

Why the SEC Won’t Hunt Big Dogs - bpolania
http://www.propublica.org/thetrade/item/why-the-sec-wont-hunt-big-dogs

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T_S_
The crisis was fueled by people showing up and doing their jobs. Think about
that.

The hunt for the criminals is a waste of time. People were acting aggressive,
not criminal--with notable exceptions that could happen in any era. In fact,
finding scapegoats will make the problem worse. It leaves the system intact
and fools everybody into believing the problem is fixed.

Credit and risk has always been a problem of information. In this era we have
more tools than ever to manage them. However the rules require a major rethink
to get the right information circulating.

Now, if you believe it is a systems problem, what's the solution? Here's one:
Transparency. Not the SEC's version of quarterly accounting quibbles. Just
tell me the the end-of-day positions of every "large" participant. 20 years
ago that would be too much information to process. Now it would be no problem.
Lots of little agencies could process the information.

The impact would be enormous. The informational advantages of large
institutions and so-called speculators would simply disappear. Nobody would be
able to grow to be too big to fail, simply because they would have a harder
time trading. If you are starting to feel sorry for banks having to supply
this type of formerly proprietary information, just remember, they have the
corresponding information on you and you don't complain.

~~~
essayist
William Black, who was a lead investigator/prosecutor for the 1990's savings
and loan crime spree, would disagree.

<http://www.pbs.org/moyers/journal/04232010/profile.html>

When an investment bank packages up securities to sell and doesn't communicate
material information to potential buyers (e.g. "the bonds are junk"), that's
fraud. People committing fraud as part of doing their jobs are criminals.

When an S&P manager tells one of his professional credit raters not to request
information on the loans underlying the instruments he's supposed to rate,
what would that be?

[http://www.huffingtonpost.com/william-k-black/the-two-
docume...](http://www.huffingtonpost.com/william-k-black/the-two-documents-
everyon_b_169813.html)

~~~
T_S_
I think you have a point even though it is a gray area. However, I think that
having the government focus on Real Transparency (TM) as a prevention instead
of criminal enforcement would be a far more effective systemic reform. Not
that I believe it likely to be implemented anytime soon.

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dasil003
I wish they had let Wall Street crash and burn when they had the chance. It's
obvious that the majority of credible advisors had an inherent conflict of
interest in proclaiming that systematic failure would destroy the economy
irreparably. I say it would have been better to let the economy crumble and
then rebuild it rather than allow this precedent to be set that investment
banks can take any disk imaginable and it'll be backed by the taxpayers. If
these rich fucks think they have such huge brass balls, let them take some
risk, and I don't mean the risk that their bonus might only be $1 million
instead of $50 million.

~~~
nobody3141
Quick economics lesson. The money on Wall St doesn't belong to the guys in red
braces - it is the pensions of ordinary Americans and the savings of little
old ladies.

Letting Wall St crash and burn means everybody in America's pension disappears
- everybody over 65 is out on the street. Everybody who saved money has lost
it. Nobody accepts cash anymore, after all if you put it in the bank it might
dissapear. You are back to bartering chickens.

~~~
cobrausn
IANAE, but this always struck me as... odd. How would the failure of the
banking system stop people who really only use it for money storage and
purchasing convenience from continuing to use hard currency?

~~~
scott_s
The economy is an interconnected system. If the banking system failed, then no
one would be able to make over-night loans. If no one can make over-night
loans, then large companies can't get the necessary funds for them to keep
their regular operations running. If that doesn't concern you, consider that
one of the largest companies in the country is General Electric. In simple
terms, a failure of the banking system means the lights won't stay on.

Andrew Ross Sorkin talks about this in "Too Big To Fail"
([http://www.amazon.com/Too-Big-Fail-Washington-
FinancialSyste...](http://www.amazon.com/Too-Big-Fail-Washington-
FinancialSystem--/dp/0143120271/)). When things were really bad in 2008, and
people were wondering what investment bank was going to go next, there was
very real fear that eventually the biggest, most stable banks such as Goldman
Sachs would go under. After Goldman, the next institution wouldn't be a bank.
It would be GE.

~~~
ajross
General Electric doesn't sell electricity...

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wanorris
Pardon my pedantry, but that's a terrible mixed metaphor in the title.

Who goes hunting for dogs? No one; rather, dogs accompany hunters, perhaps
while in pursuit of _big game_.

~~~
pork
You're correct, but dogs are rarely used in the pursuit of _big_ game.

~~~
abduhl
Depends on the game. Dogs are quite often used for flushing out big game (see
old bear hunting approaches or boars).

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anigbrowl
A few of my in-laws are working night and day, literally, to meet the legal
document production requirements for a DoJ investigation of a Large Financial
Institution which must remain nameless for ethical reasons. The DoJ is doing
it's best to investigate Wall Street as aggressively as it can, but their
electronic discovery team's annual budget is on the order of $20 million,
which is peanuts when an investigation can yield tens of millions of
responsive documents.

