Tuesday, October 28, 2008
This hearing was the first concerning with the role of the public sector. Based upon what legislators learned from previous hearings, the hearing reflected growing suspicion of the government’s role in the crisis. Specifically, if the government had intervened earlier, the crisis would likely be prevented. This led to today's review of actions and inaction before the crisis.
Committee Chairman Henry Waxman admitted that there has been a de-regulatory atmosphere throughout the financial system, which led to handing over almost all regulatory responsibility to the supposedly infallible market. All branches, including the Congress, are responsible for the crisis. The Committee summoned the three testifiers to learn about what in the past had not been done correctly, and what the government should do to fix the flaws of the system.
The testimony began with Mr. Greenspan. He outlined the sources of the crisis and government policies that could best address the turmoil going forward. He discussed what he has learned during the past year. He said the most important factor that would lead to the end of this crisis is the stabilization of home prices, because this would increase the values of mortgage-backed security collateral. But, unfortunately, he sees this as “many months in the future.” Between now and then, to avoid severe retrenchment, financial intermediaries should get rid of insolvent assets. He believes that 700 billion dollars would be adequate.
He also said that the failure of the self-interest of lending institutions to protect shareholders’ equity left him in a “state of shocked disbelief.” He emphasized that those who issued securitized products should be restrained from doing so in the future. He also suggested changes in regulations, particularly with respect to fraud, settlement, and securitization. He finnaly suggested that regulators eek to reestablish a more sustainable subprime mortgage market, as home and small business owners depend upon these.
The second to testify was Mr. Cox. He said the lesson of the crisis is that a strong SEC is needed, which is “unique in its arm’s-length independence from the institutions and persons it regulates.”
He agreed with Mr. Greenspan that all of the activities that “made financial institutions and the broader economy seriously vulnerable to a decline in housing prices,” such as the securitization of bad loans, led to the crisis. He presented three lessons for legislators: first, eliminate the current regulatory gap in which there is no statutory regulator for investment bank holding companies; second, recognize each agency’s core competencies; and third, ensure that securities regulation and enforcement remain fiercely independent.
The last one to testify was Mr. Snow. He thought that policy makers need to avoid saying or doing anything that could decrease confidence, increase market volatility, or undermine ongoing efforts by those in responsible positions to address the situation.
GWU, BS, Economics, 2009
Thursday, September 18, 2008
The problem is not at the SEC, as we noted on 5/5/2006.
Monday, March 31, 2008
FOR IMMEDIATE RELEASE
Washington, D.C., March 29, 2008 — Securities and Exchange Commission Chairman Christopher Cox today issued the following statement regarding the Blueprint for Financial Regulatory Reform being proposed by the Treasury Department:
'Recent events have provided further evidence, if more were needed, that financial services regulation in the United States needs to be better integrated among fewer agencies, with clearer lines of responsibility. Just as systemic risk cannot be neatly parceled along outdated regulatory lines, the overarching objective of investor protection can't be fully achieved if it fails to encompass derivatives, insurance, and new instruments that straddle today's regulatory divides. The proposed consolidation of responsibility for investor protection and the regulation of financial products deserves serious consideration as a way to better address the realities of today's markets.' "
We agree. As we have said before, Cox is perhaps the best financial market regulator appointment made by this administration.
Thursday, February 14, 2008
"I did not create this problem..."
Not only is this poor customer service (imagine a General telling you "I did not start this war," or your doctor telling you "I did not create the health issue you are having..." or a Chef telling you "I did not grow this corn...") but some will tell you that the statement itself may, in fact, be false. Several market analysts feel that Mr. Paulson may have, at some level, helped create the problem. They point out that the firm he once ran, Goldman Sachs, made millions by facilitating the creation and distribution of subprime-backed investments. We would point out that Goldman has not been implicated in the most egregious subprime mortgage market practices.
Still, the statement is especially troubling coming from the Administration's top economic policy official. Some will believe this statement reflective of the prevailing attitude within the Administration: those who are in trouble are, somehow, at fault for falling prey to sophisticated, well designed, well executed, misleading and fraudulent financial market practices.
As we noted on November 9th, 2007, most of the people losing their homes are low to moderate income people of color. Those with new ideas and solutions to the problem were carefully excluded from providing suggestions to help with the problem, due to the same bigotry that gave rise to it.
