"Federal officials are bringing far fewer prosecutions as a result of fraudulent stock schemes than they did eight years ago"

Since you know that I think that Fraud, Negligence, Fiduciary Misconduct, and Collusion, are the second most important cause of this crisis, I think you can guess how I feel about this story in the NY Times:

"By ERIC LICHTBLAU

Published: December 24, 2008

WASHINGTON — Federal officials are bringing far fewer prosecutions as a result of fraudulent stock schemes than they did eight years ago, according to new data, raising further questions about whether the Bush administration has been too lax in policing Wall Street.( A MAJOR MISTAKE )

Legal and financial experts say that a loosening of enforcement measures, cutbacks in staffing at the Securities and Exchange Commission, and a shift in resources toward terrorism at the F.B.I. have combined to make the federal government something of a paper tiger in investigating securities crimes. ( A MAJOR CAUSE OF THIS CRISIS )

At a time when the financial news is being dominated by the $50 billion Ponzi scheme that Bernard L. Madoff is accused of running, federal officials are on pace this year to bring the fewest prosecutions for securities fraud since at least 1991, according to the data, compiled by a Syracuse University research group using Justice Department figures.( WHAT A DISGRACE )

There were 133 prosecutions for securities fraud in the first 11 months of this fiscal year. That is down from 437 cases in 2000 and from a high of 513 cases in 2002, when Wall Street scandals from Enron to WorldCom led to a crackdown on corporate crime, the data showed.

At the S.E.C., agency investigations that led to Justice Department prosecutions for securities fraud dropped from 69 in 2000 to just 9 in 2007, a decline of 87 percent, the data showed.

Federal officials took issue with some of the data compiled by the Syracuse group and said that they had maintained a strong commitment to rooting out fraud and abuse in the stock markets. While the S.E.C. could not provide numbers of its own on criminal cases arising from its investigations, Scott Friedstad, the deputy director of enforcement at the commission, said the numbers did not reflect “the reality that I see on the ground.”

“We are as committed as ever to vigorous enforcement efforts,” he said.

But a number of investor advocates and securities lawyers who are critical of the S.E.C.’s recent performance say they will be anxiously watching the incoming Obama administration to see what steps it may take to restore the agency’s battered credibility and re-establish it as a watchdog against corporate abuse.( HEAR HEAR )

President-elect Barack Obama has named Mary Schapiro, head of the Financial Services Regulatory Authority, to lead the S.E.C, and he has promised an overhaul of the agency and other financial regulatory offices to provide tougher oversight.( PLEASE )

“I think the S.E.C. has completely fallen down on the job,” said Jacob H. Zamansky, a New York lawyer who specializes in representing investors who have lost money in fraud cases. “They’re more interested in protecting Wall Street than protecting investors. The new administration has to do a complete overhaul of the S.E.C.” ( A MAJOR CAUSE )

The F.B.I., which frequently investigates stock fraud cases either on its own or in partnership with the S.E.C., has also had a sharp decline in the number of white-collar cases it has brought in the last several years — partly a reflection of a huge shift in staffing and resources to counterterrorism operations since the Sept. 11 attacks, officials said. ( THAT WORKED WELL )

David Burnham, co-director of the Syracuse research group, which is known as the Transactional Records Access Clearinghouse, or TRAC, said the decline in stock fraud prosecutions growing out of the F.B.I. “really is no surprise. It’s a reflection of a choice that was made right after 9-11 to move investigators into terrorism, and this is the cost of that.( COULDN'T DO BOTH. WE NEEDED TO GO TO IRAQ )

“Maybe it’s the correct call,” he added, “but with both the F.B.I. and the S.E.C., the federal government is really the only place that does white-collar crime on a systematic basis.”( YOU HAVE NO IDEA WHERE THIS CRISIS WILL LEAD )

The economic collapse of the last few months has brought intense scrutiny of the S.E.C. amid accusations that it failed to foresee and prevent the collapse of one major financial institution after another as a result of risky overinvestment in mortgage-backed securities.

