My investigation revels The REAL culprit for the crisis: SEC Chairman Chris Cox - Page 2

MC.no.spin · 09-21-08, 08:38 PM

In case anyone isn't sure what the SEC does:

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The SEC was established by the United States Congress in 1934 as an independent, non-partisan, quasi-judicial regulatory agency following years of depression caused by over production of goods, the introduction of consumer credit, and the Great Crash of 1929. The main reason for the creation of the SEC was to regulate the stock market and prevent corporate abuses relating to the offering and sale of securities and corporate reporting. The SEC was given the power to license and regulate stock exchanges. Currently, the SEC is responsible for administering seven major laws that govern the securities industry. They are: the Securities Act of 1933, the Securities Exchange Act of 1934, the Trust Indenture Act of 1939, the Investment Company Act of 1940, the Investment Advisers Act of 1940, the Sarbanes-Oxley Act of 2002 and most recently, the Credit Rating Agency Reform Act of 2006.

The enforcement authority given by Congress allows the SEC to bring civil enforcement actions against individuals or companies found to have committed accounting fraud, provided false information, or engaged in insider trading or other violations of the securities law. The SEC also works with criminal law enforcement agencies to prosecute individuals and companies alike for offenses which include a criminal violation.

To achieve its mandate, the SEC enforces the statutory requirement that public companies submit quarterly and annual reports, as well as other periodic reports. In addition to annual financial reports, company executives must provide a narrative account, called the "management discussion and analysis" (MD&A), that outlines the previous year of operations and explains how the company fared in that time period. Management will usually also touch on the upcoming year, outlining future goals and approaches to new projects. In an attempt to level the playing field for all investors, the SEC maintains an online database called EDGAR (the Electronic Data Gathering, Analysis, and Retrieval system) online from which investors can access this and other information filed with the agency.

Quarterly and annual reports from public companies are crucial for investors to make sound decisions when investing in the capital markets. Unlike banking, investment in the capital markets is not guaranteed by the federal government. The potential for big gains needs to be weighed against equally likely losses. Mandatory disclosure of financial and other information about the issuer and the security itself gives private individuals as well as large institutions the same basic facts about the public companies they invest in, thereby increasing public scrutiny while reducing insider trading and fraud.

The SEC makes reports available to the public via the EDGAR system. SEC also offers publications on investment-related topics for public education. The same online system also takes tips and complaints from investors to help the SEC track down violators of the securities laws.

U.S. Securities and Exchange Commission - Wikipedia, the free encyclopedia

Breaking it down further:

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Among the SEC's offices are:

The Office of General Counsel, which acts as the agency's "lawyer" before federal appellate courts and provides legal advice to the Commission and other SEC divisions and offices;

The Office of the Chief Accountant, which establishes and enforces accounting and auditing policies set by the SEC. This office has played an important role in such areas as working with the Financial Accounting Standards Board to develop Generally Accepted Accounting Principles, the Public Company Accounting Oversight Board in developing audit requirements, and the International Accounting Standards Board in advancing the development of International Financial Reporting Standards;

The Office of Compliance, Inspections and Examinations, which inspects broker-dealers, stock exchanges, credit rating agencies, mutual funds and other financial firms that are regulated by the SEC;

The Office of International Affairs, which represents the SEC abroad and which negotiates international enforcement information-sharing agreements, develops the SEC's international regulatory policies in areas such as mutual recognition, and helps develop international regulatory standards through organizations such as the International Organization of Securities Commissions and the Financial Stability Forum;

The Office of Investor Education and Advocacy, which helps educate the public about securities markets and warns investors of fraud and stock market scams; and

The Office of Economic Analysis, which helps the SEC estimate the economic costs and benefits of its various rules and regulations.

Taking it further, let's peer into The Office of Compliance, Inspections and Examinations.

Ah ha! I find this interesting report dated two months ago which confirms everything I've said about the reasons for the meltdown. Great, thanks guys. You're a bit late.