What some will see as even more troubling is the fundamental lack of understanding of the seriousness of the problem. We did not hear, from any of the witnesses (Federal Reserve Board Chairman Bernanke, Treasury Secretary Paulson and Securities and Exchange Commission Chairman Cox), any statement that would lead anyone to believe they know:
- How many subprime mortgage loans there are currently;
- The terms of the average subprime mortgage loan (interest rate, maturity, points paid to originator, who originated the loan, who owns the loan...and how it got to its current owner..), and;
- How many subprime mortgage loans might default over the next month, year, five years, etc.
- Who got paid? What were the total fees paid by subprime borrowers? Who got these fees?
- Who, and I mean who EXACTLY, owns these subprime mortgages now?
- How did they come to own them? By what mechanism?
Now we are worried....
Friday, December 21, 2007
"Securities and Exchange Commission Chairman Christopher Cox today launched the first-ever online tool that enables investors to easily and instantly compare what 500 of the largest American companies are paying their top executives. The new database highlights the power of interactive data to transform financial disclosure.
The Executive Compensation Reader - available today on the SEC's Web site at http://www.sec.gov/xbrl - builds on the Commission's new requirements that went into effect earlier this year to dramatically enhance clarity and completeness of executive compensation disclosure."
Monday, December 17, 2007
- On December 5th, the "SEC's Office of Interactive Disclosure Urges Public Comment as Interactive Data Moves Closer to Reality for Investors" This is tied to efforts to create electronic shareholder forums. In the run up to the Proxy Access vote, many missed the fact that the SEC created, in October, an "Office of Interactive Disclosure..to lead the transformation to interactive financial reporting by public companies. A free taxonomy review tool is publicly available on the Internet at http://usgaap.xbrl.us along with other information."
- On December 6th, "The Securities and Exchange Commission announced a record $468 million settled enforcement action in an options backdating case against William W. McGuire, M.D., the former Chief Executive Officer and Chairman of the Board of UnitedHealth Group Inc. The settlement is the first with an individual under the 'clawback' provision (Section 304) of the Sarbanes-Oxley Act to deprive corporate executives of their stock sale profits and bonuses earned while their companies were misleading investors."
- On December 7, 2007, "The U.S. Securities and Exchange Commission announced that it filed civil actions alleging securities fraud in five separate kickback schemes uncovered by an FBI sting operation conducted pursuant to a recent cooperation agreement between the FBI and the Commission. The defendants are insiders or promoters of publicly traded companies who made stock sales to a hedge fund in exchange for illegal kickbacks to an individual whom they believed to be the hedge fund manager, but who was in reality an undercover FBI agent." This is one of the first times that the SEC has used an undercover vehicle of this type. Also notable is the cooperation of the FBI. It is important because it send a signal that the SEC has adopted this tactic to uncover fraud and malfeasance in the marketplace.
- On December 11th, "The Securities and Exchange Commission approved changes that will give smaller companies faster and easier access to capital when they need it or market conditions are favorable. Specifically, the Commission adopted amendments to the eligibility requirements of Form S-3 and Form F-3 of the Securities Act to allow companies that do not meet the current public float requirements of the forms to nevertheless register primary offerings of their securities, subject to certain restrictions, including the amount of securities those companies may sell pursuant to the expanded eligibility standard in any one-year period." This may help small minority-owned firms.
- On December 11th, "The Securities and Exchange Commission asked for public comment on possible revisions to disclosure requirements for oil and gas reserves given the extent and nature of changes that have occurred in the oil and gas industry in the nearly three decades since the Commission first adopted its oil and gas disclosure rules." Social investors may be able to use this effort to call for other disclosure rules. In any event, this is a matter that social investors have been requesting for years.
Friday, November 16, 2007
In his testimony, SEC Chairman Christopher Cox noted:
" Last autumn, the U.S. Court of Appeals for the Second Circuit invalidated the SEC’s interpretation of our existing proxy access rule that had been applied at least since 1990. Indeed, in the SEC’s view, that interpretation had been in effect since 1976. But the court found the SEC’s view since 1990 to be inconsistent with its prior interpretation. At the same time, the court said that it would “take no side in the policy debate regarding shareholder access to the corporate ballot,” noting that “such issues are appropriately the province of the SEC.” This decision applies only in one of the 12 judicial circuits in America. And it has created great uncertainty and danger for every stakeholder in our public markets.
