The Corporate Observer Blog : Consumer Protection, Corporate Abuse : Class Action Lawyer & Attorney : Steven Berk Law Firm

All those Ivy League graduates working on trading formulas that yes, will yield some short-term profits, but in the end merely rachet up volatility and risk in the market – that will no doubt find Wall Streeters back in the halls of Congress looking for a handout.

Just when we thought maybe, just maybe, greed would take a back seat to long term value and prudent compensation that incentivizes sound risk taking, the WSJ reports that pay at public companies on Wall Street will reach a new record: $135 billion.  Wow.

What’s up with that?  The same Wall Street that brought us to the brink of a worldwide catastrophic depression; just ask Federal Reserve Board Chairman Ben Bernanke and Former Treasury Secretary Hank “I’m vomiting in public from all the stress” Paulson how close we were.  The same Wall Street that came hat in hand to Uncle Sam and the American Public, seeking oh, “about a trillion dollars” should do it.  

Ok.  So some of that money was paid back.  But from my vantage point, the driver there was Wall Street’s singular desire to be out from under additional regulation imposed on them by the TARP and other federal bailout programs.

I would not be so outraged if the American public were getting something for these record-breaking salaries.  Hey how 'bout the creation of some jobs fellas?  Last time I checked unemployment remained dangerously close to 10%.  What about some innovative financial product to reduce the deficit or some effort to stem the tide of home foreclosures?  Nope.  Instead it’s the same story.  Trading on exotic financial instruments, arbitrage, shorting markets, stocks and commodities.  That’s where the money is and that’s what we’ll get.  All those Ivy League graduates working on trading formulas that yes, will yield some short-term profits, but in the end merely rachet up volatility and risk in the market – that will no doubt find Wall Streeters back in the halls of Congress looking for a handout.

I hope when that happens – and it will – policy makers have the guts to stand up to the Street and impose limitations and sanity to future compensation.

• Print
• Comments
• Trackbacks
• Share Link

Then many months later [the Commission] issued another report for the bookshelves, destined only to gather dust next to hundreds of other reports of one catastrophe or another.

Remember that little financial meltdown we had just a few years ago?  You know the one.  Stock portfolio of American households lost a collective $XXX billion.  Poof, gone.  It was widely believed by knowledgeable insiders that we were on the precipice of a worldwide depression.  Even the mighty Hank Paulsen was scared.

The government’s immediate response (which I supported) was TARP and the near-trillion dollar bailout.  But according to the crisis playbook, Congress authorized (with much bluster and pomp) the formation of a Commission to get to the bottom of this threat so it doesn’t happen again.  The usual suspects were rounded up—the Commission’s leaders are former California Treasurer Phil Angelides and 28-year congressman Bill Thomas—and they had a few hearings.  Then many months later they issued another report for the bookshelves, destined only to gather dust next to hundreds of other reports of one catastrophe or another.

To be sure these well-meaning public servants did their best.  I am not for a second suggesting they were somehow unduly influenced, biased or corrupt in any way.  Rather they fell victim to the pasteurization of the bi-partisan political commission.

So, no surprise, the report is a yawn.  Nothing particularly insightful.  Heck if you want to understand the meltdown while enjoying a good read I recommend Joe Nocera and Bethany McLean’s All the Devils Are Here or Michael Lewis’ The Big Short.

Unfortunately the guys at the FCIC were not just writing a book.  They had some enforcement authority.  They had the power to root out the bad guys and send referrals to the Department of Justice.  It has been widely reported that they may refer a few individuals for civil prosecution, but even that seems unlikely and who knows what DOJ will do.

Ok smart alec, who should be drawn and quartered, who should be sent up the river?  The simple answer is someone, everyone, entire Departments, anyone.  Criminal prosecutions have a way of getting people’s attention and changing behavior for a wide swath of people around the accused.

Specifics, give us specifics: okay how ‘bout those guys at Countrywide, all of whom knowingly engaged in a mortgage-backed orgy, day in and day out allowing anyone with a pen to sign for a no-doc mortgage.  What of those Wall Street warriors who kept selling mortgage-backed securities long after they knew they had questionable value?  And do you mean to tell me that no one at Fannie Mae or Freddie Mac had the facts but kept playing the game?  That they weren't hoping beyond hope that by the time the music stopped they would be long gone, enjoying a multimillion dollar pension.

Sadly, history will repeat itself.  In the end financial meltdowns can be good business for many.  Commissions are window dressing and just part of the playbook.