And it ends with this telling conclusion:

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As described in this report, while the various rating agencies had differing practices and, as to each, the Staff identified a range of issues to be addressed, each of the examined firms can take steps to improve their practices, policies and procedures with respect to rating RMBS and CDOs, and other structured finance securities. Each credit rating agency was cooperative in the course of these examinations and has committed to taking remedial measures to address the issues identified.

http://www.sec.gov/news/studies/2008...tion070808.pdf

What a bunch of crap. Too little, too late. Why aren't you rolling heads, SEC? Where are the fines? What are you going to do, SEC, to have better oversight? And why weren't these deficiencies caught sooner?

This is patty-cake.

Who was this department's Director (under Cox)?

Lori Richards. Let's look her up....

Looks like she was doing her job in 2000, trying to crack down on portfolio pumping.

Quote:

Not to be outdone by the neighbors up north, the SEC staff is preparing its own portfolio pumping case. Earlier this year, Lori Richards, who heads the SEC's inspections program, established a task force to look into portfolio pumping. "We are focusing very hard on evaluating trading data that would indicate manipulation -- we're looking for signs that stocks may be manipulated at quarters' end to bump up performance," she explains.

SEC Prepares to Battle Portfolio Pumping and Window Dressing - TheStreet.com

Why did Lori fail to investigate credit-rating agencies until it was much too late?

In any case, she needs to be fired, too.

MC.no.spin · 09-22-08, 01:06 AM

Further examining the SEC and credit rating agencies:

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There are two superpowers in the world today in my opinion. There’s the United States and there’s Moody’s Bond Rating Service. The United States can destroy you by dropping bombs, and Moody’s can destroy you by down grading your bonds. And believe me, it’s not clear sometimes who’s more powerful. The most that we can safely assert about the evolutionary process underlying market equilibrium is that harmful heuristics, like harmful mutations in nature, will die out.

Martin Miller, Debt and Taxes as quoted by Frank Partnoy, "The Siskel and Ebert of Financial Matters: Two Thumbs Down for Credit Reporting Agencies," Washington University Law Quarterly, Volume 77, No. 3, 1999 --- Washington University Law Quarterly

More agreement on this here:

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"Triple-A Trouble," by Justin Fox, Time Magazine, March 24, 2008, Page 32 --- Triple-A Trouble - TIME

The People at Moody's and Standard & Poor's are used to catching flak when debt markets blow up. Why didn't they see the bankruptcy of California's Orange County coming in 1994? Why did they fail to account for the currency risks brewing in Thailand and Indonesia and South Korea in 1997? And how was it that they were still rating Enron's debt as investment grade four days before the company went belly-up in 2001?

The furor over such missteps usually fades quickly. After a congressional hearing or two, the ratings agencies have always been allowed to go their merry and profitable way. And why not? Inability to see into the future isn't a crime, plus there has usually been someone else available to take the fall--like Arthur Andersen in the Enron case.

This time around, though, the ratings agencies didn't just fail to see a financial calamity coming. They helped cause it. Why did collateralized debt obligations (CDOs) based partly on risky subprime mortgages lead to so much trouble? Because Moody's and S&P awarded them dubiously generous letter grades. It's the same story for the mostly incomprehensible tizzy over bond insurance.

What can we do about this? There's actually a simple answer: just declare our independence from bond ratings.

The practice of giving letter grades to bonds to reflect their riskiness was pioneered by John Moody in 1909. But the industry took its current form only in the early 1970s. That's when Moody's and its competitors switched from selling research to investors to charging bond issuers to rate their goods. This approach wasn't unheard of: you have to advertise in Good Housekeeping to get the Good Housekeeping Seal of Approval. What made it problematic was that at about the same time, the Securities and Exchange Commission (SEC) exalted the status of the ratings by writing them into the rules governing securities firms' capital holdings. Since then, the use of bond ratings in regulation has only grown. Many institutional investors are banned from owning non-investment-grade bonds. Bank-capital requirements--the cash and equivalents banks need to keep on hand--give more weight to highly graded securities. And this is increasingly the case not just in the U.S. but around the world.

