Submitted by Elaine Magliaro, Guest Blogger
Senator Charles Grassley (R-Iowa) has asked the Securities and Exchange Commission to respond to allegations made by a whistleblower that the agency had destroyed files from preliminary investigations of financial firms—including Goldman Sachs, SAC Capital Advisors, Deutsche Bank, AIG, and Bernie Madoff
Investment Securities.
A Bloomberg article reported that Grassley’s request was prompted by a letter that he received from SEC attorney Darcy Flynn claiming that the SEC had “destroyed documents including materials related to Goldman Sachs’ trades of American International Group Inc. (AIG) credit- default swaps in 2009, insider-trading probes of Deutsche Bank AG (DBK), Lehman Brothers Holdings Inc. (LEHMQ) and SAC Capital Advisors LP, and investigations of possible financial fraud at Wells Fargo & Co. (WFC) and Bank of America Corp. (BAC) in 2007 and 2008.”
Flynn, who has worked for the SEC for thirteen years, has had responsibility for helping to manage the commission’s records. He told Congress in July that since 1993 the agency has been systematically destroying files of preliminary investigations known as “Matters Under Inquiry” (MUIs). According to journalist Matt Taibbi, after Flynn alerted the National Archives and Records Administration about the document destruction, he reported that “senior staff at the SEC scrambled to hide the commission’s improprieties.”
Matt Taibbi reported the following in a recent Rolling Stone article Shredded Justice:
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.
Also from the Taibbi article:
Much has been made in recent months of the government’s glaring failure to police Wall Street; to date, federal and state prosecutors have yet to put a single senior Wall Street executive behind bars for any of the many well-documented crimes related to the financial crisis. Indeed, Flynn’s accusations dovetail with a recent series of damaging critiques of the SEC made by reporters, watchdog groups and members of Congress, all of which seem to indicate that top federal regulators spend more time lunching, schmoozing and job-interviewing with Wall Street crooks than they do catching them. As one former SEC staffer describes it, the agency is now filled with so many Wall Street hotshots from oft-investigated banks that it has been “infected with the Goldman mindset from within.”
The destruction of records by the SEC, as outlined by Flynn, is something far more than an administrative accident or bureaucratic fuck-up. It’s a symptom of the agency’s terminal brain damage. Somewhere along the line, those at the SEC responsible for policing America’s banks fell and hit their head on a big pile of Wall Street’s money – a blow from which the agency has never recovered. “From what I’ve seen, it looks as if the SEC might have sanctioned some level of case-related document destruction,” says Sen. Chuck Grassley, the ranking Republican on the Senate Judiciary Committee, whose staff has interviewed Flynn. “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.”
Matt Taibbi talking with Keith Olbermann about his SEC story on Countdown last week:
There’s a lot more to this story. I recommend reading the full text of Matt Taibbi’s Rolling Stone article:
Is the SEC Covering Up Wall Street Crimes?
Edited to Add: Thom Hartman and Matt Taibbi – Is the SEC covering up Wall Street crimes?
http://www.youtube.com/watch?v=NBPP7C3XkDc
Sources
Document Shredding: Why SEC’s Defense Won’t Fly (Rolling Stone)
S.E.C. Files Were Illegally Destroyed, Lawyer Says (New York Times)
Senate Investigators Met With SEC Lawyer On Document Destruction (NASDAQ)
Grassley Questions SEC Over Claims That Records Were Purged (Bloomberg)
Whistleblower: SEC improperly destroyed thousands of documents (CBS News)
I hope this turns into a big scandal and causes significant changes at the SEC—although I’m not holding my breath. But if it does, Taibbi will deserve a huge amount of the credit. And judging by today’s coverage, he won’t get it from the mainstream financial press. -Elaine M.
Yes, I hope so, too, but I’m not holding my breath either. Agree that Taibbi deserves great credit…
Matt Taibbi vs. the SEC
Rolling Stone gets no credit from most of the press for a huge scoop
By Felix Salmon
Columbia Journalism Review
August 19, 2011
http://www.cjr.org/the_audit/matt_taibbi_vs_the_sec.php
Excerpts:
Matt Taibbi’s 5,000-word exposé of the SEC’s document-shredding is a magnificent piece of journalism, and is the first and last place that you should look to understand what’s going on here. After the piece came out, Senator Chuck Grassley—who’s quoted in the article—made growling noises in the general direction of the SEC, which is now very much on the back foot. But all the news and background that you need can and should be found in Taibbi’s article, rather than Grassley’s 325-word press release.
