The title to this post says it all:
The Securities and Exchange Commission on Wednesday tightened restrictions against “pay-to-play” practices in the municipal securities market.
The measure was another attempt to close loopholes that agency officials said have allowed political influence to corrupt aspects of the $2.6 trillion public pension business.
The five-member commission voted unanimously to bar investment managers who make political contributions to officials with influence over public pension funds from managing those funds for two years.
The commission also barred investment managers from paying a third party to solicit pension business on their behalf unless the third party is registered with the S.E.C. or other regulators and therefore subject to similar pay-to-play bans.
But the commission stepped back from its original proposal, which would have placed an outright ban on third-party solicitations of pension-management business. Commission staff recommended the partial ban after investment advisers and fund managers complained that they often lacked the resources to secure pension business on their own, causing them to rely instead on consultants and brokers to gain access.
Mary Schapiro, the chairwoman of the S.E.C., called pay-to-play “an unspoken, but entrenched and well-understood practice.” The commission has made several attempts in recent years to crack down on pay-to-play, which Ms. Schapiro said can “favor large advisers over smaller competitors, reward political connections rather than management skill, and — as a number of recent enforcement cases have shown — pave the way to outright fraud and corruption.”
I suppose it is impossible to outlaw everything that should be illegal, but sometimes you see something and you have to wonder why it was ever allowed.
NonyNony
Perhaps I’m overly cynical, but when it involves money I never really wonder why it’s allowed.
Hell, I’m actually wondering how they actually managed to get unanimous agreement to shut down the legal bribery. All five of the committee members must have gotten personally burned by this at some point to actually take action.
Speaking of overly cynical – how long will it be before the Supreme Court overturns this on the basis that preventing investment firms from funding the campaigns of people who regulate them is an infringement of the free speech of the investment firms?
Edited to add: Who let the commie pinko in as the Commissioner of the SEC?
Why that sounds like something a liberal might say! He should make sure he apologizes to BP and Rush Limbaugh for that immediately!
Hunter Gathers
Um, free markets?
RSR
We’re all Philadelphians now.
beltane
It was legal because all the big investment banks and brokerages recruit the best former prosecutors in the country to search for loopholes in existing laws. Goldman Sachs, in particular, was known for luring the smartest AUSA’s away from government work.
What these parasites can’t rig outright, they simply learn to evade.
fasteddie9318
Because The Great Ronald Reagan, that’s why. Also too, socialist menace. Hopey-changey, also.
C Nelson Reilly
If illegal things are outlawed, only outlaws will be illegal when they pry my cold dead fingers off this great country of our nation
Kered (formerly Derek)
I have to say, this pay-to-play thing is one of the few pieces of financial fuckery I’m not familiar with after two years of reading about all this bullshit.
jl
I will try to move Cole’s outrage meter up a notch or two. Because that would be the right thing to do.
Report: Wachovia bank helped launder Mexican drug money
USA Today
June 29
“Wachovia regularly helped move money for Mexican drug cartels, the bank’s parent, Wells Fargo, has admitted in a deal with federal prosecutors, Bloomberg Markets magazine reports in its August issue ”
http://content.usatoday.com/communities/ondeadline/post/2010/06/report-wachovia-bank-helped-launder-mexican-drug-money/1?csp=34news
I heard a radio interview this morning with the Wachovia executive who found evidence that the bank was being used to launder money, and who left after he was ignored.
The report also said that Wells was supposed to be cleaning up the mess, but had some sort of oopsie and has not done so. But I have not been able to find details about that yet.
Napoleon
It could have been illegal under state law and in certain other circumstances other federal law, just not under SEC regs.
Roger Moore
It makes me wonder why pension funds are hiring outside managers in the first place. Funds should be big enough- either representing a big enough agency or pooling among multiple agencies- to manage their own money and pay their managers civil service salaries.
PeakVT
@beltane: You nailed it. Also.
jl
Forgot to mention that the ex-Wachovia security executive expressed disappointment that there is some sort of ‘deferred prosecution’ deal. He thought the Wachovia behavior was bad enough that there should be a prosecution.
I am not a lawyer, and not sure what that means.