What all this amounts to, argues Frank Partnoy, a derivatives salesman turned University of San Diego law professor, who is one of the sharpest critics of the ratings status quo, is a "regulatory license" for the ratings agencies. It's certainly a license to print money. Moody's, the lone ratings firm for which data are available, made $702 million in after-tax profit last year, up from $289 million just five years before. Its operating profit margin was a stunning 50% of revenue. By comparison, Google's was 30%.

To keep that profit machine going, Moody's and S&P have to keep finding new things to rate. And they're under intense pressure from issuers and investors alike to get as many securities as possible into the top ratings categories. The result is grade inflation, especially in new products like CDOs. That's how banks and investors around the world ended up owning billions of dollars in triple-A mortgage junk. It also helps explain the growth of bond insurers, companies that used their own triple-A ratings to bump ever more bond issues into the top categories--even as their businesses ceased to be triple-A safe.

One way to combat these tendencies would be to subject the raters to tight regulation by the sec. But that understaffed agency is unlikely to be up to the task, especially since it's not clear what exactly the task would be.

Which leaves the alternative suggested by Partnoy and several economists: cleansing the federal code of its reliance on bond ratings. Among the simplest fixes would be removing the ban on pension funds' holding debt securities rated lower than BBB. The funds can make far riskier investments in stocks and hedge funds, after all. Bank-capital requirements do have to take into account the quality of securities, but there are market-based measures that could at least partly replace ratings.

"The experiment we ran with government relying on the ratings agencies to do its job has failed," Partnoy says. Time for a new experiment.

Bob Jensen's Threads on Rotten to the Core

Here we have the Senate expressing concern a year ago:

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Senators accuse rating agencies of conflicts of interest in market turmoil
Bloomberg News, The Associated Press
Published: September 26, 2007

WASHINGTON: Executives from major credit rating agencies were accused Wednesday by U.S. senators of being hampered by conflicts of interest that might have contributed to the mortgage market turmoil that has upset investors worldwide.

The biggest rating agencies -Standard & Poor's, Moody's Investors Service and Fitch Ratings - are under fire from critics who say they failed to give investors adequate warning of the risks associated with mortgage-backed securities.

Those securities are now plummeting in value as home loan defaults soar, particularly among borrowers with weak, or subprime, credit histories.

Democratic and Republican senators said they were particularly concerned with one aspect of the agencies' business models: They get paid by the companies whose bonds they rate. That is like a film production company paying a critic to review a movie, and then using that review in its advertising, said Senator Jim Bunning, Republican of Kentucky.

Several senators compared the agencies' lack of foresight about the risks inherent in the subprime mortgage market with their failure to anticipate the collapse of Enron and WorldCom.
...
The Securities and Exchange Commission has begun a review of the agencies' practices, including whether conflicts of interest were created if rating agencies gave advice to issuers of mortgage-backed securities.

"We have as yet formed no firm views on any of the reasons put forth by the credit rating agencies but are carefully looking into each of them," said Christopher Cox, the chairman of the SEC.

Senators accuse rating agencies of conflicts of interest in market turmoil - International Herald Tribune

WTF?? Why wasn't the SEC ALL OVER THIS? THAT'S THEIR JOB? Chris Cox, hello? Are you a fracking fool? How is this idiot in charge of a snake pit like Wall Street? Don't give me this "the SEC has begun a review..." B.S. Cox. I figured this out in a morning while watching football. Nothing came out of your office until TWO MONTHS AGO.

Chris Cox is a disgrace and deserves jail time for neglect of duty.

