Taibbi on SEC’s Records Destruction Reveals How Deeply Entrenched Official Corrpution Is

Matt Taibbi has published yet another serious expose, and this one is appalling in that it shows how long standing and deeply institutionalized the “nothing to see here” practices are engrained at the SEC.

This is the guts of the article:

For the past two decades, according to a whistle-blower at the SEC who recently came forward to Congress, the agency has been systematically destroying records of its preliminary investigations once they are closed. By whitewashing the files of some of the nation’s worst financial criminals, the SEC has kept an entire generation of federal investigators in the dark about past inquiries into insider trading, fraud and market manipulation against companies like Goldman Sachs, Deutsche Bank and AIG. With a few strokes of the keyboard, the evidence gathered during thousands of investigations – “18,000 … including Madoff,” as one high-ranking SEC official put it during a panicked meeting about the destruction – has apparently disappeared forever into the wormhole of history….

It goes without saying that no ordinary law-enforcement agency would willingly destroy its own evidence. In fact, when it comes to garden-variety crooks, more and more police agencies are catching criminals with the aid of large and well-maintained databases.

Don’t underestimate the seriousness of these charges. The SEC’s own staff has admitted that this behavior may well be criminal, and the agency has responded to inquires with remarkably obfuscatory replies, which is usually a official sign that the facts are ugly.

Not only is this conduct appalling, but the timeline is revealing. It apparently dates to at least 1993, when Clinton appointee Arthur Levitt became chairman. This is well before most people would date Wall Street having much impact on undermining regulation (although if my memory serves me right, a significant first step was the Greenspan Fed abandoning oversight of primary dealers, which took place in 1992). Levitt was from Wall Street, he had been the chairman of the American Stock Exchange. But he has tried to wrap himself in the mantle of being the friend of the small investor and blamed the erosion of the SEC on regular threats by Congressmen like Joe Lieberman, the Senator from Hedgistan, who found this stance to be too much and threatened to cut SEC funding. It isn’t clear if the practice started under Levitt, but Levitt notably was the first SEC chairman for decades who was not an attorney. His history in the industry and his lack of legal expertise was questioned as being likely to weaken the agency, and with the benefit of hindsight, that effort may have been more deliberate and wideranging.

This evidence of an institutionalized effort to change the playing board in favor of the financial services industry puts an entirely different coloration on Levitt’s posture. It now looks like a precursor to the Obama playbook of giving the industry virtually everything it wanted on what counts (Levitt sided with Rubin and Greenspan in opposing regulation of credit default swaps) but engaging in some “friendly to the public” gestures to hide that fact from the Democratic base. And it’s hard to believe now, but in 1993, both the rule of law and propriety carried much more weight than they do now. It’s hard to imagine that those involved were ignorant of the significance of these measures, and the fact that they continued for 20 years before anyone called them out points to a deeply corrupt culture at the SEC.

I’m not easily shocked, but this is shocking. It’s like discovering your a colleague didn’t merely have some problems with his taxes, but was money laundering on behalf of a major drug ring. I hope the Taibbi piece leads to a much broader look into dubious practices at the SEC. But given how the banks seem to own DC, I’m not holding my breath.

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  1. Jeff Bender

    The Baggers just cut the SECs budget by 222.5 million. It’s a socialist agency, you see. Save the Pentagon!!

    1. Patrick

      Given it’s toothless performance they might as well do away with it entirely.

      A Potemkin watchdog, that gives you the impression of safety, is worse than no watchdog.

      This is just one more reason why overseas investors should avoid the US markets.

      1. Yearning to Learn

        A Potemkin watchdog, that gives you the impression of safety, is worse than no watchdog.

        I agree with this sentiment… but have long fought the proposed outcome espoused by many…
        IMO there are two things that could be done:
        1) strengthen the agency and run it with honor and dignity… restoring faith to the investing public
        2) realizing it is as you said and just getting rid of it.