So how well is the mainstream media reporting this news? Everybody’s reporting Grassley’s statement, of course, as they should be. But the WSJ, Bloomberg, FT newspaper, and even Reuters make no mention of Taibbi or his article at all. The NYT is better, providing a link to the article and saying that the document disposal was “first reported by Rolling Stone magazine on Wednesday”, but the link feels grudging and there’s nothing which indicates that if you follow the link you’ll get a much fuller and richer version of the story than you’ll get from the NYT. Only FT Alphaville draws a direct connection between Taibbi’s article and Grassley’s statement and really encourages you to read the piece.
*****
I hope this turns into a big scandal and causes significant changes at the SEC—although I’m not holding my breath. But if it does, Taibbi will deserve a huge amount of the credit. And judging by today’s coverage, he won’t get it from the mainstream financial press.
Great link Elaine. It is surprising that anyone in Congress could complain about a revolving door problem. Has anyone checked out how many former Congressmen and aides are on K Street?
From the Project on Government Oversight:
Revolving Regulators: SEC Faces Ethic Challenges with Revolving Door
May 13, 2011
http://www.pogo.org/pogo-files/reports/financial-oversight/revolving-regulators/fo-fra-20110513.html
Excerpt:
As part of an effort to shed light on the revolving door at the Securities and Exchange Commission (SEC), and to examine whether the SEC has adequate policies and procedures in place to detect and mitigate conflicts of interest involving former SEC employees, POGO has obtained five years’ worth of statements filed by former SEC employees who appeared before the SEC seeking to represent outside clients within two years after leaving the agency. POGO has also made these post-employment statements publicly available in a searchable online database. This report provides an overview of the information disclosed in these statements, and examines the SEC’s oversight of former employees who go through the revolving door.
EXECUTIVE SUMMARY
The financial meltdown of 2008 brought renewed focus to the integrity and aggressiveness of federal government oversight of the financial system. One of the most important agencies overseeing financial markets and investor protection is the Securities and Exchange Commission (SEC or Commission).
Several critics, including Members of Congress, have said the SEC’s integrity has been undermined by the “revolving door”—where former SEC employees go to work for entities overseen by the Commission. The revolving door also operates in the opposite direction, where individuals come from entities regulated by the SEC to work for the Commission. The general concern is that a conflict of interest could bias SEC oversight and undermine public confidence in the SEC’s work, as acknowledged by the current SEC Chairman.
The SEC requires that its former employees file post-government employment statements if they plan to represent a client before the Commission within two years of leaving the SEC. The Project On Government Oversight (POGO) filed a Freedom of Information Act (FOIA) request for all post-employment statements filed by former SEC employees between 2006 and 2010 and analyzed these statements and other documents. POGO found that:
•Between 2006 and 2010, 219 former SEC employees filed 789 post-employment statements indicating their intent to represent an outside client before the Commission
•Some former SEC employees filed statements within days of leaving the Commission, with one employee filing within 2 days of leaving
•Some former SEC employees filed numerous statements during this time period, with one former employee filing 20 statements
•There are 131 entities providing legal, accounting, consulting, and other services that were identified as new employers in the statements. Some entities recruited numerous SEC employees during the five-year period.
•In the vast majority of statements, former SEC employees affirm that they did not participate personally or substantially in, or have official responsibility for, the matter on which they now expect to appear before the Commission
•POGO identified instances in which former SEC employees may have been required to file statements during the five-year period but did not
•The SEC Office of Inspector General has identified cases in which the revolving door appeared to be a factor in staving off SEC enforcement actions and other types of SEC oversight, including cases involving Bear Stearns and the Stanford Ponzi scheme
•One recent empirical study uncovered several significant and systematic biases in the SEC’s enforcement patterns and found indirect evidence to support the contention that “post-agency employment at higher salaries may operate as a quid pro quo in return for favorable regulatory treatment”[1]
•Some former SEC employees disclosed that they consulted with ethics officers regarding the work they intended to do on behalf of their clients before the SEC, but in many other statements, it is unclear whether the former employees discussed their post-employment plans with an ethics officer
•Some statements indicate that the former employee did participate in or have responsibility for a related matter while they worked at the SEC, but that they discussed the matter with an ethics officer who advised them they could contact Commission staff on that issue on behalf of their new client
•There were some inconsistencies in the SEC’s handling of FOIA exemptions in the statements requested by POGO—for instance, while the vast majority of statements disclosed the names of the former employees, in several cases this information was withheld
From the Project on Government Oversight (August 23, 2011):
Who Authorized Document Destruction at the SEC?
