TMP has presented a terrible, yet not surprising, description of the enforcement arm of the SEC. Based on this detailed description of this dyfunctional enforcement arm, no wonder securities fraud has been running rampant.
Oh, and on a related note, Huffpo reports that:
The inspector general tasked with overseeing and auditing the Federal Reserve knows pretty much nothing about what the Fed is doing. . . . She did not know where the Fed has invested its $2 trillion on the liability side of the balance sheet. "I do not know. We have not looked at that specific area at this particular point on," she said.
Could you ever imagine George W. Bush scolding credit card companies for "ripping off" and "abusing" American consumers? Barack Obama is proposing to do away with the fine print and to do away with profits that depend on misleading hard-working families by hiding fees and penalties. He wants to sign a bill reforming the industry by Memorial Day.
In an article titled "The Born Prophecy," published in the May, 2009 American Bar Association Journal, Richard Schmitt writes about a 1996 conversation between Brooksley E. Born (shortly after she was named to head the Commodity Futures Trading Commission) and Alan Greenspan, the Chairman of the Federal Reserve.
The influential Greenspan was an ardent proponent of unfettered markets. Born was a powerful Washington, DC lawyer with a track record for activist causes. Over lunch in his private dining room at the stately headquarters of the Fed in Washington, Greenspan probed their differences.
Well, Brooksley, I guess you and I will never agree about fraud," Born, in a recent interview, remembers Greenspan saying.
"What is there not to agree on?" Born says she replied.
"Well, you probably will always believe that there should be laws against fraud, and I don't think there is any need for a law against fraud," she recalls him saying. Greenspan, Born says, believed the market would take care of itself.
Further down in this same article Schmidt notes that, according to Greenspan, Born has mischaracterized the conversation and that the alleged conversation is "wholly at variance with my decades-long-held view."
Actions speak louder than words, of course, proving that Greenspan is largely responsible for ruining the economy of the United States, and that he is lying to attempt to deny a conversation that is wholly consistent with his lack of interest in regulating financial institutions during his tenure at the Fed.
Eliot Spitzer, recently appearing with Arianna Huffington on CNBC, makes one strong point after another. Stress test the banks now, he asks? Shouldn't they have been monitoring the banks all along? It's as if a doctor who, after ten years under your care, and after you've suffered a heart attack, finally decides to take a blood test. What the hell has he been doing for ten years, given that he wasn't doing anything meaningful to monitor your health.
According to Spitzer (see the ten-minute video here), Greenspan's approach was absolutely destructive to the life savings of middle class tax payers, who are now in the process of subsidizing the big banks "who are burning our money." He points out that not one CEO of a bank has been removed. To the extent that some of the banks look OK at the moment, it's only because the federal government recently handed them a trillion dollars; "the Fed is sliding the money to the banks" through a "flim-flam game." That's the money they are burning through. He sees more financial crises to come, because we haven't made any significant changes to the system. "We have leveraged the future of our kids." He seriously doubts that the bank "stress tests" are real. Rather, he suspects that they are based on fantasy numbers relating to jobs and debt. He further points out that the Fed is run by the CEO's of the very banks that got us into trouble.
Spitzer refers listeners to an article he recently wrote for Slate. The questions focus on whether we should trust the Fed, especially the New York Fed:
Given the power of the N.Y. Fed, it is time to ask some very hard questions about its recent performance. The first question to ask is: Who is the New York Fed? Who exactly has been running the show? Yes, we all know that Tim Geithner was the president and CEO of the N.Y. Fed from 2003 until his ascension as treasury secretary. But who chose him for that position, and to whom did he report? The N.Y. Fed president reports to, and is chosen by, the Fed board of directors.
Huffington points out that the money we're dealing with now is taxpayer money and that it makes the Enron problem look minuscule.
Economist Robert Shiller (see the separate video) also suggest that the stress tests are not really about objective data, but they are about "animal spirits." They are attempts to make the American investors feel confident.
I’ve often had the thought that our massive meltdown could be figured out if we could only recruit some intelligent and well-motivated people to gather and analyze the evidence. But who would those people be? Who could serve as the template the type of character we seek out in such people?