        I’ve always advocated for making it better.

        but given these allegations, you just might be right. it is unsalvageable.

        klepto-corporatocracy… doesn’t roll of the tongue but is accurate.


        This is just one more reason why overseas investors should avoid the US markets.

        So American investors should use these markets? I think you mean to say this is why ALL investors should avoid the US markets.

        1. Ishmael

          Having dealt with the SEC for 35 years, I have watched a steady decline. My opinion is similar to the one above. It is better to have no agency and tell people you are on your own then have an agency that turns its eyes to the big crimes. Same goes for the Big 4 firms. They offer absolutely nothing and the requirement to be audited should be dropped. If a company wants to be audited it would then be their own decision.

          It is a crying shame to see what has happened to the commission and Levitt is one of the main architects for its downfall. His excuses are humorous and show what a C player he is in the world.

          1. wunsacon

            No, this is just what right-wingers have been after, by cutting the SEC budget all along. They’re making it so that little is trustworthy, insiders will trade for themselves on non-public information, and access to decent information will be more generally limited to wealthy investors. This path furthers plutocracy.

          2. wunsacon

            Regulatory capture was/is always a risk. By voting for “low taxes, less government” for 30 years, we’re simply reaping the poisonous seeds Republicans (including DINOs like Clinton) have sown.

            Republicans really has succeeded in shrinking some departments (relative to the activity they were supposed to regulate) into toothless entities they can drown in the bath tub. Mission accomplished.

          3. attempter

            It is better to have no agency and tell people you are on your own then have an agency that turns its eyes to the big crimes.

            Exactly. We’re far better off without the lies of neoliberalism. And then there’s a practical reason I’ll get to shortly.

            No, this is just what right-wingers have been after, by cutting the SEC budget all along.

            On the “right wing”, only some yahoos ever really wanted that, and they’ve never gotten it. Haven’t you been paying attention to what’s really happening? It’s corporatist kleptocracy. That doesn’t mean drowning government in a bathtub, it means always expanding it in size and power, but all toward the goal of the government assisting corporate plunder, government as nothing but bagman and goon.

            In this case, sophisticated banksters would vastly prefer a compliant SEC to no SEC at all. This SEC will not only whitewash their crimes and provide endless kabuki diversions (even after this post, I don’t doubt we’ll see another hopeful gaze upward to the SEC in another week or so), but it’ll be usable as a weapon against any alternative economic attempts which may conceivably fall under its purview.

            I don’t know yet exactly what kind of instance that may be, but look at the FDA’s systematic persecution of small producers and distributors and refusal to enforce anything against big ones for the perfect proven example. That’s the typical action of any government agency or cadre under corporatism.

        2. Patrick


          But to some degree all these agencies, including the UK FSA, are subject to regulatory capture.

        1. jake chase

          The SEC is no different now than it ever was. Its purpose is to provide a false sense of security to gullible “investors” and protective cover for the looting by Wall Street top dogs. Every job at the agency is a sinecure. Nice work if you can stand the boredom and the green metal desks.

          1. Yves Smith Post author

            Not true at all, it was feared in the early 1980s. People were terrified of its enforcement chief in the 1970s, Stanley Sporkin.

      2. monday1929

        I am ready to wear a “FREE MARTHA STEWART” t-shirt. I think she did more time than all the Wall Street scum put together. I would love to read the Wall Street Journal’s take on this for laughs, but I refuse to go anywhere near Fascism’s mouthpiece.

    2. Bob Fanning

      $14 trillion in debt and now mandatory austerity in any form or fashion will be blamed on “the baggers” …how handy. Demagogue.

      1. Valissa

        Propaganda is powerful stuff! The Tea Baggers or Baggers are the perfectly created scapegoat for all sorts of elite shenigans. Axelrod’s mastery I’d guess. Every time I see or hear someone blame current events on the Tea Baggers I know that they are the ones who have swallowed.