“As an overheated market needed a strong referee to rein in dangerously risky behavior, the commission too often remained on the sidelines,” Arthur Levitt, who served as chairman of the S.E.C. during the Clinton administration, told the Senate Banking Committee in October.

The Madoff scandal, now under investigation by federal prosecutors in Manhattan, has ratcheted up criticism even further.

Christopher Cox, chairman of the S.E.C., ordered an internal investigation last week into what he said were the agency’s “multiple failures” to investigate credible allegations of wrongdoing by Mr. Madoff.

The S.E.C.’s own data suggests that the agency has put increasing emphasis on using non-criminal means, like civil fines and what are known as deferred prosecution agreements, in dealing with allegations of wrongdoing. The number of S.E.C. cases handled through civil or administrative remedies has grown from 503 in 2000 to 636 this year. ( GOOD WORK )

Critics of the S.E.C. also attribute the decline in criminal cases to shortages in staffing and resources in the agency’s investigative units, policy changes that have reduced the authority of investigators to pursue cases on their own, and a “revolving door” phenomenon that has led investigators to leave the agency for high-paying jobs in the industry that they once helped to monitor.( A MAJOR CAUSE )

“It’s been awful,” Sean Coffey, a former fraud prosecutor in New York who now represents investors in securities litigation, said of the S.E.C.’s recent enforcement record. The agency has “neutered the ability of the enforcement staff to be as proactive as they could be. It’s hard to square the motto of investor advocate with the way they’ve performed the last eight years.” ( A TOTAL DISGRACE )

Mr. Coffey said he believed the declining number of stock fraud prosecutions is partly a result of the backlash the Bush administration experienced after its aggressive pursuit of corporate crime following the Enron collapse in 2002, which led to the creation of a national task force on corporate wrongdoing. ( THEY LISTENED TO THEIR MASTERS )

In the last few years, he said, “the administration has been sending the message that we’re going to loosen the binds on the market to compete in the global marketplace, and they’ve pulled the throttle back on prosecutions because it wasn’t politically necessary anymore.” ( THAT WORKED WELL )

I'm saying that this is the second major cause of this crisis, and it is a result of decisions by the absolute worst administration, by a factor of ten, than any other administration since the beginning of the twentieth century. Hoover lived in a much tougher era, and was a genius compared to Bush. Nixon was Lincoln compared to Bush. When he's gone, the worldwide sigh of relief might effect global warming.

"What happened to the ideology? On closer inspection, it turned out to be something of a cover all along."

Robert Reich also has a pretty good idea of our Political Culture:

"Greenspan’s real failure of imagination was his inability to believe there are useful market rules beyond those that protect private property and prevent outright fraud. This, presumably, was why he kept insisting for so long that government be held at bay( WHO KNOWS WHAT HE REALLY BELIEVES? ).

But now the United States has chosen to deal with the financial crisis by buying up a significant fraction of the shares of the nation’s major banks and its largest insurance company, underwriting the loans of a large portion of the nation’s home-lending industry, and is on the verge of underwriting the nation’s largest automobile makers. Yet little if any of this largesse has found its way to the broader public( A VERY BIG SOCIAL PROBLEM WITH THE BAILOUTS ) – to homeowners in danger of defaulting on their mortgages and losing their homes, small businesses close to insolvency, state and local governments cutting public services because of budget shortfalls, families unable to afford health insurance, or young people unable to obtain loans to finance university tuition. ( TREASURY AND THE FED ARE TRYING NOW )

