At the Corner of Wall Street and the Gulf of Mexico
By Larry Doyle on June 16, 2010 at 6:16 PM in Current Affairs, Sense on Cents (Larry Doyle blog)
The distance from the canyons of lower Manhattan to the now soiled beaches of the Gulf Coast runs about 1300 miles. A long way and decidedly different lifestyles, you may think? I do not think so. In very real terms, the economic disasters centered in each of these locales are virtually contiguous.
As I watched a replay of President Obama’s speech last evening (Red Sox and Celtics games took priority until both those games were effectively decided), I was struck by one segment of Obama’s speech and the stark similarity in the disasters centered on Wall Street and the Gulf. Which segment and which similarity?
The manner in which these industries are regulated, that is self-regulation.
Let’s review Obama’s speech. Please allow me to offer parallel assessments and comments in regard to appropriate financial initiatives and financial regulatory bodies as appropriate. From the White House website, Remarks by the President to the Nation on the BP Oil Spill:
The American people deserve to know why. The families I met with last week who lost their loved ones in the explosion — these families deserve to know why.
Those who invested in auction-rate securities also deserve to know why. Why can’t these investors access their $150 billion which was fraudulently taken from them? (I make this comment with all due respect to the families who lost loved ones in the BP disaster. I extend my sympathy to them and do not mean to equate personal losses with financial losses, but I also respect the anguish felt by so many families impacted by the ARS fiasco.)
And so I’ve established a National Commission to understand the causes of this disaster and offer recommendations on what additional safety and environmental standards we need to put in place.
This National Commission would seem to be designed along the lines of the Financial Crisis Inquiry Commission, which to date has produced no real meaningful results. In fact, the FCIC strikes me as a government ploy to buy time and pander to the American public. Time will tell if we get real results, but to date America has learned NOTHING!!
One place we’ve already begun to take action is at the agency in charge of regulating drilling and issuing permits, known as the Minerals Management Service. Over the last decade, this agency has become emblematic of a failed philosophy that views all regulation with hostility — a philosophy that says corporations should be allowed to play by their own rules and police themselves.
Can you say SEC and FINRA in place of the Minerals Management Service? Wall Street’s cop FINRA is a self-regulatory agency funded by the Wall Street banks themselves. Evidence is rampant that FINRA has been aligned with the industry. None other than Harry Markopolos said FINRA was “in bed with the industry.” I have never once heard President Obama reference FINRA’s name. Would he even know who FINRA is and how they operate?
At this agency, industry insiders were put in charge of industry oversight. Oil companies showered regulators with gifts and favors, and were essentially allowed to conduct their own safety inspections and write their own regulations.
Industry insiders? Who is a bigger insider than current SEC Chair Mary Schapiro?
Gifts? Favors? My commentary just yesterday (SEC Senior Staff/Inmates Are Running the Asylum) highlights the fact that much more egregious transgressions and shortcomings occurred numerous times at the SEC with no disciplinary action taken despite the recommendations of the SEC’s Office of Inspector General.
President Obama, are you listening? This is your SEC!! These are your people!! These are your failures!! The buck stops at your desk!!
When Ken Salazar became my Secretary of the Interior, one of his very first acts was to clean up the worst of the corruption at this agency. But it’s now clear that the problem there ran much deeper, and the pace of reform was just too slow. And so Secretary Salazar and I are bringing in new leadership at the agency — Michael Bromwich, who was a tough federal prosecutor and Inspector General. And his charge over the next few months is to build an organization that acts as the oil industry’s watchdog — not its partner.
When will the same occur both at the SEC and FINRA? Allegations of insider trading, front running, conflicts of interest, lying in proxy statements, and more at these financial regulators are screaming for exposure and action. The court of public opinion knows that the financial industry can not and should not be self-regulated. The Project on Government Oversight has made that very recommendation (Is FINRA’s Future in Doubt?) to Congressional sub-committees.
The Gulf of Mexico may be a long way from Wall Street, but for all the citizens of this great nation the foundations of these two disasters lie in the same bed known as self-regulation.
LD
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