        1. Valissa

          oops, that should be “shenanigans” instead of shenigans.

          Was just over at Links post today and noticed a new bagger propaganda meme in the Firedog Lake linked post by Jane Hamsher… “Firebagger Lefty blogosphere”. I wonder what other groups-to-be-marginalized will be joining the bagger family in the near future?

  2. Bart S

    The reason US has lost financial credibility is thing like this. Give it another crisis, and it will reveal the true level of corruption, then nobody will trust US financial dealing/debt ever again.

    Thus the demise of dollar as global reserve is done. The only remaining question is how to get out..

    1. Paul Tioxon

      The question is not is there corruption, of course there is, but corrupt as compared to what? As China screamed about owning downgraded Treasuries, it bought more when the world’s market crashed down. It is not corrupt to those it gives most favored status, which of course is not you or me, but those that count. The corruption protects them, which is why China’s wealth is protected here better than any one can protect. Power comes out of a barrel of a gun and the US has more barrels pointed at more heads than anyone. The CCP respects that more than any other other nation of shopkeepers or lawyers will ever come to understand.

      1. Bart Si

        Will it change the game assumption? China bought bond because it is backed by US sovereign credibility. Of course it is a mean to peg Yuan, but if US bond is fraudulent why insist on this method to peg Yuan?

        So, the big question is if the nature of said corruption actually change the game assumption.

        So far, there is no reason yet to change the game. But if it does change, the magnitude of value that has to be transferred out of US bond will destroy US economy for sure.

        1. Paul Tioxon

          News services report that Venezuela is repatriating all gold reserves from around the world. The US, Canadian, British etc banks will all have to cough up sovereign bullion. The world is restructuring. It is a long process, but it is happening while we beat up defenseless Afghanistan and Iraq.

          1. john newman

            China continues to purchase Tbills because its export dependance requires that it do so. http://mpettis.com/2011/08/foreign-capital-go-home/

            The threats Americans face are home grown: the SEC revelations dove tail nicely with the S&P litigation that broke in the news yesterday. Yves categorizes this post as “banana republic” which is exactly what we have become.

            Our government in its sympathy to its paymasters in finance has allowed rampant criminality now for over a decade. What the beneficiaries of this “forbearance” will likely discover is what Russia’s Oligarchs discovered to their chagrin when Putin came to power.

            Eventually an authoritarian zealot of unknown stripe will land in the White House, they look nutty on the hustings but that just tells you how insulated from reality you are: they garner support and they crave power and if conditions become bad enough they benefit from their insanity: they are not constrained by civilized norms.

            All of our criminogenic power centers are by their very success left open to criminal prosecution by some future unitary executive: there has been only progress since Bush 2 left in the executive unification project.

        2. aet

          The presence of corruption is an infallible symptom of liberty – people get to do what they want (that is an exercise of liberty), even though it is forbidden by law.

          The worse (ie the more effective) a totalitarianism is, the less corruption – people are simply too terrified attempt to be corrupt.

          That’s why “corruption” in China is either “official” (ie approved by TPTB) , or it gets severely punished. No middle ground!

          China is less corrupt than America, because that society has less liberty than America.

  3. dearieme

    “It’s like discovering your a colleague didn’t merely have some problems with his taxes, but was money laundering on behalf of a major drug ring.” To which member of Obama’s cabinet might that be an allusion?

      1. aet

        Oh, and the economy seemed to do much better before the “money-laundering/tracking” laws came into force with Ronnie Reagan and Bush Senior.

        In the US the cops take your cash unless you can explain to them where you got it, to their satisfaction – otherwise, it goes into the fund for their Christmas party.

        Boy how free is that.

    1. monday1929

      Well, Robert Rubin worked for Citi, the largest drug money laundramat on the Planet, and were Geithner and Summers his Proteges?

  4. Francois T

    Once again, for the umpteenth time, I shall repeat The Prime Question:

    Who, among institutional investors, presumed to be sane of mind and reasonably balanced emotionally, would invest in a country like the US of A, where the rule of law does not apply anymore?

