witness in the Publishers’ Clearinghouse case. He argued that PCH never deceived consumers; PCH settled the lawsuit for $35 million. Under his and subsequent FTC leadership, the FTC brought a few cases against diet scams advertised on late night TV and little else. Tobacco litigation consisted of sandbagging the leftover cases from the Clinton administration.

As Larry Doyle. in an important NQ blog post shows, the quasi-public FINRA under Mary Schapiro has taken on 30% fewer cases and collected 36% less fines than its predecessor.

Barack Obama ran on a platform of change in Washington. The appointment of Mary Schapiro to the SEC is more Washington musical chairs.

By law, the SEC is divided between Republicans and Democrats with the in-power-party getting the chair and the majority of positions. By tradition, the out-of-power party gets positions at FINRA. Moving the head of the FINRA to the head of SEC is just the same old same old.

For all the talk of economic stimulus packages, these efforts will be wasted if the gears of capitalism are gummed up with unfair markets.

But for those who are All-American Liberals and want to see capitalism shine, the economy to grow, and free markets to be fair markets, there is some good news. For the last 8 years, there has been successful consumer and investor protection at the state level. Specifically, the National Association of Attorneys General (NAAG) and the North American Securities Administrators Association (NASAA) have been waging a litigation war against corruption, deceptions, and for fair markets.

NAAG and NASAA are organizations made up of state Attorneys Generals (and their staffs) and state investment regulators, respectively. What NAAG and NASAA do is to co-ordinate state efforts on regulating markets. This involves such activities as sharing information, coordinating and setting policy, and even joining together in multi-state lawsuits.

The results have been impressive. NAAG has taken on a number of high profile cases including taking the lead in lawsuits against Countrywide and other lenders who helped get us into this financial mess, against Big Tobacco (e.g.,, the Illinois lights case against Phillip Morris and Vermont’s current case against RJR’s Eclipse), for health protection (e.g., recent lawsuit against the makers of Tricor), along with numerous bread and butter fraud and deception cases. In contrast to FINRA, NASAA’s most recent documents report a 23% increase in their enforcement activities, a 38% increase in money ordered returned to investors, and a 30% increase in years of incarceration for the bad guys who duped investors.

Bully for NAAG and NASAA!

The rub is that both NAAG and NASAA have limited resources. Thus, they can never do the full range of consumer and investment protection as could be done at the federal level. In fact, NAAG has spent enormous energy in fighting just to be able to try some of its cases. The Neo-con right has come up with a phony concept known as pre-emption.

Pre-emption is the new neo-con buzzword for advancing the concept that if the federal government has taken a position on an issue (for example, required a warning label on cigarettes), then the states are pre-empted from taking legal action against companies in this industry (in this case, Big Tobacco).

This anti-state’s rights position is quite an ironic position to be taken by neo-cons who previously argued for state’s rights in preventing racial desegregation. Nevertheless, it is an effective one for promoting corruption that undermines capitalism – all one needs to do is buy off the federal regulators in charge of your industry and you are home scot-free.

Given the limited resources of NAAG and NASAA, their successes are all that more spectacular.

Now, if you came to Washington on the platform that you were going to shake things up and reform the way things are done, who would you appoint to the SEC, FTC, and other such agencies?

Would you play musical chairs and move one DC inside from FINRA to SEC or would you go to NAAG and NASAA and appoint those who have actually done the heavy lifting when it comes to consumer and investor protection?

Taking on a corrupt major corporation or investment firm is not for the faint of heart. It requires strategic thinking, strong litigation skills, perseverance, and, most importantly, raw guts and courage. That combination of talent can be found in the members of NAAG and NASAA.

So, why isn’t Obama doing this? One possibility is that he was just “pulling our leg” about reform during the campaign. With Barack “the change you can believe in is the change in my positions” Obama that is always a strong possibility.

However, this time I think we are seeing someone who doesn’t have the knowledge or experience to get the job done.

While the nomination of Sanjay Gupta as Surgeon General–a position important for tobacco and nutrition policy–is a joke, Obama’s nomination of William Corr of the Campaign for Tobacco-Free Kids as deputy secretary of HHS makes sense.

To know that NAAG and NASAA have been the real protectors of fair markets over the last 8 years would require the needed experience in government.

For those of us who long for a return of All-American Liberalism, we are seeing a fumbled snap at the line of scrimmage by a rookie QB.