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Posts Tagged ‘Wall Street regulations’

‘Occupy Wall Street’ Should ‘Occupy Washington’

Posted by Larry Doyle on October 7th, 2011 11:53 AM |

Is Wall Street the center of all the problems in America?

Many of those involved in the “Occupy Wall Street’ demonstrations may think so.

I strongly believe that they are wrong.

Those with a keen ‘sense on cents‘ understand that Wall Street does embody part of our national problems. They also appreciate that the stench that overhangs Wall Street is consistent with an incestuous and far stronger odor emanating from Washington. (more…)

Is Wall Street On the Up and Up?

Posted by Larry Doyle on October 3rd, 2009 11:57 AM |

The core of that question resides within the regulatory oversight of our financial industry.  The American public is beginning to learn a lot about this financial regulatory oversight. How so? A month ago, SEC Inspector General David Kotz released a report, Investigation of Failure of the SEC to Uncover Bernard Madoff’s Ponzi Scheme (embedded here). Yesterday, the Wall Street self-regulatory organization, FINRA, released Report of the 2009 Special Review Committee on FINRA’s Examination Program In Light of the Stanford and Madoff Schemes.

What did we learn from yesterday’s report? Plenty. For that, I commend all those involved in this effort. With all due respect to FINRA employees who have legitimately tried to fulfill their obligations to the best of their abilities, yesterday’s report is nothing short of a massive indictment of FINRA’s management, FINRA’s board, and the SEC which is charged to oversee FINRA. Why? Having read this report twice and studied critical components of it, FINRA is exposed as nothing more than a collection of crossing guards . . . said with all due respect to crossing guards. Have the supervisors of the crossing guards been so heavily influenced by Wall Street so as to render large parts of the FINRA mission ineffective? Many believe this to be true, including me.

Why so harsh? Let’s navigate and be a little more aggressive than the mainstream financial media in analyzing this report. In the process, I think you will appreciate my assessment and also realize there are many more questions which need to be answered.

The FINRA report is largely divided into the organization’s dealings with the financial frauds encompassing Allen Stanford and Bernard Madoff. Referencing the massive regulatory failings on FINRA’s behalf in these two cases, the authors provide recommendations which FINRA’s management will present for approval or ratification at the December 2009 Board meeting.

For purposes here, I will not regurgitate the numerous individual failings of FINRA examiners and management in each of these cases. Rather, I will highlight those failings which I find most egregious. In turn, I want to focus on highlighting the recommendations so the American public can truly understand how woefully inept, incompetent, and ill-prepared this financial self-regulatory organization has been and currently is to uphold its mission to protect investors. Against that backdrop, I will then lay out questions which I deem to be critically important for FINRA to answer if the American public can ever regain a degree of confidence in the oversight of Wall Street.

>> Stanford Case

1. In 2003, the Stanford broker-dealer generated 68% of its revenues from the sale of Stanford International Bank CD’s. Are you kidding me? Red Flag!! That finding did not prompt the examiner to dig deeper?!

2. A 2003 Anonymous Tip Letter laid out the Stanford scheme in detail.

3. In 2005, a FINRA examiner learned that the Stanford broker-dealer is paid an annual fee of 3% of the deposit sum for every CD. Another red flag! Standard practice would have bankers or securities salespeople earning a one-time fee of maximum .25%.

At this point, Stanford International Bank had raised approximately $1.5 billion in what would grow to a $7.2 billion scam.

With all due respect to FINRA employees who may have continued to look into Stanford over the 2005-2008 time period, truth be told FINRA did not further aggressively pursue this case until the Madoff situation broke in December 2008.

>> Madoff Case

1. FINRA largely limits its review of the Madoff scam to the 2003-present time period. Why not go back further? FINRA had longstanding oversight of the Madoff enterprise.

2. FINRA largely reduces the extensive relationships between Bernie Madoff and family members with FINRA to nothing more than a footnote. That footnote on page 46 provides a cursory approval of FINRA’s relationship with the Madoff firm and family. Why aren’t these relationships more deeply explored?

3. The report acknowledges what we always knew about FINRA having oversight of Madoff’s operation. FINRA representatives, including Mary Schapiro, have willingly and intentionally misrepresented the fact that FINRA had oversight of Madoff’s enterprise. Did Mary Schapiro perjure herself on this topic during her confirmation hearings to be Head of the SEC? Well, she may not have perjured herself, but she and others have willingly misrepresented FINRA’s required oversight of Madoff over the long time period when Madoff was strictly a registered broker-dealer and ran this massive Ponzi scheme within that framework.

4. FINRA failed to detect the full breadth of the relationship between Cohmad Securities and Madoff.  Bernie Madoff and his brother Peter owned 24% of Cohmad, and the Cohmad broker-dealer operated within the same office space as Bernard Madoff Investment Securities. Cohmad was largely a front for feeding customers into Madoff’s scam. The report provides:

Cohmad was registered as a broker-dealer and reported having approximately 750 to 850 customer accounts, which were held by and cleared through Bear Stearns Securities Corporation. These accounts usually generated roughly 300 transactions per month, mostly in equities and, to a lesser extent, municipal bonds.