    1. Anonymous Jones

      Probably the ones who conclude that it is worse elsewhere.

      Just like trashing the dollar doesn’t make such a difference if every other currency were being similarly debased.

      As with almost everything, it’s a relative judgment, not an absolute one. You do the best with the alternatives in play.

      [I’m not saying you can’t still work hard and be vigilant about the rule of law, but seriously, one’s decisions are shaped by the relative nature of the alternatives, even if the best alternative is quite unpalatable.]

    2. steelhead23

      The answer is so obvious, I am surprised you asked the question. Those who today invest in the U.S. are those who are favored by the manner in which the U.S. applies its laws. That is, the global elite. The U.S. has displayed an amazing fealty to wealth and this is not going to change.

  5. Francois T

    Can we count on Brother Obysmal to, once again, Look Forward, Not Back?

    Don’t worry Brother, it’s like those poor ladies in the Victorian area who were afraid of marriage; lay on your back and think of England.

  6. Francois T

    “and the agency has responded to inquires with remarkably obfuscatory replies”

    OK! I’ll expose my remarkable naivete here: An inquiry of such serious charges…isn’t it the province of the FBI?

    1. tawal

      SEC Inspector General, me thinks. /off

      20 years!!! Type to wipe it all away, and start completely over.

      1. bmeisen

        Typing fast! Make the new SEC really ferocious! They got tough on the poor, put a couple million behind bars, and crime rates has fallen to spectacular lows!

    2. JamesW

      Absolutely, Francois T., and I have complete confidence in FBI Director Robert Mueller, the great-nephew of Richard Bissell, one of those three CIA directors President Kennedy chose to fire.

      Hmmmm….Maybe President Obama was wise to have reappointed Richard Bissell’s great-nephew after all??

      1. aet

        Funny that the Press doesn’t sketch out all these “family ties” you can find amongst the US “elite”.

        You’d think that people would find that interesting.

  7. MyLessThanPrimeBeef

    It seems Senator Grassley is asking the same.

    Get involved.

    It seems insufficient that it should be just a deal between SEC and the Archives to preserve them.

    1. notexactlyhuman

      Check Grassley’s brilliant handling of the televangelists not long ago. The Iowa senator’s a bought-off putz like the rest.

  8. Jim Haygood

    In 2003, I wrote to the SEC about high-yield ‘money market funds’ offered by General Motors and three other large US corporations. Initially they were only offered to corporate employees. But later some were opened to the general public, and started attracting unsophisticated investors enticed by the higher yield, as compared to traditional money market funds offered by banks, brokerages and mutual funds.

    The reason for higher yield was brute simple: these funds were invested solely in the paper of their corporate sponsors, not in a diversified portfolio of third-party short-term debt instruments, as a prudently managed fund would be.

    I asserted to the SEC that there is a day-and-night difference in risk between a single-issuer fund, in which depositors could lose everything in a corporate bankruptcy, versus a diversified fund in which no single issuer constitutes more than a percent or two — and that these corporate-sponsored funds were luring in naive investors with no understanding of this vital distinction.

    In response, I received a brush-off letter from the SEC, saying they would ‘look into the matter.’

    My concerns were well-founded: GM did go bankrupt. I have no idea what happened to its fund depositors. I dissuaded the person who had contacted me (a resident alien with little financial sophistication) from putting her money into it.

    My diagnosis of the SEC: classic regulatory capture. An agency concerned about victimization of the public would have been all over those misleadingly marketed, shaky funds. Instead the SEC’s high-priced attorneys sucked their thumbs, while GM went over the cliff. Dipshits …

    1. JamesW

      Please forgive my being picky here, but “classic regulatory capture”???

      Could we please just say absolute corruption in the future?

