Sense on Cents

Having written about the massive regulatory failures on Wall Street for the better part of 2009, I am heartened by the House Finance Sub-Committee on Capital Markets hearing last week. The bell that tolled in this hearing deserves to ring loud, long, and clear across our great land. The regulatory and insurance failures on Wall Street deserve to be exposed far beyond Sense on Cents.

Rackets operate best in the dark. Well, let’s get that flashlight out again!

For those unaware, SIPC (the Securities Investor Protection Corporation) is an insurance fund in which member firms pay premiums to cover losses. From SIPC’s own website, we learn:

What SIPC Covers . . . What it Does Not

The cash and securities – such as stocks and bonds – held by a customer at a financially troubled brokerage firm are protected by SIPC.

Among the investments that are ineligible for SIPC protection are commodity futures contracts and currency, as well as investment contracts (such as limited partnerships) and fixed annuity contracts that are not registered with the U.S. Securities and Exchange Commission under the Securities Act of 1933.

It is important to recognize that SIPC does not work the same way as the Federal Deposit Insurance Corporation in terms of blanket protection of losses.

For this insurance coverage, SIPC charged its member firms an annual premium of $150 from 1996 until April 2009. That is no joke. Wall Street firms paid a token $150 a year to promote the idea that your investments were protected. While SIPC did have a $1 billion reserve fund, that was woefully insufficient to cover the losses incurred in the Madoff scam. Make no mistake, though, the SIPC annual premium of $150 should also be looked upon as a scam.

Think of it. Individuals pay far more for auto insurance than Goldman Sachs paid for investor insurance for over 12 years.

Are you getting increasingly pissed off? America should be extremely pissed off. The SIPC coverage has been a critical part of the Wall Street racket.

What follows are two video clips from last week’s Congressional hearing on securities investor protection reform. The first 7-minute video clip highlights Rep. Paul Kanjorski (D-PA) undressing the SEC’s Mike Conley and SIPC’s Stephen Harbeck for the massive failure of the governmental and non-governmental financial regulatory system.

Kanjorski certainly hits on America’s rage at the dysfunctional financial regulatory system. My only concern with Kanjorski’s delivery was his very deferential comments directed toward SEC Chair Mary Schapiro. I can only guess he is not aware of the outstanding lawsuits against FINRA, including the Standard Investment Chartered vs. FINRA which alleges Schapiro and other FINRA executives of lying.

This next video clip is Rep. Gary Ackerman’s (D-NY) undressing of SIPC’s Stephen Harbeck. Ackerman rails on Harbeck and SIPC for the token $150 annual insurance premium paid by SIPC member firms. While we can watch Rep. Ackerman confront SIPC Chief Harbeck, how did we get here in the first place? Why haven’t heads rolled? Who is truly protecting American investors?

America deserves to know the full extent of the Wall Street racket that was and to a large extent still is facilitated by the regulatory incest between Wall Street and Washington. Will this hearing be a start, a finish, or merely a pit stop along the way?

LD

This entry was posted on Tuesday, December 15th, 2009 at 2:47 PM and is filed under General, SEC, SIPC. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.