From the story it appears there was some unspecified ‘deal’. The ex-Wachovia security executive said that there is no grounds for any kind of ‘deal’, other than special treatment for bigshots.
beltane
@jl: There is an awful lot of drug money out there, and at the end of the day virtually all of it is laundered by the TBTF banks. It is just another one of the services they provide. Smile.
Brachiator
@jl:
Someone should ask the governor of Arizona what she’s going to do about this.
gex
I’ve often found it quite interesting that people in my life who are conservative (law and order, preaching about morality, etc.) tend to also accept technically legal as justification to do whatever they want. It is a subtle aspect of how the rules are really just for the little people.
Morbo
Warren Terra
I’m pretty sure Texas Governor George W Bush handed over control of the state pension fund to a Texas billionaire fund manager who had coincidentally made a lot of campaign contributions.
Jasper
Politicians get huge amounts of campaign cash, free market capitalist buys a sweet deal that pays him above market rates for his “expert” advice. Everyone wins but the taxpayer, but hey, it’s only a few bucks per citizen, and the benefits to the big players run into the millions, so what’s not to like!?
Church Lady
Because members of both political parties have to whore themselves out on a daily basis for campaign contributions? Could that be the possible reason?
JGabriel
John Cole:
Most of us aren’t evil. That means we don’t sit around thinking of ways to rip off people less advantaged than we are, or ways to manipulate markets at the expense of society and the public interest.
So, many market practices that are fundamentally evil and destructive become standard operating procedure, simply because no one with a moral compass ever even imagined them in the first place, and couldn’t until either someone got caught or everyone was doing it.
.
Emma
JGabriel:
So, many market practices that are fundamentally evil and destructive become standard operating procedure, simply because no one with a moral compass ever even imagined them in the first place, and couldn’t until either someone got caught or everyone was doing it.
Yes. Exactly.
geemoney
I think that you answered your own question:
That kind of money is just begging for weasels, scammers and thieves. And I know that the kind of numbers that have been thrown around recently tend to have jaded the public, but that’s -illion with a t.
(I will be very interested to see how the formatting of this comment works, if at all.)
geemoney
tr
In good news, the nested formatting I threw at WP worked well, even if I can’t edit my previous comment.
NonyNony
@JGabriel:
And worse than that – even when people who do have moral compasses sit down and think “okay, how can this system be gamed and what can we do to stop it”, anything they suggest is shouted down as “over-regulation” because “there’s no evidence that anyone would ever actually do that” so clearly you’re just trying to micromanage the free market you communist socialist pig. Which means that there’s usually a good decade or so worth of time that the folks who screamed “over-regulation” can capitalize on it before there’s enough evidence to put the clamps down and shut it down.
Warren Terra
Another case involving a Bush was when Jeb used the state teachers’ pension fund to invest in the for-profit schools company Edison (which bought educational software from Neil Bush’s company).
Lynch
It appears Obama is trying his hardest to fend off MoDo’s criticism of his appetite!
WaPo:
ajr22
I look at guns in this country, and this is what comes to mind. Every day I read something about how guns rights’ activist win and can now carry guns in bars, coffee shops, parks etc… The SCOTUS rules against Chicago, making it easier to have handguns in a city that has had 70 shootings in the last 2 weeks. I know it’s to late to change any of this, but It bothers me that people who want to sell guns/carry them on their hip for no reason don’t see this or more likely don’t care.
Martin
Free market, bitches! There’s nothing it can’t make better:
How a broker spent $520m in a drunken stupor and moved the global oil price
jeffreyw
More puppies please.
Mike Kay
slightly O.T.
I was watching CNBC this morning and they were interviewing one of the Federal Reserve members, who was appointed by bush. And the two idiots from CNBC (one of them Santelli) were screaming the Stimulus was unnecessary and a waste of money because market indexes aren’t back to the pre-crash levels. The bush appointee looked like he had stepped into the Twilight Zone and had to keep saying without the Stim unemployment would be around 15 to 20 percent. But the a-holes wouldn’t accept it.
How do they not get this? Why are they stuck in the dark ages? Cutting goverment spending during a recession makes things worse.
I mean, whan a person is shot, doctors give the patient a blood transfusion, they don’t cover the patient with leeches.