I would very much like to know more details about these municipal bonds. Were they municipal auction rate securities?

5. How did FINRA miss the Madoff scam? This report acknowledges the fact that FINRA examiners merely took Madoff and his representatives at their word that Madoff was running nothing more than a broker-dealer. Are you kidding me? It was common knowledge that Madoff had a money management business. FINRA maintains that the FINRA ‘crossing guards’ checked the little boxes on their Madoff review sheets and went on their way. (more…)

The Fault Lies Not in Our Stars but in Ourselves

Posted by Larry Doyle on June 18th, 2009 11:24 AM |

Just as Cassius could not serve both Caesar and the republic, neither can our political leaders today serve two masters. Who are these masters? On the one hand, politicians claim to serve the public interest, while on the other the politicians are beholden to the big money showered upon them by lobbyists representing large financial interests.

Unless and until these conflicts are exposed and extirpated, in my humble opinion, our nation will never regain its stature. The evidence is overwhelming. The gall of the politicians is unending. The media is largely beholden to the same interests and enables the charade to continue.

The Wall Street Journal touches upon these issues in writing Hope vs. Financial Experience:

The main idea behind the Obama Administration’s new financial revamp is essentially this: With more power and a modest reshuffling of the bureaucratic furniture, the same regulators who missed the last credit mania will somehow prevent the next one. If nothing else, this concept is certainly true to President Obama’s campaign theme of “hope.”

From my experience, “hope” is always a lousy hedge. What do I mean? If I, in whatever role I occupy, am relying upon hope rather than thorough preparation, discipline, and ethics to achieve my desired goals, then I am in an unenviable position. As a nation, we occupy that unenviable position currently. Why?

We “hope” the financial system and reforms will serve our national interests. However, those charged with developing and implementing these reforms are conflicted. How so? They feed from the trough of those supposedly being regulated while supposedly representing the interests of the public, i.e. those they are supposed to be serving. No man can serve two masters.

President Obama and his Congressional colleagues from both sides of the aisle would promote the concept that our financial regulatory system had gaps which banks profitably penetrated. The promotion of that concept is pure pandering. Those gaps were created and paid for by the massive flow of lobbying dollars that went from Wall Street to Washington. In turn, the politicians hoped the gaps would not be detected or overly expensive. They “hoped” and we as a nation lost. Where is the acccountability?

Many would say there is much blame to go around for this financial crisis. However, if we do not call those in Washington on the carpet for their culpability in this turmoil, we are doomed to repeat it.

As I watch the Congressional testimony of Secretary Geithner this morning, my blood boils. Seeing the likes of Senators Chris Dodd, Chuck Schumer, and many others pretending to represent the national interest is very hard to swallow. Why?

All we need to do is review the names of those who facilitated the financial fraud that occurred at Freddie Mac and Fannie Mae. President Obama himself, in his short stint in the U.S. Senate, was a huge beneficiary of the largesse from Freddie and Fannie and the financial industry at large. Make no mistake, the intentional “cooking of the books” at both those agencies was fraudulent and criminal behavior. Washington enabled it and profited from it.

The WSJ addresses this very point in the process of reviewing Obama’s proposed regulatory reforms:

This “gaps and weaknesses” theory has the political benefit of ignoring the role that Washington played in creating the credit bubble. There’s not a word in the 85 pages about the Fed’s years of negative real interest rates, and the only mention of Fannie Mae and Freddie Mac is a placeholder paragraph noting that reform of those housing giants will come later. Also nowhere in sight is any explanation for how the Fed, which had every power imaginable to regulate Citigroup, could have allowed Citi to sell tens of billions of dollars of off-balance-sheet mortgage products.

Thus, the debate in Washington will continue. I view that act as a mere sideshow to the main play going on behind the curtain. That “show” burdens the taxpayer, both now and in the future, with an enormous and unknown cost!!

LD

Is the Party REALLY Over?

Posted by Larry Doyle on March 27th, 2009 11:58 AM |

party-hats1There is NO doubt that our financial markets and financial firms will experience significant changes in regulation on a going forward basis. Turbo-Tim Geithner laid out those plans this week. President Obama is hosting the heads of the major banks at noon today to lay the groundwork for the universal acceptance of the new rules, amongst other topics.

Over the next few weeks and months, new regulations will be defined and a new division of responsibilities will be outlined  amongst the various bodies (Fed, Treasury, SEC, FDIC, FINRA, CME). Rest assured, there will be some power grabs by the heads of these agencies and regulatory bodies in the process.  

We have clearly just come through an ENORMOUS party on Wall Street, leaving our entire economy with a MASSIVE hangover. Do not forget, though, as with any good party, we need to review who was working the door, who got let in, who got the discount cover, who brought some attractive friends, and who was taking a little something on the side.  I won’t dare venture as to who left together.  (more…)






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