And the corruption in Moody's and the S & P runs deeper:

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Senators also wondered whether workers at rating agencies should have a specified waiting period before they go to work for investment banks - to avoid any incentive for bond raters to provide overly positive ratings. Kanef of Moody's said his company would be willing to consider that idea.

Senators accuse rating agencies of conflicts of interest in market turmoil - International Herald Tribune

How many ways can you say CONFLICT OF INTEREST?

This is Chris Cox:

More on him soon.

MC.no.spin · 09-22-08, 01:49 AM

Gold mine found on COX. It's COX!! I'm certain. This is the boy.

Who is Cox?

‘Here at home, too,’ wrote Cox, an admirer of Ayn Rand, ‘we have come to recognize that “as government expands, liberty contracts.”’

A de-regulator! What the HELL is he doing as chairman of a regualting agency?!

In 1995, he favorably reviewed The Letters of Ayn Rand for The New York Times, writing that “Rand herself rejected not only Communism, fascism, and socialism, but also every economic system except free enterprise precisely because they subordinate the individual’s pursuit of laughter, joy, and pride, and achievement to the ‘greater good’ of society.”

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So it was no surprise that President Bush’s decision to name Cox, now 54, to succeed 73-year-old William Donaldson—a former Yale dean, under Secretary of State, and Wall Street executive who had dismayed the White House and the GOP congressional majority by often siding with the two Democrats on the SEC against the two other Republicans (“In Republican and business circles,” wrote Stephen Labaton of The New York Times, “Donaldson has been viewed as the David Souter of the Securities and Exchange Commission”)—would trigger a chorus of gripes.

Unmasking Chris Cox — The American, A Magazine of Ideas

Quotes about Cox:

“His strongly anti-investor track record shows he has little interest in protecting the millions of Americans who are counting on Securities investments for their retirement money. The Bush administration needs to select someone else,” she said, to run the commission that regulates financial markets and the companies that issue the stocks, bonds, and mutual funds that investors purchase. Barbara Roper of the Consumer Federation of America was also concerned about Cox. “I expect he will be extremely activist,” she said, “and will rework the agency in his own image.”

Barbara Roper nailed it before he even took the job! Give that lady a raise and a promotion.

The establishment media issued stern warnings. “The investing public simply will not stand for any backsliding to the bad old days of regulatory laissez-faire, and Mr. Cox would be foolish to go there,” said an editorial in The New York Times. “His reputation as a deregulator and his record on corporate governance raise doubts about the SEC’s direction,” remarked The Washington Post, whose editors were especially piqued about Cox’s opposition to a 2004 proposal by the Financial Accounting Standards Board to force companies to count their employee stock options as expenses on their profit-and-loss statements at the time the options were issued—a change that was strongly opposed by prominent high-technology firms but eventually enacted. “The main issue is Mr. Cox’s willingness to stand up for investors and against business lobbies,” said the Post. “Stock-option expensing was a test of his mettle. He failed it.” The BBC reported that Cox’s appointment to the commission was “raising doubts over whether the finance watchdog will stick to its tough stance on corporate misconduct.” And Business Week ran a column by Robert Kuttner headlined, “Cox’s SEC: Investors Beware.”

Whoah! Does anyone doubt who is responsible now??

The SEC’s website says that the commission’s goal is “to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.” The very next paragraph reads: “As more and more first-time investors turn to the markets to help secure their futures, pay for homes, and send children to college, our investor protection mission is more compelling than ever.”

What a joke!

Nail Chris Cox!

