• Government Capping Compensation?

As you shelter yourself in a cool closet from the hailstorm of healthcare promotion, Congress and the President are sliding into home plate with compensation controls in the senior offices of financial firms, … for starters. The new Corporate and Financial Institution Compensation Fairness Act will provide no other than the SEC with the ability to establish the rules on how executives are paid, and will enable government agencies to effectively control the “inappropriate risks,” practices of financial companies. Institutions with less than $1 billion in assets will be exempt. This further intrusion into the fiber of corporate America by those who have completely failed in carrying out their responsibilities to the electorate is another misguided kneejerk reaction.

This bill will empower government bureaucrats to control compensation plans that will threaten the safety of financial institutions, or adversely impact economic conditions or financial stability. Have no fear, the newly hired experts will figure this part out, what it means and how to implement it, and they will diligently look after your interests.

There’s hope, however, with some minor good news in this bill that resides in its provision for procedures for shareholder approval of golden parachutes. What this portion of the bill looks like in final form will dictate whether or not it makes any sense, but in the meantime, three cheers for the crumbs thrown at demands for common sense. We shall not hold our collective breath. Another clause that might have provided teeth in a corporate structure fix was the providing of a voice to shareholders on executive pay. It failed miserably in its final form, since the shareholder vote on executive pay will be non-binding, therefore will leave shareholders where they were before, … “we’ll tease you with a little influence on the company you own, but, … naah, just kidding, get lost and go back to your trading screens.” Shareholders, large and small, should have greater influence on the proceedings of the public companies they own, and such influence should be addressed at the Board of Directors level. The government is not improving the lot of shareholders, but is escalating its own intrusion into the boardrooms of America.

We should remember that this is the same Administration and Congress that couldn’t even track the bailout money, or put strings on the money to restrict it from getting dished out in the form of bonuses. This is also the government that threw those billions at financial institutions on the pretext that they had to be bailed, to avert a depression, yet no one in government could tell you where that money actually went. So how was it, exactly, that those bailout billions were allocated? The toxic assets could not be defined or audited, which means that the fear mongering and threats were outright lies. Wall Street skunked this Administration, as well as the last one, and as a result a colossal extortion of the taxpayer was allowed. Did anyone making these horrendous decisions ask the hundreds of thousands of businesses from coast to coast what their banking preferences might be? … Would you rather deal with a gigantic-too-big-to-fail-market-dominant bank headquartered in New York, or a medium or smaller sized regional bank? When did “failure” get expunged from the dictionary of American Capitalism?

Government intervention has reduced competition in the banking sector, allowing the favored few bailout-receiver-therefore-government-backed behemoths to attract investor support, and has enabled their acquisitions of not so fortunate competitors.

All of this frenzied government activity pretends to be response to the outrage against some of the insanity exercised by some like AIG, Goldman Sachs, and Morgan Stanley. The $11 billion plus, awaiting the bonusable at Goldman should soon make for incendiary fireworks, and support the government cause. Using public anger as cover to implement invasive measures is rather expected from a government that has failed to acknowledge or accept any responsibility for the environment that incubated the bubble which burst into a recession. Giving more power to vehicles such as the SEC for example, reminds us of the abject incompetence the SEC demonstrated through the economic extravagance that allowed Wall Street the power and influence to exploit, and then erode, the financial health of the Nation. Did the SEC also not have a front row seat to Bernie Madoff’s implementation of an extensive 40 year long grotesque personal compensation program?

Sweeping expansion of government incompetence into corporations is an invasion that will not be reversed. Other more intelligent policies should be considered instead of launching clusters of bureaucrats to invade company offices in all corners of the country. One could consider implementing laws against monopolies, but it would be more effective to start with segregating the large banking institutions into more pure line of business sectors. It really comes down to reinstating certain portions of the Glass-Steagall Act that was repealed in 1999. Hundreds of millions were expended by the large banking institutions to achieve the repeal of the Act, therefore a reversal would be very difficult. Given the present climate of Washington dependence on Wall Street cash, even “difficult” might be a stretch, however, such reinstatement would bring back some peace of mind to taxpayers in the long-term.