Too bad we don't have 1,000 people like William K. Black. Black is the former senior regulator who cracked down on financial institutions during the savings and loan crisis of the 1980s, pointing fingers at five congressmen including John McCain. Black went about his work with such vigor that he even drew a death threat from Charles Keating.
Have you ever gotten excited listening to anyone talking about the economy? In this breath-taking interview with Bill Moyers, Black offers his own carefully studied analysis regarding the "bailout." This is not the intentionally abstruse financial jargon that you usually hear when pundits discuss the meltdown. The theme of the Black’s interview is this: "The best way to rob a bank is to own one," which is also the title to a book he wrote in 2005. Black teaches economics and law at the University of Missouri — Kansas City (UMKC). He was the Executive Director of the Institute for Fraud Prevention from 2005-2007.
This video is required viewing for anyone who is convinced that we are not getting the straight scoop from the corporate media or from our government.
We are in the middle of a huge economic crisis. Should we listen to the experts? Of course we should, because the economy and the financial sector are horrifically complicated.
What happens when the experts disagree, however? To which experts should we listen? I took a stab at that question recently, but I remain unconvinced that any of the economics experts can be trusted. Yes, there are people like George Soros who have made a phenomenal amount of money during the crisis, but this makes me wonder whether he (and all of the other recent success stories) are smart or whether they are lucky.
Today, Nicholas Kristof (in the NYT) reminds us that many experts (at least political experts) have a terrible track record. His opening sentence: "Ever wonder how financial experts could lead the world over the economic cliff?" He warns us of the “Dr. Fox effect,” named for a "pioneering series of psychology experiments in which an actor was paid to give a meaningless presentation to professional educators." Despite the fact that the lectures consisted of gibberish, they were well received. He mentions a study showing that "clinical psychologists did no better than their secretaries in their diagnoses." He also mentions a study by Philip Tetlock which determined that "The [82,000] predictions of [284] experts were, on average, only a tiny bit better than random guesses — the equivalent of a chimpanzee throwing darts at a board." Those experts who were the most impressive to most people "provided strong, coherent points of view, who saw things in blacks and whites."
I'm reminded of Alan Sokal's intentionally nonsensical article that he submitted to the postmodern journal, Social Text. See here for more of the details. BTW, if you want to generate your own postmodern bullshit, use this postmodernist bullshit generator (every time you hit the link, more impressive-sounding bullshit will be assembled automatically into an article).
How far astray are we led by "experts"? Consider investment "experts." There are none worse. Entire industries are built on the thoroughly disproved notion that a stock-picker can consistently beat the market. Dan Smolin has made a career of proving that stock-picker experts are thoroughly and demonstrably terrible at what they claim to be. But many of us still run to these financial "experts" to help us pick the "right" stocks.
Just think of the hundreds of political military experts who were similarly awful at their recommendations and predictions regarding the invasion of Iraq. They appeared hundreds of time on network TV during the few weeks prior to the invasion, all of them confident in their assessments and advice. Consider, also that fewer than 1% of them took anti-war stances. Consider, also, that many of these "experts" were secretly in positions to financially benefit from an invasion of Iraq.
Consider the thousands of religious experts, from coast to coast, who loudly and confidently tell their religious followers that there is a heaven and that they will go there, without the tiniest big of evidence in support. The followers of fundamentalist preachers continue to listen to these guys even when they attack evolutionary biologists, even though these religious leaders have no training in science and no basic understanding of the principles of evolutionary biology.
Everyone loves weather forecasters, right? These guys are wrong so incredibly often that no station dares to post their track records for those five-day forecasts they confidently present night after night.
The list goes on and on. We insist on listening to the experts, medical experts, beauty experts, psychologists, their track records be damned. That's because they are the best that we've got, no matter how wrong they are how often.
The bottom line is that we crave experts because we crave certainty, even where there isn't any. The confirmation bias causes us to rely heavily on experts hawking our own opinions, even when there is no evidence in support, as long as the expert dishes out those opinions with a loud confident voice. And a fancy business suit doesn't hurt either.
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