This uncertainty is compounded by a recent decision of the U.S. Supreme Court, which creates doubt about the state of affairs even in the Second Circuit. The Supreme Court reversed another panel of the Second Circuit in a similar case of an agency that changed its interpretation of its rules. Just as in the proxy access case, the Second Circuit rejected the agency's more recent interpretation. Justice Breyer’s opinion for the unanimous Court held that the agency’s interpretation of its own regulations is controlling unless plainly erroneous."
Senator Reed, chairing the hearing in Senator Dodd's absence, appeared stunned by this line of reasoning:
1. Reed implied that citing the 2nd Court of Appeals decision and the Supreme Court ruling was a sign desperation. The Commission is stretching the limits of legal rationality to find any justification, however tenuous, that will support approving the more restrictive proxy access proposal.
2. Reed clearly believed there is no truth to the claim (as with other claims concerning the existence of WMD in Iraq, the use of torture, lack of warning about Katrina, etc.), that heightened uncertainty requires the SEC to act now.
3. The Senator acknowledged that he is powerless to do anything to stop the SEC from approving the more restrictive proxy access proposal. Thus, we believe they will do so, despite SEC claims that "shareholder proxy access is 'a work in progress' that could end with a plan different from proposals floated this summer." We regard this statement a "head fake," designed to freeze opponents in their tracks.
We note CalPERS today announced that "Eight of the leading U.S. and international pension funds representing more than $300 billion in U.S. public equities, and the Council of Institutional Investors, with member assets exceeding $3 trillion, will hold a telephonic press conference to make an announcement and discuss the issue of access to corporate ballots to nominate directors and pending proposals before the U.S. Securities & Exchange Commission."
We believe they may announce their intention to bring a lawsuit, thus blocking (or at least slowing) any changes to current proxy access rules.
Friday, August 31, 2007
Social Investors Launch Campaign to Halt Proposed Changes to Proxy Access Rules
According to Portfolio.com, "Socially concerned investors groups say they won't stand by and see Securities and Exchange Commission chairman Christopher Cox crimp their right to demand company accountability on important issues like the business risks of climate change. The Social Investment Forum, the Interfaith Center on Corporate Responsibility and Ceres, a coalition of investors, environmental groups and others, unveiled a new web site to attract 500 institutions and financial professionals to sign a joint statement against proposed S.E.C. changes."
As we noted earlier,
"Those most directly impacted by the policy change are large in number but divided and unorganized. These include shareholder groups like the Interfaith Center on Corporate Responsibility, labor-related funds, faith-based pension funds, 'socially responsible' mutual funds, and individual stockholders...these groups have been unable to mount the type of strategic, sustained effort, or bring forward the new ideas and analysis required to prevent the imposition of a more restrictive shareholder access policy."
This effort is an attempt to even the field. We are not sure it will work, but time will tell.
President of Standard and Poors Steps Down
Terror Free Investment Product
To divest their money from terror-sponsoring nations got another push Wednesday with a new plan aimed at making college savings investments "terror-free."
Last year, Missouri became the first state to order its employee pension funds to dump shares of companies that deal with Iran, North Korea, Sudan and Syria, all of which are on the U.S. State Department's list of terror-sponsoring nations."As we noted, we think the SEC was on the right track when it posted online tools to assist in this process. See: http://twisri.blogspot.com/2007/07/sec-backs-off.html
SEC News and Enforcement Actions
On August 23, 2007, the Securities and Exchange Commission "filed an emergency action to shut down a $25 million Ponzi scheme that victimized hundreds of senior and other investors nationwide who bought fractional ownership interests in life insurance policies. The Commission alleges that Donald Neuhaus of Redding, Calif., his daughter Kimberley Snowden, and their company Secure Investment Services, Inc., orchestrated the Ponzi scheme that falsely promised safe, secure and profitable interests in life insurance policies known as "viaticals" while failing to disclose the dire financial condition of the investment venture. Many of the investors were elderly and invested their retirement savings. The Commission also alleges the father-daughter fraudsters pocketed $700,000 for their personal use while the scam was on the verge of collapse."