By MICHAEL SMALLBERG and PAUL THACKER
http://pogoblog.typepad.com/pogo/2011/08/who-authorized-document-destruction-at-the-sec.html
DealBook columnist Peter J. Henning argued yesterday that the shredding of thousands of pages of documents “looks more like corner cutting to avoid cumbersome federal regulations.” But in a letter sent last week to the National Archives and Records Administration (NARA) and the Securities and Exchange Commission (SEC) Office of Inspector General (OIG), whistleblower attorney Gary Aguirre suggests there may be more to it than that, and raises new questions about the SEC’s alleged document destruction policy. One of those key questions, which so far seems to have eluded Henning and other close observers, is this: who at the SEC authorized the policy?
According to Aguirre, NARA and the SEC OIG may “not be getting an accurate picture” of the SEC’s alleged violations. Last week, NARA stated it is “concerned that the SEC has been slow in creating records schedules…that will ultimately determine how long these MUI records need to be retained.” In other words, the SEC simply failed to come to an agreement with NARA on how long the MUI files had to be preserved.
This in itself would be a serious problem, since the SEC did not have the authority to destroy the MUI records without approval from NARA, according to the Federal Records Act. But Aguirre’s letter makes the case that the SEC’s destruction of the MUI files was actually a violation of an existing arrangement with NARA. Aguirre argues that this is not an insignificant distinction:
Either violation is serious and could subject the violator to criminal sanctions. Further, the manner in which the statute was violated may point to the responsibility of specific officials within the SEC. It is therefore even more important that NARA carefully parse the facts to determine exactly how the SEC decided to destroy thousands of files containing federal records. Otherwise, there can be no accountability.
Aguirre points to an existing agreement approved by NARA in 1992 that requires SEC “Investigative Case Files…including case files relating to preliminary investigations” to be retained for 25 years (emphasis added). Which raises a critical question: are “case files relating to preliminary investigations” the same thing as the MUI files?
Aguirre argues that “preliminary investigations” and “MUIs” are just different terms used to describe the same initial investigative process. Indeed, the SEC itself uses different terms to describe this initial stage: for instance, while MUIs are referenced throughout the SEC’s Enforcement Manual, SEC regulations refer to the same stage only as a “preliminary investigation.”
“The real issue that NARA should be investigating,” Aguirre wrote, “is who at the SEC came up with the idea of attributing a new name to a preliminary investigation and then using that device to destroy thousands of files of preliminary investigations.”
Aguirre followed up with a letter sent yesterday to SEC Chairman Mary Schapiro, in which he raised concerns that “the truth may be a victim” of ongoing discussions between the SEC and NARA on the alleged shredding of the MUI records. He asked Schapiro to inform NARA that there is no meaningful distinction between “preliminary investigations” and the MUI files.
Covering Up Wall Street Crimes: Matt Taibbi Exposes How SEC Shredded Thousands of Investigations
Democracy Now
August 23, 2011
http://www.democracynow.org/seo/2011/8/23/covering_up_wall_street_crimes_matt
Here’s an excerpt from a Matt Taibbi article that appeared in Rolling Stone earlier this year:
Why Isn’t Wall Street in Jail?
Financial crooks brought down the world’s economy — but the feds are doing more to protect them than to prosecute them
http://www.rollingstone.com/politics/news/why-isnt-wall-street-in-jail-20110216
Here’s how regulation of Wall Street is supposed to work. To begin with, there’s a semigigantic list of public and quasi-public agencies ostensibly keeping their eyes on the economy, a dense alphabet soup of banking, insurance, S&L, securities and commodities regulators like the Federal Reserve, the Federal Deposit Insurance Corp. (FDIC), the Office of the Comptroller of the Currency (OCC) and the Commodity Futures Trading Commission (CFTC), as well as supposedly “self-regulating organizations” like the New York Stock Exchange. All of these outfits, by law, can at least begin the process of catching and investigating financial criminals, though none of them has prosecutorial power.
