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Why Didn’t They Think of That?

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Cross-posted at Blue Commonwealth.

It has been nearly three years since the collapse of Lehman Brothers, and the related malfeasance of Lehman and other Wall Street firms.   Hank Paulson has admitted Lehman’s balance sheet was bogus.  According to Robert Reich, Goldman Sacks helped Greece hide its public debt and then bet against it with credit default swaps, those risky derivatives, in the news so much in 2007-2009, to avoid risking its own capital.  If you think the scenario is familiar, think AIG.  By any stretch of the imagination, these overpaid and overfed hacks and flacks should have been left to suffer the consequences, stripped of their wealth and in prison.  Why hasn’t this happened?  We have waited and waited for economic reform we can believe in, which Wall Streeters are fighting tooth and nail.  We’ve been told that we can’t have the meaningful reform we crave, that we must accept “bipartisan” compromise.  The GOP slings its empty “free market” bull (bull, because they never actually mean a free market, but rather a rigged market, in practice). Then they blame an administration inheriting the effects of their party’s utter lack of fiscal stewardship.  Now they fight reform to fix it and assure proposed re-regulation is toothless.  And of course, it’s everyone’s fault but their own.  The faux-helpless foxes at the SEC guarded the hen house then.  Even our own side has acted fairly helpless in the face of so many misdeeds. Should the administration not use the tools and methods available to it, it will deserve later scrutiny and judgment.  I reserve judgment for the time being. However, as Reich observes, it turns out that we do not need “reform” to do something about it.

The oft-forgotten Sarbanes-Oxley (2002) bill was designed just for such an occasion, says Robert Reich.  In his article entitled “Fraud on the Street,” Robert Reich points out what many inside (and outside) of government  won’t admit to you.  To wit:

Sarbox, as it’s come to be known, was designed to stop this. It requires CEOs and other senior executives to take personal responsibility for the accuracy and completeness of their companies’ financial reports and to set up internal controls to assure the accuracy and completeness of the reports. If they don’t, they’re subject to fines and criminal penalties.

Sarbox is directly relevant to the off-the-balance-sheet derivative games Wall Street has been playing. No bank CEO can faithfully attest to the accuracy and completeness of its financial reports when derivatives guarantee that the reports are incomplete and deceptive.

This statement appears in the newest issue of The American Prospect.  For those who do not have the magazine, here is the link. Why didn’t they ( our administration and our Congressional leaders) think of that?  Sarbanes-Oxley can bring fraudulent Wall Streeters to justice. In an adaptation of his original article, Reich also makes his case for current law’s power to bring economic justice to those whose “apologies are cheap” (and very, very late).  You can read the adaption at Huffington Post.  

I do not suggest that Sarbanes-Oxley is all the reform we need.  But it is a start.  Reich raises a legitimate point, which we in the progressive media should drive home.  Why shouldn’t the administration bring economic justice by holding the culprits accountable?  But more to the point, why didn’t they think of that?

  • Teddy Goodson

    and have been tiptoeing around, waving one distraction after another, such as Chris Dodd’s hearings and arguments with his Republican committee members on Wall Street reform; or, such as the negotiations with the drama queen Senator from Maine over health care; or the reports out of Afghanistan; or the announcement about education reform; or the announcement of offshore drilling and subsidies for electric cars…. in other words, the White House probably felt it had too many other things to worry about.

    We can imagine what a horrendous cacophony would have/will automatically ensue as soon as even a whiff of legal action against the arrogant masters of the universe wafts out across the media landscape inside the Beltway. Could we have stood another extended and raucous typhoon so hard on the heels of a year of health care reform?

    On the other hand, this could be one bit of change even Tea Partyers might find acceptable (until the corporate flacks at Fox told them otherwise).  

  • TomPaine

    Chris Dodd was not motivated to develop any substantial banking and investment reform legislation until after he decided to not seek reelection!

  • tx2vadem

    There are accounting rules that govern reporting derivative transactions on your financial statements.  As long as they reported them in conformance with GAAP, then sections 302 and 906 of the Sarbanes-Oxley Act would not be useful.  For 906, the CEO and CFO have to intentionally file a false statement to incur criminal penalties.  In addition, they have the opinion of their public auditor to shield them.  And unless there is some evidence that they did know that their financial statements materially misrepresented their financial position, the best the SEC can do is once a staff accountant gets around to reviewing their filing send them some questions.

    I think it is also important to consider the resources of the agency itself.  Is the SEC appropriately staffed to review all of the filings it receives and all of the complaints it receives?