"We've got brokers' advocates; we've got exchange advocates; we've got investment banker advocates; and we are the investor’s advocate."
– William O. Douglas,
Former Securities and Exchange Commission chairman, 1937-39,
and U.S. Supreme Court justice

Quote:

Citizen’s Congress Watch Rep. Christopher Cox
5
Voting Record
• Rep. Cox’s overall securities-related voting record is strongly anti-investor. On major legislation addressing corporate and accounting reform, investor legal rights and protection of retirement investments, Rep. Cox cast only one vote out of 22 – 4.5 percent – in support of investors.
• Even when lesser, or uncontroversial, legislation is considered (such as improving disclosure of information), Rep. Cox’s record shows he voted in support of investors only 22.2 percent – 8 out of 36 votes – of the time.
• Rep. Cox is often cited as having supported the Sarbanes-Oxley corporate reform act of 2002. But in fact, each of seven votes Rep. Cox cast on amendments to the bill in committee or on the House floor was against stronger investor protection. It was only after the WorldCom scandal broke, causing a public uproar, that Rep. Cox cast his only pro-investor vote – to approve the conference committee version of the bill, which included most of the House-defeated pro-investor amendments. Rep. Cox also displayed little concern for the bill when it was in committee, missing 7 of 13 committee votes.
• In seven chances, Rep. Cox did not cast a single pro-investor vote on retirement investment protection bills that moved through the House after employees of a number of companies, including Enron, saw retirement savings wiped out. He voted to ease conflict-of-interest standards for financial advisors; against giving employees
a seat on the board of directors of their own retirement plans; and against allowing employees to freely sell company stock held in their retirement plans.
• Rep. Cox has voted to block efforts by the SEC and the Financial Accounting Standards Board to require corporations to expense the value of stock options granted
to employees. Stock options are an important accounting issue because they are often a significant way employees are compensated, especially in younger firms. If the
value of option-based compensation is not reflected as an expense, a company’s financial statements may not provide an accurate depiction of the firm’s finances.

http://www.citizen.org/documents/PC_Cox_Rpt.pdf

Much, much more at the above link.

He should be fired and called before Congress immediately, with his crimes investigated and prosecuted.

American · 09-22-08, 01:40 PM

I'm not sure I understand, it seems at first that Cox appears to be a good guy, then reading on he turns out to be anti-investor?

MC.no.spin · 09-22-08, 04:34 PM

Quote:

Originally Posted by American

I'm not sure I understand, it seems at first that Cox appears to be a good guy, then reading on he turns out to be anti-investor?

By "good guy" it's evident he is an anti-regulation, laissez fairre type guy, which certainly is good in some ways. But it's a philosophy that does not favor investors, who rely on strong supervision by the SEC to weed out corruption and fraud.

The question I am going to research next is why the SEC appears cowed to Moody's. That report from two months ago is the most watered down piece of garbage I've ever seen. They should be nailing Moody's to a cross. Something is up there. The language of the report has a flavor that reminds me of someone defending a family member, you know?

They know they could disrupt Moody's income flow GREATLY by exposing the fluffed up credit ratings as negligent on Moody's report. Instead they say Moody's was experiencing difficulty keeping up with the increased traffic, had used model templates that were in need of upgrading, etc. Nowhere do they raise the obvious questions of the fact Moody's was making hundreds of millions of dollars and somehow couldn't keep up with the traffic? Or that Moody's couldn't have seen all the default mortgages being reported everywhere and that this needs to be taken into account in rating these securities? Come on.

Why is the SEC covering Moody's ass? Are they afraid of the collateral damage to the markets? Perhaps it would throw the value of all securities down, as who could trust a AAA or any other rating anymore. But hasn't that effect more or less been achieved? It would definitely kill Moody's income flow. No tears would be shed from investors over that.

I'm going to investigage Moody's power and influence. There is more here to discover.

MC.no.spin · 09-22-08, 04:43 PM

Mach · 09-22-08, 05:10 PM

You claim Bush knew about Cox's warped capitalistic philosophy, and that's why Bush appointed Cox.

And we all know Bush's warped mentality, was voted into office by Republicans primarily.

So it's your fault (or those who voted for Bush).

Trying to pin it on an individual is just scape-goating. You know that he's well connected to those in power.