The major federal agency on the Wall Street beat is the Securities and Exchange Commission. The SEC watches for violations like insider trading, and also deals with so-called “disclosure violations” — i.e., making sure that all the financial information that publicly traded companies are required to make public actually jibes with reality. But the SEC doesn’t have prosecutorial power either, so in practice, when it looks like someone needs to go to jail, they refer the case to the Justice Department. And since the vast majority of crimes in the financial services industry take place in Lower Manhattan, cases referred by the SEC often end up in the U.S. Attorney’s Office for the Southern District of New York. Thus, the two top cops on Wall Street are generally considered to be that U.S. attorney — a job that has been held by thunderous prosecutorial personae like Robert Morgenthau and Rudy Giuliani — and the SEC’s director of enforcement.
The relationship between the SEC and the DOJ is necessarily close, even symbiotic. Since financial crime-fighting requires a high degree of financial expertise — and since the typical drug-and-terrorism-obsessed FBI agent can’t balance his own checkbook, let alone tell a synthetic CDO from a credit default swap — the Justice Department ends up leaning heavily on the SEC’s army of 1,100 number-crunching investigators to make their cases. In theory, it’s a well-oiled, tag-team affair: Billionaire Wall Street Asshole commits fraud, the NYSE catches on and tips off the SEC, the SEC works the case and delivers it to Justice, and Justice perp-walks the Asshole out of Nobu, into a Crown Victoria and off to 36 months of push-ups, license-plate making and Salisbury steak.
That’s the way it’s supposed to work. But a veritable mountain of evidence indicates that when it comes to Wall Street, the justice system not only sucks at punishing financial criminals, it has actually evolved into a highly effective mechanism for protecting financial criminals. This institutional reality has absolutely nothing to do with politics or ideology — it takes place no matter who’s in office or which party’s in power. To understand how the machinery functions, you have to start back at least a decade ago, as case after case of financial malfeasance was pursued too slowly or not at all, fumbled by a government bureaucracy that too often is on a first-name basis with its targets. Indeed, the shocking pattern of nonenforcement with regard to Wall Street is so deeply ingrained in Washington that it raises a profound and difficult question about the very nature of our society: whether we have created a class of people whose misdeeds are no longer perceived as crimes, almost no matter what those misdeeds are. The SEC and the Justice Department have evolved into a bizarre species of social surgeon serving this nonjailable class, expert not at administering punishment and justice, but at finding and removing criminal responsibility from the bodies of the accused.
The systematic lack of regulation has left even the country’s top regulators frustrated. Lynn Turner, a former chief accountant for the SEC, laughs darkly at the idea that the criminal justice system is broken when it comes to Wall Street. “I think you’ve got a wrong assumption — that we even have a law-enforcement agency when it comes to Wall Street,” he says.
In the hierarchy of the SEC, the chief accountant plays a major role in working to pursue misleading and phony financial disclosures. Turner held the post a decade ago, when one of the most significant cases was swallowed up by the SEC bureaucracy. In the late 1990s, the agency had an open-and-shut case against the Rite Aid drugstore chain, which was using diabolical accounting tricks to cook their books. But instead of moving swiftly to crack down on such scams, the SEC shoved the case into the “deal with it later” file. “The Philadelphia office literally did nothing with the case for a year,” Turner recalls. “Very much like the New York office with Madoff.” The Rite Aid case dragged on for years — and by the time it was finished, similar accounting fiascoes at Enron and WorldCom had exploded into a full-blown financial crisis. The same was true for another SEC case that presaged the Enron disaster. The agency knew that appliance-maker Sunbeam was using the same kind of accounting scams to systematically hide losses from its investors. But in the end, the SEC’s punishment for Sunbeam’s CEO, Al “Chainsaw” Dunlap — widely regarded as one of the biggest assholes in the history of American finance — was a fine of $500,000. Dunlap’s net worth at the time was an estimated $100 million. The SEC also barred Dunlap from ever running a public company again — forcing him to retire with a mere $99.5 million. Dunlap passed the time collecting royalties from his self-congratulatory memoir. Its title: Mean Business.
