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The Wall Street-Washington ‘Code of Silence’

Posted by Larry Doyle on April 13, 2012 7:58 AM |

Do you ever wonder why we have not heard more people on Wall Street coming forth to expose practices and policies which were prevalent in bringing our economy and nation to its knees? What is holding people and firms back from coming clean? Why does the same scenario seem to be playing out in Washington as well?

Allowing bad behaviors to remain swept under the rug is little more than a catalyst for further bad behaviors down the road. Actually, punishing those who might look to expose bad practices promotes a code of silence which I strongly believe undermines confidence in our markets and our nation. I am very concerned that we are experiencing this very dynamic at play. Let’s navigate.

While the Dodd-Frank Financial Regulatory Reform incorporates whistleblower protection, will we see an increase in whistleblower actions? I personally do not believe we will. Why? As CNN/Money’s Gary Stern wrote the other day, What Will It Take for Finance Workers to Report Wrongdoing?:

Turning a blind eye to the wrongdoing of colleagues has become the norm at many financial services firms.

The improper conduct goes unreported because people “fear retaliatory action, including losing their job, failing to get promoted, failing to get a bonus,” explains Thomas Monahan, chairman and CEO of Corporate Executive Board. Many employees expect that the misconduct will be buried under the table and no action will be taken. Indeed, companies have failed to create a healthy, ethical culture where people feel “they will not be retaliated against and the company will go and do something” about the wrongdoing, Monahan suggests.

While management on Wall Street might ‘talk the talk’ about creating a healthy ethical culture, they do not have the pedigree in ‘walking the walk’. Regrettably, they seem to have taken their cue from their incestuous friends in Washington. In fact, much like organized crime’s practice of omerta, the code of silence in our nation’s capital only seems to be getting worse.

Why has ABC News Jake Tapper seem to have been the only member of the media to call the Obama administration on the carpet in terms of its treatment of whistleblowers? Thanks to POGO and the Government Accountability Project for banging the drum on behalf of those within our government who have the courage to expose bad practices. Again, I find it regrettable that this topic does not receive the requisite coverage by our major media, so let’s cross the pond and see what The Guardian has to say about The Obama Administration’s Disturbing Treatment of Whistleblowers:

. . .this is a White House that once vowed to protect whistleblowers when it drew up its transition agenda. “Such acts of courage and patriotism, which can sometimes save lives and often save taxpayer dollars, should be encouraged rather than stifled,” the document said as Obama prepared to take power.

But that was then. This is now.

Over the past three and a half years the Obama White House has instead shown a ferocious hostility to many whistleblowers and earned itself the ire of progressive columnists like Salon’s Glenn Greenwald and whistleblower defence groups like the Project on Government Oversight and the Government Accountability Project.

Danielle Brian, of the POGO, has said the US department of justice in the Obama administration “sent a clear of message of fear and intimidation” to whistleblowers in the national security field. This is how the GAP’s Jesselyn Raddack – herself a former whistleblower at the DoJ – put it: “While the Bush administration treated whistleblowers unmercifully, the Obama administration has been far worse. It is actually prosecuting them,” she wrote recently.

I am all for protecting national security but the code of silence in Washington would seem to go far beyond that. How else are we to explain:

For example, the Food and Drug Administration is being sued by current and former employees who say it started monitoring their private emails after they complained that approved medical devices might be risky. Or consider Obama’s signing of a new defence law – called the NDAA – which critics have said defines illegal support of terrorists so broadly that journalists could be swept up in it by interviewing sources at radical groups. A group of writers and activists, including a Pulitzer prize-winning former New York Times reporter, have already gone to court in New York arguing the NDAA is chilling free speech around the globe.

Politicians and financial titans can talk the talk when it comes to promoting truth and transparency, but who amongst them have shown the courage and character to walk the walk?

Whatever happened to . . .

Larry Doyle

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I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

  • Mark J. Novitsky

    Look…what has changed? GS just got ANOTHER wrist slap / cease & desist $20 Million fine for Insider Trading and Front-Running “tips” to select “elite” connected clients. (Isn’t that TOO a crime?) — CITI just got a “cease & desist” order for its years of money (DRUG) laundering “lapses”…just like HSBC currently being “investigated” by the Senate…you know…Banks (Wachovia) supporting corrupt govt. officials, terrorists, drug dealers and your average tax evader. (With all due respect…bigger than Trayvon Martin / Zimmerman story…We just had three youth kill a young adult over his bike) — Nothing to see…move along…”CEASE & DESIST”?! Until the next time we catch you. Admit no wrong-doing…no FBI…nobody going to jail. JPM manipulating silver markets (see WB Gary MacGuire) — What does the “news” media talk about? Certainly not this. Whistleblowers slaughtered…Banksters, WS, corrupt regulators free and clear.