-Mach

Mach · 09-22-08, 05:19 PM

Quote:

Originally Posted by MC.no.spin

By "good guy" it's evident he is an anti-regulation, laissez fairre type guy, which certainly is good in some ways. But it's a philosophy that does not favor investors, who rely on strong supervision by the SEC to weed out corruption and fraud.

I agree basically, although I don't see why he's a "good guy" for any particular reason. He's staunchly opposed to an efficient market, that is, he likes a market so free that people are able to routinely use fraud, which ensures the marketplace cannot function freely or efficiently.

-Mach

MC.no.spin · 09-22-08, 09:49 PM

Quote:

Originally Posted by Mach

You claim Bush knew about Cox's warped capitalistic philosophy, and that's why Bush appointed Cox.

And we all know Bush's warped mentality, was voted into office by Republicans primarily.

So it's your fault (or those who voted for Bush).

Trying to pin it on an individual is just scape-goating. You know that he's well connected to those in power.

-Mach

Why am I not surprised someone was going to pin this on Bush?

We can find all sorts of nuances to blame this on anyone and everyone.

The bottom line I look at, as an executive who has had to pin responsibility on trouble spots in a company before, is who was supposed to be handling that area.

Was he the wrong man for the job? Yes. Did Bush appoint him? Yes. Did Bush expect him to turn the other way when Moody's was grading junk bonds as AAA? No.

Chris Cox is still the one I pin this debacle on. He failed to wear his assigned hat. He is a fraud and a spineless turd as far as I'm concerned, and I've dug deep enough in this crisis to be able to level a shot at somebody with some knowledge about it. I'm 100% sure this asshole failed to do his job, and that he knew EXACTLY what was going on, unlike Bush, who was too disconected from the stock market to have a crisp grasp of what was going on.

But yes it was a bad hire in the first place. If you want to pin this to Bush's partisanship, go right ahead. It just shows how McCain is not 4 more years of Bush, as he wants to put a Democrat in as chairman of the SEC to replace Cox.

Mach · 09-23-08, 02:34 PM

Quote:

Originally Posted by MC.no.spin

Why am I not surprised someone was going to pin this on Bush?

I QUOTED YOUR POST!! Jesus man.
And notice the logical chain, I actually blamed you.

Quote:

Was he the wrong man for the job? Yes. Did Bush appoint him? Yes. Did Bush expect him to turn the other way when Moody's was grading junk bonds as AAA? No.
Chris Cox is still the one I pin this debacle on.ng on.
But yes it was a bad hire in the first place. If you want to pin this to Bush's partisanship, go right ahead. It just shows how McCain is not 4 more years of Bush, as he wants to put a Democrat in as chairman of the SEC to replace Cox.

Why are you trying to "pin" it on Bush, or Cox, or anyone in particular? Face it, we all share some responsibility for it. Some more than others. I can assure you that once you have power, you're responsible for that power. Attempting to isolate yourself from the responsibilities of power, while simultaneously exercising that power, is unethical AND HUMAN NATURE.

If Bush used his considerable power as president to make a sufficiently important appointment, he is responsible. If Cox made mistakes and Bush had no measures in place to detect or correct them, Bush is at fault. If you did not put measures in place to force the president to do such things, or be held accountable, it's your fault. If I did not, it's my fault.
It's the fault of every lender and borrower, and every attempt to de-regulate, or the failure to regulation.

Trying to create a scapegoat is unethical, just stop the charade. Look at the recent posts...conservatives parading out scapegoats. It's absurd. It's not healthy for the economy, or this oligarchy/plutocracy.

The problem is the political position of de-regulation. Regulation exists and should exist, the only question is how to arrive at good and necessary regulation. Pure freedom = anarchy. All freedoms, be they economic or political or a state of mind, must be regulated (individually or as a society), to flourish. Else, I will have enough freedom to take your freedom, and introduce you to slavery. All because some poor fool believed "freedom" was best as an absolute.

-Mach