The pattern of inaction toward shady deals on Wall Street grew worse and worse after Turner left, with one slam-dunk case after another either languishing for years or disappearing altogether. Perhaps the most notorious example involved Gary Aguirre, an SEC investigator who was literally fired after he questioned the agency’s failure to pursue an insider-trading case against John Mack, now the chairman of Morgan Stanley and one of America’s most powerful bankers.
Mike S.,
I hope Eric Schneiderman will be able to stand up to the barrage too.
According to the NYT article, there are some other Attorneys General who are questioning the deal:
“The banks balked at the $20 billion figure. And the talks seemed to stall over the summer, as Mr. Schneiderman and a few other attorneys general — Beau Biden of Delaware and Catherine Cortez Masto of Nevada, for example — questioned aspects of the deal.”
And from the Naked Capitalism article:
“Martha Coakley of Massachusetts and Catherine Masto of Nevada also have initiatives underway that are at odds with a settlement, and neither one looks interested in reversing course. We’ve also been told the Colorado AG may opt out of the deal.”
The daughter of one of my best friends is an ADA in Massachusetts and speaks highly of Coakley.
I’ve met Eric Schneiderman and I know a lot about him. He is a good, tough, independent man whose interest is truly in serving the public. I hope he can stand up to the barrage of those forces aligned against him. He certainly will try.
Corrupt Obama Administration Pressuring New York Attorney General to Support Mortgage Whitewash
by Yves Smith
Naked Capitalism
http://www.nakedcapitalism.com/2011/08/corrupt-obama-administration-pressuring-new-york-attorney-general-to-support-mortgage-whitewash.html
Excerpt:
It is high time to describe the Obama Administration by its proper name: corrupt.
Admittedly, corruption among our elites generally and in Washington in particular has become so widespread and blatant as to fall into the “dog bites man” category. But the nauseating gap between the Administration’s propaganda and the many and varied ways it sells out average Americans on behalf of its favored backers, in this case the too big to fail banks, has become so noisome that it has become impossible to ignore the fetid smell.
The Administration has now taken to pressuring parties that are not part of the machinery reporting to the President to fall in and do his bidding. We’ve gotten so used to the US attorney general being conveniently missing in action that we have forgotten that regulators and the AG are supposed to be independent. As one correspondent noted by e-mail, “When officials allegiances are to El Supremo rather than the Constitution, you walk the path to fascism.”
Revealingly, one of the Administration’s allies said: “Wall Street is our Main Street.” And the worst is that this remark may not be a cynical Ministry of Truth pronouncement. Team Obama bears all the hallmarks of being so close to banks and big corporations that it has lost all contact with and understanding of mainstream America.
The latest example is its heavy-handed campaign to convert New York state attorney general Eric Schneiderman to a card carrying member of the “be nice to our lords and masters the banksters” club. Schneiderman was the first to take issue with the sham of the so-called 50 state attorney general mortgage settlement. As far as the Administration is concerned, its goal is to give banks a talking point and prove to them that Team Obama is protecting their backs in a way that the chump public hopefully won’t notice.
The Administration joined this effort to hurry it forward and assure it resulted in a suitably financier-friendly outcome. And it has done so despite recent HUD inspector general’s audits finding that the five biggest servicers were defrauding taxpayers. We’ve heard not a peep of follow up on that front; instead, the Administration keeps leaking its tired “A settlement is just around the corner” story.
Schneiderman is far from the only person to see what a sellout this “settlement” is. The basic premise of a settlement is to obtain some sort of restitution to induce a prosecutor/plaintiff to drop a current or likely lawsuit. For the aggrieved party to get a good settlement, it needs to have a credible case, as in facts (a smoking gun or two) and a legal theory as to why those facts mean the perp is in hot water.