The ideology of a perfectly self-correctly free market( THEY DO NOT BELIEVE IN THAT AT ALL ) has given way to what might be described as a raid by America’s biggest banks and corporations on the public purse, supposedly justified( ACTUALLY JUSTIFIED AS NECESSARY TO THE FUNCTIONING OF OUR SYSTEM, AND CONSIDERED A FORM OF FDIC INSURANCE THAT ONLY A FEW PEOPLE SEEM TO BE AWARE OF ) by benefits to the broader public which seem never to materialize( THE INVESTMENT CLASS IS THE BROADER PUBLIC IN THEIR VIEW ). What happened to the ideology?( THE ONE ABOUT GOVERNMENT GUARANTEEING TO HELP THEM IN A CRISIS? IT'S WORKING OUT JUST AS PLANNED. SURELY YOU KNOW THAT? ) On closer inspection, it turned out to be something of a cover all along( THAT'S IT ).

During the same years Greenspan called for deregulation of financial markets( ONLY THESE ), Wall Street was accelerating its bankrolling of the U.S. Congress( THAT'S THE FDIC INSURANCE I WAS REFERRING TO ). Securities and investment firms contributed larger and larger amounts of money – not just to conservative Republicans who might expect such support but also to Democrats who had never been so graced before( OF COURSE. THAT'S OUR SYSTEM ). According to Center for Responsive Politics, Wall Street firms dramatically increased their contributions to both parties during these years. Their share of total donations to the Democratic Senatorial Campaign Committee, for example, rose continuously, from 5 percent during the 1999-2000 election cycle to 15 percent by the 2007-2008 cycle.

The money was accompanied, and often raised, by Wall Street lobbyists who pushed Congress in the same direction Greenspan urged – blocking regulation of derivatives, weakening oversight of subprime mortgage lending, and preventing the Securities and Exchange Commission from doing its job. ( IN OTHER WORDS, GETTING GOVERNMENT OFF THEIR BACKS WHEN IT SUITED THEM )

To take but one example, the collapses of Enron, WorldCom, and several other giant corporations in 2002 revealed a troubling pattern of credit-rating agencies repeatedly assuring investors that such companies were good investments until just before they went under. When the Securities and Exchange Commission asked Congress for additional authority to oversee the credit-rating agencies, Wall Street and its lobbyists blocked the measure( IT WAS CLEAR WHY BACK IN THE S & L CRISIS ). With hindsight, it’s clear why. Wall Street investment banks were paying the agencies to rate various mortgage backed securities after first advising the firms that issued them – and collecting fees – on how to package them to get high ratings. Years later many of these same securities, based on risky loans, would prove to be worthless, threatening financial institutions worldwide. ( ALL TRUE )

Apparently Greenspan hasn't learned anything from all this( HE'S NOT SURPRISED. COME ON. ), but the rest of us have no excuse. The real choice ahead is between democratic capitalism and authoritarian capitalism( MELODRAMATIC ) . China is perfecting the latter. But unless we are careful we – the citizens of democratic capitalist nations – will discover that our form of capitalism has become more authoritarian( WE HAVEN'T YET? OH MY. ) than democratic. The current economic crisis surely poses a test for capitalism( A SOCIAL TEST. READ BURKE ). But it is also a test of democracy( AN ECONOMIC TEST. READ HAYEK )."

Our system is a Welfare State in which various Interest Groups compete to get the government's aid and largess. Almost everyone wants government intervention. All they differ in is the details of what they want the government to do. However, De-Regulation is not an end in itself, but a system in which the Government gives certain businesses more leeway while continuing to explicitly and implicitly guarantee government help in a financial crisis. What was not anticipated was the size of the crisis and ineffectiveness of the government's response.

I don't know exactly what Democratic Capitalism means to Reich. We have it. What we've had for the last eight years is just a peculiarly obnoxious form of it. It's up to the New Administration and Congress to do a better job of governing. It's hard right now how to see it being worse.

I suppose that my biggest difference with Reich is that I believe less government would alleviate some of these problems. However, that will not be possible without a growing and prosperous Middle Class, which I do not believe that we have now. I base that belief on using my eyes to see the obvious, which must be much harder to do than it seems.