The critical functions provided by undistorted banks operating within narrow guidelines should be reconsidered. The contamination of many banks over the past decade, with the annexation of such things as brokerages, and the underwriting or trading of complex securities, should be reversed. Government should direct existing oversight bodies to perform their duties, including the enforcement of laws dealing with asset requirements, capital ratio leveraging, and lending guidelines. Then, government might provide shareholders with more teeth to bite when necessary, and leave them to rule over freshly formed and more independent Boards of Directors.

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• The Deal To Make With Madoff

The icon embodying our generation’s perception of the more extreme and baser elements pervasive on Wall Street will receive a sentence this summer that will extend far beyond his life expectancy. The devastated thousands of sources that rendered up the $65 billion Madoff fraudulently appropriated will not be satisfied. Neither will society’s need for necessary corrections of the system that continues to sanction thievery.

The mainstream media suggests that his 11 felony counts should spread like shrapnel to his wife and kids, and to his associates. Madoff stated in court that the businesses they ran were, “legitimate, profitable and successful in all respects.” The importance of this court delivered statement is not what he said, but what his claim reveals of the prosecutorial shortcomings in his case. Evidently the prosecutors have not effectively extracted the most important information from this well-connected and very effective scoundrel. Madoff is under no obligation to cooperate since he has no deal with the state. The prosecution attempted to extract admission of conspiracy from him. This accomplished nothing, and his lawyer indicated that Madoff has accepted the fact that he will die in jail.

We have previously written on this case with The Madoff Letter, however, with Madoff’s pleading concluded, we feel strongly that prosecutors should move to make him an offer that will render a maximum of the dispersed capital back to the original investors, and surface a majority of the co-conspirators hiding far beyond the circle of the Madoff family. Most importantly, an effective deal would bring the implementation of wide-ranging fixes to the regulatory cracks that continue to enable such broad abuse on the Street.

To successfully achieve these objectives, let’s set aside the public fury calling for blood, and attempt to extract the highest possible benefit to society. The prosecutors may in future use his family as leverage in extracting information from him, however, with his guilty plea, Madoff has made this unlikely in the near or mid-term, and such efforts could take many years to resolve. Time will work against the prosecution in bringing satisfaction in these cases, and the last thing they should wish for is that harm comes to Madoff in prison.

Going after his family might satisfy emotions, but as such a process evolves through years of judicial wrangling, it will provide little of real value toward the principal objectives. Given that he has accepted his fate, the justice system should make Madoff a deal that would provide him some faint hope before he dies. Give him the prospect of spending some free time with his children and grandchildren before his days are over.

If billions of dollars are recovered from offshore accounts, from foreign feeder funds, and from an endless list of individuals who catered to the Madoff cash collection by accepting kickbacks, does it matter if Madoff once again sees daylight? If the long list of individuals who conspired gets rounded up to join the ranks of the incarcerated, does the greater good become advanced? If the specifics of regulatory shortcomings, and failures or incompetence of the “overseers,” such as Congress and the SEC, receive unprecedented attention, and correcting legislation becomes enacted, would this not reduce future recurrences of colossal or amorphous frauds? Would the 5,000 people whose lives have been dramatically affected not welcome a significant recovery of their capital? Of course.

Make a deal Madoff will not refuse. Provide Madoff sight of the end of his tunnel. Take ego and emotions out of the equation, and make light deals with each member of his family. Exchange the leniency for a complete and specific unraveling of the past thirty years Madoff spent in the more dubious financial chambers of Wall Street, Geneva, London, Monaco or Singapore. Get all names and amounts. Then go after all of them, extraditing many from the comfort of protective jurisdictions while those countries still need all the financial goodwill they can get, and grab the cash these co-conspirators stashed as you bring them to justice on the streets of New York.

Revenge in this case would not positively serve the society Madoff abused, and he is not likely to atone for his crimes. What matters now, more than retaliation on this former NASDAQ Chairman, is the achievement of some restoration, and salvaging as much as is possible of the destruction rendered by this monstrous crime. Let his dream hold contain a whiff of freedom, as he rests uncomfortably in his new austere surroundings. Do whatever it will take for him to cough it all up.