From Glenn Greenwald at Salon. His post has links to two other interesting articles:
Obama administration takes tough stance on banks
http://www.salon.com/news/opinion/glenn_greenwald/2011/08/22/banks/index.html
Excerpt:
In mid-May, I wrote about the commendable — one might say heroic — efforts of New York Attorney General Eric Schneiderman to single-handedly impose meaningful accountability on Wall Street banks for their role in the 2008 financial crisis and the mortgage fraud/foreclosure schemes. Not only was Schneiderman launching probing investigations at a time when the Obama DOJ was steadfastly failing to do so, but — more importantly — he was refusing to sign onto a global settlement agreement being pushed by the DOJ that would have insulated the mortgage banks (including Bank of America, Citigroup, JPMorgan Chase and Wells Fargo) from all criminal investigations in exchange for some relatively modest civil fines. In response, many commenters wondered whether Schneiderman, if he persisted, would be targeted by the banks with some type of campaign of destruction of the kind that brought down Eliot Spitzer, but fortunately for the banks, they can dispatch their owned servants in Washington to apply the pressure for them:
*****
Attorney General of N.Y. Is Said to Face Pressure on Bank Foreclosure Deal
https://www.nytimes.com/2011/08/22/business/schneiderman-is-said-to-face-pressure-to-back-bank-deal.html?_r=1&ref=business&pagewanted=all
By GRETCHEN MORGENSON
Eric T. Schneiderman, the attorney general of New York, has come under increasing pressure from the Obama administration to drop his opposition to a wide-ranging state settlement with banks over dubious foreclosure practices, according to people briefed on discussions about the deal.
In recent weeks, Shaun Donovan, the secretary of Housing and Urban Development, and high-level Justice Department officials have been waging an intensifying campaign to try to persuade the attorney general to support the settlement, said the people briefed on the talks.
Mr. Schneiderman and top prosecutors in some other states have objected to the proposed settlement with major banks, saying it would restrict their ability to investigate and prosecute wrongdoing in a variety of areas, including the bundling of loans in mortgage securities.
But Mr. Donovan and others in the administration have been contacting not only Mr. Schneiderman but his allies, including consumer groups and advocates for borrowers, seeking help to secure the attorney general’s participation in the deal, these people said. One recipient described the calls from Mr. Donovan, but asked not to be identified for fear of retaliation.
Not surprising, the large banks, which are eager to reach a settlement, have grown increasingly frustrated with Mr. Schneiderman. Bank officials recently discussed asking Mr. Donovan for help in changing the attorney general’s mind, according to a person briefed on those talks.
Not about the SEC–but on the subject of squelching information:
Moody’s managers pressured analysts, former executive says
By David S. Hilzenrath, Published: August 19
Washington Post
http://www.washingtonpost.com/business/economy/moodys-managers-pressured-analysts-former-executive-says/2011/08/19/gIQA3zkyQJ_story.html
Excerpt:
The Moody’s credit-rating agency has been widely blamed for contributing to the financial bubble and its devastating implosion by giving high grades to dubious investments.
Now one of its own is leading the criticism.
In an 80-page letter to federal regulators, a former Moody’s senior vice president says the firm systematically squelched its analysts’ private doubts to keep deals and profits flowing.
Moody’s managers intimidated analysts who stood in the way of favorable ratings, and its compliance department harassed employees who took an independent stand, according to the former analyst, William J. Harrington.
According to Harrington, a fundamental conflict of interest permeated the firm’s culture: Like other credit rating agencies, Moody’s is paid by the very companies whose securities it is supposed to grade objectively.
“Moody’s incentivized an analyst to accede to all items demanded by an external paymaster and to work to the paymaster’s schedule,” Harrington wrote.
“The goal of management is to mold analysts into pliable corporate citizens who cast their committee votes in line with the unchanging corporate credo of maximizing earnings of the largely captive franchise,” he wrote.
Repeatedly, Moody’s management ignored internal warnings that employees responsible for rating securities backed by home mortgages were “pumping out worthless opinions,” he wrote.
Asked to respond to Harrington’s letter, a Moody’s spokesman defended the firm’s work. “We cannot emphasize strongly enough the importance Moody’s places on the quality of our ratings and the integrity of our ratings process,” spokesman Michael N. Adler said in a statement.
“For that very reason, we have robust protections in place to separate the commercial and analytical aspects of our business, and our ratings are assigned by a committee — not by any individual analyst,” Adler added.
Harrington says Moody’s management subverted the objectivity of the committees, partly by belittling opposing views.
This video from the Dylan Ratigan Show is from 2009:
Matt Taibbi Discusses “Obama’s Big Sell-Out to Wall St” on MSNBC
Bill Black’s eye-popping opening statement at House FinServ hearing on Lehman Bros. failure
http://www.youtube.com/watch?v=ld5tERIBvsg&feature=related
(Black is the former Litigation Director of Federal Home Loan Bank Board.)