  • Tommy Anonymous

    Did U know, that when swimming in a cesspool, it’s unwise to open your mouth!

  • fred

    LD,

    Nice article in Barrons this weekend. The Big Flaws in Dodd-Frank, an interview with Charles Calmoris. Two points, in the interview, were of particular interest to me:

    1. “If you were Acorn you won’t like it because that means you lose your hefty broker fees and political power… Members of Congress are not going to like it because they get fees too, called campaign contributions and favorable press from attending ribbon cutting ceremonies… We are basically talking about undoing the deal between the urban populists and the too big to fail financial institutions-banks and gov’t sponsored enterprises who agree to distribute SOME of the profits to favored constituencies… That is the deal Washington has brokered over the past 30 years, and it is done on a bipartisan basis.”

    2. “By subsidizing the down payments we would reduce leverage and risk rather than encourage financial institutions to make or guarantee bad loans.”

    LD, point #1 seems to address Washington Wall Street incest directly and quite possibly point dirctly to it’s genesis. Point #2 provides some direction on how capital markets rather than gov’t subsidies might fix the problem in the future.

    I often wondered why a potential homeowner couldn’t lock in low interest rates on a mortgage for future real estate purchase, why not expand the concept to include down payments?

    Special purpose Real Estate ETF’s with strict regulatory and fiduciary requirements earmarked specifically to the residential real etate market.

    “Move over REITS, meet the new kid on the block.”

    I think there is a tremendous opportuniy for free markets and direct private investment to solve the problems that politics and special interests have created. If only special interests and political operatives could be stopped from hindering a market based response.

    LD, I was curious as to your thoughts?

    • LD

      Fred,

      I read that article as well and would take exception to Calomiris’ belief that prop trading was not involved in bringing down Wall Street. Prop trading may be a nebulous term –but that is by design–so Wall Street can find various and sundry ways to allocate capital to generate returns. I would quantify the SIVs (structured investment vehicles) as a form of proprietary trading and those vehicles were the centerpiece to bringing down Citi.

      The issue you touch upon in point 1 is central to the incestuous relationship between Wall Street and Washington. The idea that both ends of the relationship can take out $$ while promoting social policies is anathema to how good government and business is supposed to work. By its very nature the dollars being taken out are subsidies provided by the taxpayer and promote inefficiencies if not MUCH worse…as in what we have experienced.

      We need leaders on both ends driven by unselfish interests and regulators who are not compromised to maintain an even playing field. Regrettably we have little to none of the above currently.

      • fred

        When regulated adequately, self interest in the private sector, (in a free mkt based economy), works quite well.

        Quite possibly, the revolving door between Wall st and Washington has misdirected regulators from gov’ts primary responsibility within a free mkt based economy, effective regulation and enforcement.

        Can a gov’t employee effectively serve two masters, I think not.

        Relentless pursuit of the public interest through regulatory enforcement. A system that does not pursue or accept ‘neither confirm nor deny’ settlements.

        According to Wikipedia, Pres Hoover charged his Sec of the Treasury, Andrew Mellon, with bringing down Al Capone’s organization on two fronts, the IRS and the Dept of Prohibition (DOP). IRS violations provided prosecutorial evidence while the DOP’s main function was both PR and to deprive Capone of necessary working capital.

        Let’s bring back the G-men and Elliot Ness, the Untouchables is still one of my all-time favorite movies,
        (Sec Tim kinda resembles K. Cosner, don’t you think? I wonder if he’s packin?)

  • LD

    Out with Mary Schapiro …welcome back Eliot Spitzer…

    • fred

      Yah, Spitzer would make a great Ness, he’d have his hands full though, taking down Capone was easy compared to taking down Wall St.

      LD, who else can we hire to man (or woman) the DOP; Prohibition now being defined as regulatory capture as evidenced by Wall St-Washington incest?

  • LD

    The attorneys general and secretaries of state whom have shown no regard for the power embedded within the Wall Street-Washington incestuous relationship are very few and far between.

    A few who come to mind include:

    1. William Galvin of Massachusetts
    2. Elaine Marshall of North Carolina
    3. The Colorado Attorney General’s office did go after E*Trade hard and got justice in its ARS case.

    Barbara Radnofsky in Texas is a fighter as well.

    We could use them all…plus more!!






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