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• FBI’ Shifts – Counter-terrorism To Anti-Fraud

As the economy’s meltdown confuses politicians and economists, and stresses businesses and wage earners, the FBI has suddenly discovered a new path to career advancement. It has announced open season on the financial community with 530 corporate fraud investigations.

The FBI also claimed that 38 of these new investigations involve some of the biggest names on Wall Street, and that it has a record 1,800 investigations digging into mortgage fraud. Mortgage industry professionals, including the CEOs of companies, brokers, and lawyers are apparently being scrutinized for their roles in the evaporation of hundred of millions of dollars.

Some of the disappearance is related to the $700 billion Troubled Asset Relief Program’s cash distribution already dispensed. No-one was watching. What can really be expected for the stimulus money Obama and Congress will shortly be disposing of? Neil Barofsky, the special inspector general of the TARP program put it rather aptly, “History teaches us that an outlay of such money in such a short period of time will inevitably draw those seeking to profit criminally.” This is evidently a behavior newly discovered amongst these so-called pages of history. We can assume that anyone of the millions of taxpayers who are being asked to go into massive debt, could easily have lent a more watchful eye over the apportionment of cash than the amateurish efforts which the Administration and Congress have provided.

All of this, of course, is intended to allay, even anesthetize the public fears that its precious cash is, and will be, judiciously dispensed throughout the attempt to stimulate the economy. Taxpayers must be convinced that the trillions that will be borrowed on their behalf to bailout failing or troubled businesses, are in good hands. Every tactic, including fear and panic, is being applied to convince America that this unprecedented borrowing is justified, and execution of the cash distribution will be diligently overseen by government agencies. Taxpayers must also be persuaded that government intrusion in corporate America will, in time, have positive affect. How else can the emergence of future Madoffs be prevented? Shifting public consciousness is a slow multi-level, multi-dimensional process.

We can rest assured that the FBI investigation, along with an allegedly revived SEC, will not delve too deeply into any affairs of financially healthy friends of the Administration or Congress. Future results will be consistent with past inaction on abuses perpetrated by former executives of organizations such Fannie Mae and Freddie Mac. Where was the SEC’s oversight during the past few months or the past year? Where is it now?

America can look forward to being entertained by in-depth coverage of occasional culprits assembled into the coral constructed specifically for scapegoats. Sure, they will be guilty, and mountains of evidence will be collected then disgorged on their heads with flamboyance in the public square, but they will be bit players in the game. The new FBI initiative is another tool in the arsenal prescribed for taking the taxpayer’s eye off the ball. Fraudsters should be punished. All fraudsters, including the ones at the top of any fraudulent food-chain, even those whose cosy relationships provide insulation from prosecution. Delivering otherwise is repeating tired myths, and is a prolonging of past disrespect of taxpayers.

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• Democrat Responsibility For The Economic Crisis

On their road to domination of Congress and The White House, the Democrats clamorously and successfully, accused the Republicans of engineering the current economic crisis gripping the nation. Today Democrats control the country. Now what?

As dust settles on reality, the evidence of responsibility now points backwards in large degree to the Democrats, not just Republicans. At least to a much greater degree than the MSM ever pretended. The following piece of video shows segments that cannot be repudiated. Democrats were the biggest beneficiaries of Fannie Mae and Freddie Mac generosity, yet their leaders were at the frontlines of defense for those who were at the heart of the mortgage financing bubble. Democrats not only prevented oversight and restraint, they enthusiastically applauded the abuse.

One can put spin in the retelling of most events, however, the high culpability level of Democrats for the financial disaster that has been inflicted on the Nation is difficult to deny. For example, the words of the bombastic Barney Frank, the Harvard educated Democratic Attorney from Newton, Massachusetts, cannot be spun, twisted or camouflaged. As you watch the video on the following link, you might wonder why no one has asked Barney Frank or the Democrats to explain his unambiguously stated position. Don't get too hung up on the fact that the video is from Fox News archives. They didn't force Frank to fabricate the Democratic position.
YouTube Fox News Video - Barney Frank & Co.