Following up on my last comment:
William K. Black talks with Bill Moyers on PBS (April 3, 2009)
http://www.pbs.org/moyers/journal/04032009/watch.html
Summary of program:
The financial industry brought the economy to its knees, but how did they get away with it? With the nation wondering how to hold the bankers accountable, Bill Moyers sits down with William K. Black, the former senior regulator who cracked down on banks during the savings and loan crisis of the 1980s. Black offers his analysis of what went wrong and his critique of the bailout
From 2009:
Senior S&L Regulator Says Government Engaging in Massive Cover-Up of Economic Crisis: “The Entire Strategy Is to Keep People from Getting the Facts”
Washington’s Blog
April 4, 2009
http://www.washingtonsblog.com/2009/04/senior-s-regulator-says-government.html
William K. Black was the senior regulator during the S&L crisis, and an Associate Professor of Economics and Law at the University of Missouri (bio).
Black says that massive fraud is what caused the economic crisis. As one example, he explains that everyone involved knew that the CDOs which packaged subprime loans were not AAA credit-worthy (which means that they are completely risk-free). He also said that the exotic instruments (CDOs, CDS, etc.) which spun the mortgages into more and more abstract investments were intentionally created to defraud investors.
Moreover, Black says that the government’s entire strategy in dealing with the economic crisis is a massive cover-up:
[They] don’t want to change the bankers, because if we do, if we put honest people in, who didn’t cause the problem, their first job would be to find the scope of the problem. And that would destroy the cover up….
Geithner is … covering up. Just like Paulson did before him….
These are all people who have failed. Paulson failed, Geithner failed. They were all promoted because they failed….
Until you get the facts, it’s harder to blow all this up. And, of course, the entire strategy is to keep people from getting the facts….
[Question] Are you saying that Timothy Geithner, the Secretary of the Treasury, and others in the administration, with the banks, are engaged in a cover up to keep us from knowing what went wrong?
[Black] Absolutely….
They’re deliberately leaving in place the people that caused the problem, because they don’t want the facts. And this is not new. The Reagan Administration’s central priority, at all times, during the Savings and Loan crisis, was covering up the losses.
[Question] So, you’re saying that people in power, political power, and financial power, act in concert when their own behinds are in the ringer, right?
That’s right. And it’s particularly a crisis that brings this out, because then the class of the banker says, “You’ve got to keep the information away from the public or everything will collapse.”
File Disposal Still an Issue for S.E.C.
By EDWARD WYATT
New York Times, 8/18/2011
http://www.nytimes.com/2011/08/19/business/file-disposal-still-an-issue-for-sec.html?_r=1
Excerpt:
WASHINGTON — More than a year after a whistle-blower said that the Securities and Exchange Commission was illegally destroying records of preliminary investigations, the commission has yet to agree with government archivists on which records to keep and which to discard.
That has worried Paul M. Wester Jr., chief records officer at the National Archives and Records Administration, who has written three letters to the S.E.C. since July 2010 on the matter. His concern was repeated Thursday in a statement by the archives.
In the absence of an approved plan to retain records, Mr. Wester wrote in one of the letters, the agency “remains concerned” that the records “remain at risk,” despite an S.E.C. guarantee that it has been keeping those documents since the disposal policy came to light last year.
The S.E.C. “did not have authority to dispose of” the records, said the statement issued Thursday. The archives is continuing “to work with the S.E.C. to prevent future unauthorized destruction” of investigation files.
The records at issue involved preliminary inquiries, known as matters under investigation or M.U.I.’s, which are inquiries that the S.E.C.’s enforcement staff decided not to elevate to full investigations. Typically, these files include “correspondence, interagency memoranda or other documents supporting a decision not to open a formal investigation,” according to an S.E.C. letter from last year.
“While the National Archives is satisfied that the destruction has stopped, N.A.R.A. remains concerned that the S.E.C. has been slow in creating records schedules for review and approval by the Archivist of the United States that will ultimately determine how long these M.U.I. records need to be maintained,” the archives’ statement said.
John Nester, an S.E.C. spokesman, confirmed that the agency was working with the archives to agree on a policy on file retention. “You have to be thorough and deliberative,” he said.