PeakVT
@Mike Kay: CNBC exists to lure retail investors into markets they don’t understand, not to provide accurate analysis. Once you factor that in, everything CNBC broadcasts makes a whole lot more sense.
Martin
@PeakVT: Exactly.
Zifnab
@Mike Kay: Firstly, they’re drinking the kool-aid, hard. These yahoos were screaming DOW 30,000! this time three years ago, because they had no idea what was going on.
Secondly, these guys want to treat the US economy like a household budget. They’re operating on the assumption that the government shouldn’t be spending money when it doesn’t have an income. What they aren’t factoring in is that the US is something of a closed system, economically (not completely – but in a limited sense). The government gets income when people spend money, but right now the only groups with large wads of cash are government entities or government sponsored/propped-up businesses. If the government doesn’t spend, no one spends. And if no one spends, the government doesn’t have an income.
The CNBC guys have no idea how taxes and economies function, so they want to slash funding until the government has more income, as though the government was just a guy out of work, looking for a new job. It’s idiotic, and it’s a product of my first point.
Finally, no one at CNBC is seriously trumpeting a cut in military spending or an increase in tax rates. Large chunks of the budget are off the table. They’re staring squarely at so-called entitlements, domestic construction, and welfare.
So when the CNBC crowd says “Cut Spending! Reign in the deficit!” they don’t really mean to cut spending or reign in the deficit. They just want to raid the social security fund, bankrupt Medicare, shut down public education, and drop toll booths on every highway and byway.
Fifi
Actually, it’s not impossible at all.
All is needed is to run the financial industry under the same model as other industries that can create major foul-ups if not strictly regulated. The best example is the nuclear industry, which runs under a so-called “prescriptive regulatory regime”.
To make it short, under a prescriptive regime, the top rule which rules everything else is :
Anything a nuclear operator wants to do must be fully documented, fully analyzed, fully reviewed then approved by the Nuclear Regulatory Commission, the gov. agency that in charge of the commercial nuclear industry. And if anything during the reviews comes up as an “unquantifiable risk”, if any question is not fully answered, the NRC response is always the same :
The NRC is entirely self-funded from fees paid on the industry. It doesn’t cost a dime to the federal government. It’s actually a profit center for Washington. The NRC even has inspectors 24/7 on every site, paid by the site’s operator, and those folks can overrule the operator’s employee at any time for any reason. The balance of power is firmly in the NRC favor and when it says “jump”, there’s only one question the industry can ask “Forward or back-flip ?”
Of course, there is a trick why the NRC is so powerful and exempt of industry influence. The NRC has, for all practical terms, the ability to shut down any nuclear facility at any time for any reason it wants or even no reason whatsoever, and to impose on operators every conceivable fines on it can imagine if it feels like it. Any nuclear operator caught trying to mess with the NRC, bribing its employees or Congress, would file for bankruptcy within 15 days.
It really took the Three Miles Island incident for the NRC to gain its full independence from the industry. The same thing will happen with the financial industry. The last crisis was wasted and the banksters have managed to stick doing just more of the same. But the next crisis will be so big that even the US taxpayer won’t be able to tide it up. When that happens, the financial industry will end up with a NRC latched on its back and will never be able to shake it out.
BC
Well, it’s legal because at the local and state levels there are people who have friends in the industry and they want to help those friends out because those friends have families and they can’t allow the families to sleep under the bridge. Case in point: in the 1990s, Jefferson County, Colorado, board of commissioners decided they needed a larger county courthouse, so they built one. It was derisively called the “Taj Mahal” and the “mausoleum” by the citizenry of Jefferson County, who voted out the Republicans on the board for the first time anybody in the county could recall. On their way out of office, the board awarded a no-bid, no-cancel contract to one of their cronies to manage the Taj Mahal. The newly elected county clerk, a Democrat, got her political chops by refusing to honor the contract and was rewarded by voters by being elected to state house of representatives and then to state senate. But the Republicans were put back in charge of the county commissioners and when a developer constructed some million-dollar homes in a shoddy fashion, the commissioners used public monies to rescue the homeowners because the county had given the developer a building license! It’s good to have friends in high places.
scarshapedstar
Why is legalized bribery legal? Because the guys who make the laws were bribed.