Apologists for Mr. Frank, including the NYT, steadfastly refuse to assign him responsibility for a questionable lack of interest or awareness in organizations under his aegis, while they suggest he is the smartest guy in Congress, and that he has been bold enough to “take on” Paulson. Has everyone forgotten that Mr. Frank is Chairman of The House Financial Services Committee? I rather think that this is more substantiation of his capacity to outwit and out-shout his detractors. And he does it with such compassion.

Mr. Frank has proven the most gifted Congressional deflector. He very successfully diverted attention away from his and Ms. Pelosi’s negligence, and from the role of Democratic policies and tendencies in the creation of a social experiment in utopia where everyone with or without income would own a home. Of all people to whom Barak Obama now owes infinite gratitude for his Presidency, Barney Frank is at the top of that list. Mr. Frank should have a bedroom in the Obama White House named after him. Well, … at least for four years.

Republicans can take some heat for not having been more vocal, however, leadership out of the current economic quagmire is now squarely in the hands of those who fuelled the fire that destroyed value across all markets burning trillions of dollars. We will be witnessing Mr. Frank and his associates parade the SEC through an artificial inquisition, knowing nothing will come of the performance. Questions will be asked and answered with equally tempered determination, resulting in nothing. Retaliations will be minimal, nor will they serve the public good, and restitutions will be impossible. While Democrats have won control of the nation, their motives and their capacities to steer America out of the recession with diligent concern for taxpayer interests, are in serious doubt and will continue to remain so.

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• WHERE IS THE ECONOMIC LEADERSHIP?

Ben Bernanke delivered a bleak message to Congress today with the usual waffling and back door escapes on any firm statements related to the Nation’s economic future, even its near term prospects. Although, in fairness, we should note that with as much aplomb as he could magnetize from Greenspan’s past performances in front of Congress, he emphatically stated, “accurately assessing and appropriately balancing the risks to the outlook for growth and inflation is a significant challenge for monetary policy makers.” No kidding? How long did his staff stay up to come up with such vapid pronouncements?

How does someone with so little spine get to such position of power and influence? Even as a front man for back room boys he comes off badly. At least when Greenspan double-talked his way through the halls of Congress we could admire the extent of his obfuscating turn of phrase. He said nothing, but he said it with a nonchalance, even a sang-froid that made you smile in wonderment questioning if this guy was human.

America looks for leadership out of the mess it finds itself in, and the best the Fed Chief can do is warn Congress against doing anything about the futures markets, but he does tell lawmakers to tackle the uncertainty in the housing market. So now, Congress, as confused as ever, will head to the commissary for a free meal on the taxpayers, and mumble to itself over the perplexing state of affairs with no answers in sight, and no one to turn to for guidance.

Inflation continues to advance, although to what degree is unclear since it very much depends on what one measures, but the price index is expected to exceed 4%. The food staples are seeing much higher increases however, but since non-food finished goods and services are in the calculation mix, the numbers that have the most impact on the average family are distorted.

The millions of small businesses at the core of the economy are being affected by the credit crunch, but their plight is ignored while they watch major Wall Street firms getting bailed out. Have no fear though, the SEC is actively investigating the subprime meltdown, stock manipulations and short sales, as well as false rumors tainting brokerages and hedge funds. …And heads will roll. OK, well, maybe not. Effective scapegoating is an extremely difficult art to practice. Where is Eliot Spitzer when the Nation needs him?

The recent blame for the housing market deterioration placed on the hapless borrowers who indebted themselves beyond their capacities has not been very subtle. Policy makers’ only planned action is to set restrictions preventing borrowing by the great unwashed. Credit quality standards will be raised. Oh, joy. Is Congress asking the guys who ran those disasters called Fannie Mae and Freddie Mac into bailout territory to return their million dollar bonuses? Congress is mute. Is anyone on The Hill or the White House raising an eyebrow over the usurious interest rates being charged by banks and credit card companies to a majority of clients? Bernanke’s tarot cards predict a late fall interest rate increase to 2.25%, which is a number as foreign to most borrowing taxpayers as the number of stars in the sky.

We cannot expect superhuman talent to accurately read crystal balls, and obviously economics is not a science, but leadership imbued with some common sense is not too much to expect from Washington and its expensive hired help. Leadership, plus some effectively placed oversight.

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