[http://www.law.com/jsp/lawtechnologynews/PubArticleLTN.jsp?i...](http://www.law.com/jsp/lawtechnologynews/PubArticleLTN.jsp?id=1202508356140&slreturn=1)

~~~
FJim
Again I raise the possibility that laws were not broken. There may have been
instances of fraud, but its more than likely that the mess was largely the
result of of groupthink and really bad decisions made in good faith.

~~~
anigbrowl
Oh I could certainly agree with that. I forget who said 'never ascribe to
mmalice what can be adequately explained by stupidity,' but I've found it an
excellent yardstick to judge politics by. As far as investigations go, I am
not expecting a big showdown at the OK corral. I am just sick of this meme
that it's all one big cozy and corrupt club. There are plenty of people in
both the private and public sector who are dedicated to the idea of conducting
financial business with both legal and ethical integrity.

Securities litigation is slow because it is complex; additionally, there are
sound economic reasons why it is often better to settle for the certainty of
large fines than waste time and money on uncertain litigation. It's not as if
scores of corporate officers went to prison following the crash of 1929
either. Bad policy often ends up as its own punishment.

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adamtmca
I think a big part of the problem is probably talent.

A hot shot kid coming out of a C.S./engineering program wants to work at
Google or Facebook or a startup, not the federal government. A kid coming out
of an econ/math/finance program wants to work for a "big dog" at an investment
bank or a PE fund, not some wimpy bureaucrat.

~~~
adamtmca
Case in point. Harry Markopolos is a fraud investigator who works for
institutional investors "big dogs", not the SEC.

He looked at Madoff's returns, the strategy they claimed they were using and
took "4 hours" at home to figure out that it was fraud.

Here is a choice section of Markopolos's testimony:
<http://www.youtube.com/watch?v=q1A7LdW0Y_s>

~~~
raganwald
Reading further, it may have more to do with corruption and/or apathy than
inability. I doubt they couldn’t find first base in Fenway park, they simply
didn’t want to go looking for trouble.

<https://en.wikipedia.org/wiki/Harry_Markopolos>

~~~
adamtmca
Probably also true - I think a lot of sec prosecutors end up in defence
positions later.

That said, I just can't see how they could ever attract or develop the
financial minds required to keep up with wall street.

~~~
sanderjd
This ignores the non-financial side of employment decisions. I, for one, would
hate to be an investment banker right now, because pretty much everyone I care
about would lose nearly all their respect for me. This effect seems to be
weaker than money, but it does exist.

~~~
adamtmca
It's interesting that you say that.

I was actually primarily referring to the non-financial side of the employment
decision which I would argue is huge. That's why I said "they want to work for
big dogs rather than wimpy bureaucrats" instead of pointing out that the SEC
could never pay them as well as BMO or GS.

Setting aside whether you think this to be true the perception among
undergrads headed into finance is that investment banks offer work
environments which are high intensity, committed to excellence, meritocratic
and so on. To them the idea of being involved in some sort of paper shuffling
bureaucracy is really repulsive.

The truth is there are still lots of people who don't hear that their buddy
got a job at GS and immediately think they are some sort of a scumbag.

I haven't responded to the comment below about the CIA but I think that rather
than proving the point that its all about the SEC being underfunded it
actually shows how culture/ perceived importance of the work/ mission/
impressing your friends etc etc can totally outweigh an organizations ability
to pay when it comes to attracting talent (Wimpy bureaucrat certainly isn't
the first thing that comes to my mind when someone says the CIA or the NSA).
The CIA's entry level economic analyst positions top out at 90k which is where
most entry level IB positions start, yet the CIA still manages to attract some
of the United States' best and brightest econ/math/finance graduates.

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thaumaturgy
For a better article: [http://www.rollingstone.com/politics/news/why-isnt-
wall-stre...](http://www.rollingstone.com/politics/news/why-isnt-wall-street-
in-jail-20110216)

The short of it is that many of the people that work for the SEC and the
Justice Department are themselves financial industry insiders who have no
interest in pursuing their friends or ruining their professional futures.

~~~
anigbrowl
_"That's right," he said, signaling to the waitress for the check.
"Everything's fucked up, and nobody goes to jail. You can end the piece right
there."_

As I heard it, that was the sarcastic end to a 'conversation' in which Taibbi
persisted in ignoring any information that did _not_ fit that narrative. The
DoJ has put a string of financial industry people in jail for fraud but Taibbi
never, ever tells his readers about those cases. TBW was one of the largest
mortgage brokers in the country and the almost entire C-suite went to jail;
the chairman got 30 years. Taibbi's sole comment on this was that he was 'the
exception that proves the rule.' Complete bullshit. Matt Taibbi's _schtick_ is
to endlessly repeat that the system is broken that nobody cares so he can reap
pageviews from the ignorant. You absolutely cannot rely on this guy for
objective reporting.

<http://www.stopfraud.gov/news.html>

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SagelyGuru
It is too little too late