• Print
• Comments
• Trackbacks
• Share Link

Uncharacteristically, FINRA plans to propose a rule that makes it easier and fairer for securities disputes to be decided.  Arbitration, currently presided over by a group least one member of the securities industry, would shift to a committee of only members of the public.

The SEC continues to crack down on phone investment scams that target innocent investors.  For a complete list of press releases regarding their cases, see the Commission’s press releases.

Some large banks have fully repaid their TARP loans, but we must not forget the billions loaned out to smaller banks, many of which are struggling to repay.  Less than 20% of the banks that accepted loans have repaid fully, and over $60 billion was still due to the Treasury as of August, Reuters reports.

Assisted by David Martin

• Print
• Comments
• Trackbacks
• Share Link

 “Instead of writing Secretary Geithner, what Congressman Sestak really needs to do is use his good offices to propose legislation creating a private right of action to curb TARP abuses.” 

Recently, Representative Joe Sestak (D-Pa) opined on The Hill’s Congress Blog that we need more oversight and transparency for TARP funds.  You think???  Of course we do.  It is the largest federal spending program in a generation.

Back in July, I called attention to this issue, seeking to protect Main Street from being victimized once again.  I want to congratulate Congressman Sestak for seeing the light on this issue.  In a time when it’s easy to doubt Capitol Hill, it is refreshing to see Mr. Sestak focused on protecting Main Street.

Surely one method of protecting Main Street, as Mr. Sestak points out, is enhanced transparency regarding the use of TARP funds.  But transparency – perhaps the most popular word in politics – is hardly going to be enough.

We have a brewing crisis, complaint numbers (each of which requires investigation) are off the charts and incentives are still strong for companies to misuse TARP funds.  As commendable as it is that Mr. Sestak calls attention to this critical issue, his effort will fall short of helping Main Street.  Put bluntly, a single letter to Treasury Secretary Geithner may help with your constituents but it won’t hinder the fraud and abuse lurking in the TARP program. 

Back in July, already thousands of tips were received concerning possible fraud.  The government can’t investigate everyone, but private attorneys can and need the right and incentive to do so. 

Instead of writing Secretary Geithner, what Congressman Sestak really needs to do is use his good offices to propose legislation creating a private right of action to curb TARP abuses.  Give the thousands of hungry, young, talented and committed attorneys in this country a chance to help both themselves and Main Street by zealously pursuing abuses of TARP funds. 

Congressman, we stand ready to help you draft that legislation.  It is time.  You would be doing a great service to the millions of Americans who were forced to shoulder the financial consequences of Wall Street abuse.

Assisted by David Martin and Jessica Begen

• Print
• Comments
• Trackbacks
• Share Link

 A “Private Right of Action” Must Be Added to the TARP Legislation

TARP monies must not become a slush fund for the ethically challenged.

On July 21, Neil Barofsky, Special Inspector General for the Troubled Asset Relief Program, released his office’s quarterly report.  To his credit, he demonstrates the kind of transparency taxpayers who are footing the bill deserve.  Notably on page 5-6 of the report, he identifies and describes in some detail 35 investigations brought by his office.  He also describes in depth two matters that have already been publicly filed.  Good stuff indeed.  But the magnitude of this program (trillions of dollars), the profound seriousness of this endeavor to our economy, and the hopes of future generations demand more. 

A far greater degree of enforcement must be available. 

In just a few months, Mr. Barofsky has received 3,200 tips.  This means trouble is afoot as many feared. It needs to be “nipped in the bud”.  Confidence must be maintained and the TARP monies must not become a slush fund for the ethically challenged.

We recommend Mr. Barofsky seek additional funding for more staff and investigators.  The Administration should also request that Congress amend the TARP to allow a “private right of action."  Private attorneys ferreting out fraud can make a real difference.  We need more than 2 filed cases to serve as a deterrent, protect the essential mission of the TARP, and limit the cost to taxpayers.

We cannot afford to wait.

The More Transparency the Better

We applaud the report as a small step in the right direction.  Much has been made of the $27.3 trillion that the report warns could end up as the overall cost of resolving the economic crisis.  Although this figure represents a worse-case scenario, the magnitude of that amount should alarm taxpayers and regulators alike.  To avoid coming close to that number, the Treasury must heed the recommendations of the report by: (1) enacting realistic mandatory transparency requirements; and (2) opening its own methods and decisions to the glare of public scrutiny.

As Justice Douglas said in framing the Securities Act of 1933, in the midst of the Depression, “Clean Air is the best disinfectant.”

(Post was prepared with the assistance of David Martin, University of North Carolina 2010)

• Print
• Comments
• Trackbacks
• Share Link