Just my wild-ass guess!
Mnemosyne
@Mike Kay:
Because this is their religion. Just like a Young Earth creationist will cling to his beliefs even after being shown an actual human-made object that’s more than 6,000 years old, these guys will cling to their “private good! government bad!” beliefs to the bitter end.
They’ll be eating soylent green out of garbage cans and complaining that the government has too much power because trash pickup in their neighborhood hasn’t been privatized yet. It’s an article of faith that cannot be shaken by reality.
DickSpudCouchPotatoDetective
Sometimes we wonder why people can’t figure out what happens when you let well funded lobbyists take over the government.
Mike Kay
@PeakVT: where should one go for accurate analysis of the markets?
I agree CNBC are a bunch of hucksters. I was watching them for the Cassano testimony, so as a non viewer I was stunned. I mean, not even O’Reilly would say less rain solves a drought.
kay
@Fifi:
I love your idea very much, Fifi.
WereBear
@kay: I second that emotion!
Now will we survive the second iteration? That’s the question.
jenniebee
It’s because we “run government like a business” and this is the way things are done in the world of business. In government, it’s called bribery and corruption, in business it’s called perquisites.
Shoot, I got stuck with a 16 year old intern once whose dad was a big muckity muck in local IT circles. He came in talking all about all-expense paid family trips to Europe and the like that companies gave his dad. Then he spent the entire summer surfing the Fox News website and asking if the client was going to give us all free memberships to their wholesale home remodeling supply store as a thank you for the website we never actually did finish building for them (our company shut the project down and fired everybody when they saw how much money the project was losing). I never could figure out why that 16 year old wanted to be able to buy bathroom fixtures wholesale, except that the principle of the thing, in his mind, was that the way business is done is that a bunch of people get together and give each other gifts paid for out of the company checkbook.
And that’s exactly what happens in government when you run government more like a business.
Bill Murray
@Mike Kay: “How do they not get this? Why are they stuck in the dark ages? Cutting goverment spending during a recession makes things worse.”
It makes things worse for the little people. For those with the powers to bribe, deficits eventually lead to inflation which makes their investments worth less. So cutting spending keeps the value of their future money high. The question becomes will they realize the trade offs here before or after the presumptive revolution.
That's Master of Accountancy to You, Pal
@Mike Kay:
Listen to me, of course.
Wile E. Quixote
@Martin:
From the fine article that Martin linked to about a rogue trader driving up oil prices.
His fine was reduced because of potential financial hardship? Poor baby. I want to walk into an investment bank with my Bushmaster, a shotgun and a couple of handguns and shoot every fucking bankster I can get in my sights. Eventually I will stop shooting because pity will stay my hand, “it’s a pity I’ve run out of ammunition” I will say as I surrender to the police. When I go to court I will ask to have my multiple life sentences reduced to six months of community service because of potential financial hardship. What do you think my chances are?
DPirate
Legal shmegal – It is WAD.
Mike Kay
@Bill Murray:
if it was only that simple. but they never whined about reagan’s deficits, nor the vast increase in spending under the gipper and dubya, even when those economies were expanding.
inthewoods
@Roger Moore:
“It makes me wonder why pension funds are hiring outside managers in the first place. Funds should be big enough- either representing a big enough agency or pooling among multiple agencies- to manage their own money and pay their managers civil service salaries.”
Well, here’s the deal – you won’t be able to attract top managers to manage the pension funds if they are being offered 5x multiple on the salary they’d get from being the pension manager. And if you offer top salary, then the public will complain you’re paying them too much. So what you get in a lot pension systems (particularly the small ones) is a bunch of second and third rate managers who don’t really do much in terms of managing money – they just take the top ideas of their “friends” – either people they actually know, or those that pay them the most money in terms of goodies. The result is predictable – pension funds underperform. So while something like Calpers has good managers (who still got taken by Wall Street), your local city pension manager (for say, Worcester, MA) is typically a boob.
My solution: the current market for money managers is extremely small and closed to people with certain pedigrees – so instead pension funds should be more open to managers from outside the industry.
b-psycho
When you finally reach the conclusion that the point of politics is to enrich friends, punish enemies & fuck everyone else, you’ll know why. You’ll know…