On August 28, 2007, the Securities and Exchange Commission announced "fraud charges against a Bay Area attorney for her role in illegally backdating stock option grants. The Commission charged Lisa C. Berry with routinely backdating option grants from 1997 to 2003, first as General Counsel of KLA-Tencor Corporation and then as General Counsel of Juniper Networks, Inc. The Commission alleges that Berry's misconduct caused the two companies to conceal hundreds of millions of dollars in stock option compensation expenses relating to undisclosed in-the-money options provided to company executives and employees. "
Also on August 28, 2007, The Commission "filed a settled enforcement action against Juniper, an information technology company based in Sunnyvale, Calif. Without admitting or denying the allegations, Juniper has consented to a permanent injunction against violations of the antifraud and other provisions of the federal securities laws. KLA, a San Jose-based semiconductor equipment company, previously settled charges brought by the Commission"
The Diversity Portfolio
Angels Descend on Minority Business Enterprises
Investors gather to consider investments in top minority-owned ventures.
Virginia Housing and Community Development Corporation (VHCDC) continues its pioneering initiatives to facilitate the flow of capital to Minority Business Enterprises (MBEs) with the announcement of the 2007 MBE Capital Call Conference, Exhibition, and Venture Forum -- September 20 & 21 in Hampton, Virginia. The MBE Capital Call presents entrepreneurs with innovative and marketable business ideas the opportunity to secure capital, and other essential resources, by "Pitching" their business plans to active, accredited investors. This event invites Entrepreneurs, aspiring entrepreneurs, Investors, aspiring investors, and College/University Students to Hampton, Virginia for a rewarding two day conference aimed at facilitating investment in minority- and women-owned businesses.
VHCDC created the MBE Capital Call to expose and connect MBEs, particularly African-American, Hispanic, and Native American entrepreneurs, to capital (funding) to start and grow or expand their business. This year, twenty-one (21) entrepreneurs will be selected to pitch their business plans to active, accredited investors. A team of active investors and business development professionals will select the presenters from among registrations received thru August 10, 2007. Presenters will be judged on several criteria and may pitch plans for virtually any industry/business sector.
Registration is easy, and there's no additional cost to enter the competition. Business owners, aspiring entrepreneurs, investors, lenders, and students may register by visiting the MBE Capital Call website: www.mbecapitalcall.com now for complete details, registration, and terms and conditions.
Monday, July 23, 2007
On July 20, 2007, "SEC Chairman Christopher Cox issued the following statement concerning disclosures filed with the Commission concerning public company activities in countries that the U.S. Secretary of State has determined to have repeatedly supported terrorism:
Since the SEC added to our Internet site a web tool that permits investors to obtain information directly from company disclosure documents about their business interests in countries the U.S. Secretary of State has designated 'State Sponsors of Terrorism,' the site has experienced exceptional traffic. Between June 25, when the web tool was unveiled, through July 16, visitors have 'hit' material posted on the site well over 150,000 times. Iran was the country most frequently clicked on, followed by Cuba, Sudan, North Korea, and Syria. Those who went to a country list most often clicked through to the text of companies' own disclosure (in the case of Iran, they did so overwhelmingly), indicating that the disclosures were allowed to speak for themselves."
The Chairman went on to add that, despite the unqualified success of the effort, the SEC is
"temporarily suspending the availability of the web tool while it undergoes reconstruction." Further SEC staff is "considering whether the use of interactive data tags applied by companies themselves could permit investors, analysts and others to easily discover this disclosure without need of an SEC-provided web tool at all. In the interim, the companies' disclosure regarding their business contacts in the five nations will continue to be available through the SEC's EDGAR database, and findable using our new full-text search capability."
We fully supported the SEC's efforts, have called for the use of interactive data tags in exactly this way (page 17), and are disappointed to see the site go down. As the Chairman noted,
"The exceptional public interest that has been demonstrated in reading company disclosures on this topic indicates that it is an important subject for investors. Federal law and SEC regulations will continue to require public companies to report on their activities, if material, in a country the Secretary of State has formally determined to be a State Sponsor of Terrorism. Our role is to make that information readily accessible to the investing public, and we will continue to work to find better ways to accomplish that objective."
The effort reinforces our view that by showing a willingness to address, in a timely and creative manner, critical issues affecting his Agency, Chairman Cox is the single most competent appointment made by the Bush Administration. The Terrorism disclosure effort was incredibly entrepreneurial and successful, both highly unusual for this Administration. We can only surmise that business interests on both sides of the issue (those doing business in States designated as sponsors of terrorism, and those selling information about those doing business in States designated as sponsors of terrorism) combined to get the pages taken down. This does not bode well for efforts to enhance shareholder democracy.
Lets hope this service comes back on-line soon.
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