hvactec
VIP Member
December 26, 2011
FOR MOST Americans, Friday afternoons are filled with positive anticipation of the weekend. In Washington, its where government officials dump stories they want to bury. Good news gets dropped on Monday so bureaucrats can talk about it all week. When the Securities Exchange Commission chose a recent Friday to announce a lawsuit against six former Fannie Mae and Freddie Mac executives, it wasnt because the Obama administration wanted to draw attention to the action.
The White House spent tremendous political capital passing the Dodd-Frank financial-regulation law and spared no opportunity to demonize Wall Street for its role in the financial crisis. Theyve blamed big banks, rating agencies, and the derivatives market, and the massive bill itself was sold as a way to prevent future crisis. But the White House narrative - and the bill itself - completely ignores the role of the two mortgage giants in the financial collapse.
Despite White House rhetoric, there have been no high-profile prosecutions of their supposed villains. Where suits have been filed, charges have little to do with issues covered by Dodd-Frank - or even Sarbanes-Oxley, the other massive regulatory layer created in 2002. Instead, its the same story over again: fraud. Misleading investors has been illegal for a long, long time. But because fraud at government-sponsored companies like Fannie and Freddie doesnt fit the White House line, unloading the story on a Friday was the logical choice.
The market boom of the 1980s produced archetype corporate villains like Ivan Boesky and Michael Milken. Their high-profile trials yielded significant sentences - three years for Boesky and 10 for Milken. Enrons Ken Lay and WorldComs Bernie Ebbers filled the same role after the tech bust of 2001. Their fall was, in some ways, more spectacular; both were convicted of misstating earnings - acts of fraud that resulted in massive bankruptcies. Even Martha Stewart was sent to jail on obstruction-of-justice charges, with prosecutors arguing it was necessary to protect the integrity of the system.
These personalities contrast sharply with mild-mannered Dan Mudd and Richard Syron, the two CEOs charged in the SECs complaint. Five years ago I met with both separately over breakfast in the Senate Dining Room. At the time, both companies were still riding the housing boom. They were cordial, but neither much appreciated my advice: embrace tougher regulation. Senator Chuck Hagel and I had written legislation to raise their capital standards, scale back their new business ventures, and limit the size of their investment portfolios. They didnt want to hear it. That doesnt make them criminals, but clearly they had embraced a business model that socialized potential losses while providing private returns.
The SEC alleges that they misrepresented risks in their investment portfolios to both Congress and the public. Mudd testified in 2007 that Fannies exposure to subprime loans remains relatively minimal. Syron said that Freddie hadnt been heavily involved in subprime all along. To the executives chagrin, the SEC has chosen to let the companies off the hook by signing a non-prosecution agreement with both firms. Intentional or not, that only bolsters the perception that the executives are just being made scapegoats.
It may also be dawning on political appointees at the SEC that decrying greed and prosecuting fraud are two very different things. Convictions require evidence, and in white-collar cases that can be tough to find. Milken and Boesky were done in by sheer brazenness (big stock trades just days before merger announcements) and Lay and Ebbers by the scale of their fraud (WorldCom profits were misstated by over $10 billion). Martha Stewarts obstruction conviction was built around a brokers sworn testimony that he passed her an inside tip.
read more Decrying Wall St. greed is the easy part - Opinion - The Boston Globe
FOR MOST Americans, Friday afternoons are filled with positive anticipation of the weekend. In Washington, its where government officials dump stories they want to bury. Good news gets dropped on Monday so bureaucrats can talk about it all week. When the Securities Exchange Commission chose a recent Friday to announce a lawsuit against six former Fannie Mae and Freddie Mac executives, it wasnt because the Obama administration wanted to draw attention to the action.
The White House spent tremendous political capital passing the Dodd-Frank financial-regulation law and spared no opportunity to demonize Wall Street for its role in the financial crisis. Theyve blamed big banks, rating agencies, and the derivatives market, and the massive bill itself was sold as a way to prevent future crisis. But the White House narrative - and the bill itself - completely ignores the role of the two mortgage giants in the financial collapse.
Despite White House rhetoric, there have been no high-profile prosecutions of their supposed villains. Where suits have been filed, charges have little to do with issues covered by Dodd-Frank - or even Sarbanes-Oxley, the other massive regulatory layer created in 2002. Instead, its the same story over again: fraud. Misleading investors has been illegal for a long, long time. But because fraud at government-sponsored companies like Fannie and Freddie doesnt fit the White House line, unloading the story on a Friday was the logical choice.
The market boom of the 1980s produced archetype corporate villains like Ivan Boesky and Michael Milken. Their high-profile trials yielded significant sentences - three years for Boesky and 10 for Milken. Enrons Ken Lay and WorldComs Bernie Ebbers filled the same role after the tech bust of 2001. Their fall was, in some ways, more spectacular; both were convicted of misstating earnings - acts of fraud that resulted in massive bankruptcies. Even Martha Stewart was sent to jail on obstruction-of-justice charges, with prosecutors arguing it was necessary to protect the integrity of the system.
These personalities contrast sharply with mild-mannered Dan Mudd and Richard Syron, the two CEOs charged in the SECs complaint. Five years ago I met with both separately over breakfast in the Senate Dining Room. At the time, both companies were still riding the housing boom. They were cordial, but neither much appreciated my advice: embrace tougher regulation. Senator Chuck Hagel and I had written legislation to raise their capital standards, scale back their new business ventures, and limit the size of their investment portfolios. They didnt want to hear it. That doesnt make them criminals, but clearly they had embraced a business model that socialized potential losses while providing private returns.
The SEC alleges that they misrepresented risks in their investment portfolios to both Congress and the public. Mudd testified in 2007 that Fannies exposure to subprime loans remains relatively minimal. Syron said that Freddie hadnt been heavily involved in subprime all along. To the executives chagrin, the SEC has chosen to let the companies off the hook by signing a non-prosecution agreement with both firms. Intentional or not, that only bolsters the perception that the executives are just being made scapegoats.
It may also be dawning on political appointees at the SEC that decrying greed and prosecuting fraud are two very different things. Convictions require evidence, and in white-collar cases that can be tough to find. Milken and Boesky were done in by sheer brazenness (big stock trades just days before merger announcements) and Lay and Ebbers by the scale of their fraud (WorldCom profits were misstated by over $10 billion). Martha Stewarts obstruction conviction was built around a brokers sworn testimony that he passed her an inside tip.
read more Decrying Wall St. greed is the easy part - Opinion - The Boston Globe