    2. Mr. Bill

      Is there any distinction between SEC behavior under Democrats or Republicans? Methinks not. Seems our democracy is one big case of regulatory capture, or haven’t you noticed? Since when is a democracy “representative” when all of the communication between citizens and policymakers w/their lobbyist supporters flows the other way? We are not citizens, we are consumers, buying a packaged-up version of a republic that at this point is little more than a bill of goods.

    3. decora

      Jim – thank you for posting that.

      I know of another company that peddle shitty investments to their own employees… and I am thinking that, well, most employees are not ‘sophisticated investors’.

      If this was not just GM and the company I’m talking about then… uhm… how widespread was this practice in the 2000s? The company I am thinking of (but not mentioning – its Fortune 1000 though) actually had CDOs and RMBs in the portfolio that it was marketing to its own workers as a retirement investments.

      How could it have only been GM and this other Fortune 1000 company? Surely, this practice has spread to other HR and finance departments?

  9. bkm187

    What?..the watchdog is corrupt…nooo? Say it ain’t so! This just in..So is every elected official in this Damned country. Which is precisely why this case will go nowhere. It’s all fucked up and nobody goes to jail, except the poor and minorities! But, who gives a shit the stock markets up.

  10. decora

    i can’t believe you didn’t mention the part where SAC Capital had its new employees shoving dildos in their asses and drinking the piss of the CEO.

    Matt Taibi called it ‘bizarre’, but from what I have seen, it is the perfect metaphor for the modern financial industry.

  11. Mbuna

    Well the real question is whether the sheeple will wake up and revolt or simply succumb to enslavement. Right now I’d say enslavement is the more likely option. Stay tuned…

    1. aet

      I’m certain your insults will help to give people the confidence which they need to have in their superiors, themselves, and their subordinates, that history shows to be the most essential and necessary component of any effective and beneficial change in Government.

      Goebbels, sir, would be proud of you!
      He too called people “sheeple”.

  12. Tom Parsons

    It takes a Taibbi expose before anyone notices this about the SEC? Jeez, I’ve been screaming about them for way more than ten YEARS!

    Naked short selling of small-cap companies was always denied – called nonexistent by the SEC. Even when companies were severely impacted by the “sale” of more shares than possibly could have been borrowed, more than had been issued, even. There was supposed to be no naked shorting at all, coz it was ILLEGAL.

    And then, and then … Shazam, suddenly there *was* painful naked shorting of financial stocks in the first wave of the
    crunch. Suddenly the Big Finance Boys were getting hurt, instead of dealing the hurt out to Those Of Us Who Don’t Matter, and the SEC listed some crucial untouchable corporations and demanded that the perps stop naked shorting those (and only those) RIGHT NOW, or else.

    1. Yves Smith Post author

      This blog has commented regularly on the fact that the SEC seems incapable of doing anything on the enforcement front beyond going after insider trading cases (its quick settlement of the Goldman case and its failure to go after at least as bad Deutsche, which is where the SEC chief Khazumi worked recently, is teiling). Carl Levin did way more than the SEC did on the RMBS/CDO blowup.

    2. Trestle Rider

      Besides naked shorting, which only mattered to the SEC once the sharks started eating their own, what kind of investigation was launched into the problem of overvote, where during annual investor meetings, certain stocks received tallied proxies that exceeded the stock issuance by 30-50%.

  13. Viator

    We all have few choices at this point. One choice is Sarah Palin. Do you really think this crap would go on in a Palin administration?

        1. bkm187

          She certainly doesn’t know what the acronym stands for. Viator, you can look up the definition of acronym.

  14. Crazy Horse

    The revolving door is a valuable social institution that should be preserved. It just needs an orange jump suit and a 6×6 cell at the exit door rather than a cushy job.

    1. alex

      No, this should be a civilized country, and we should stop torturing prisoners. All prisoners should be allowed to sleep in a prone position. Therefore the cells should be at least 7 ft. in one dimension to allow tall prisoners to sleep lying down.

  15. Mario Panziero

    For those unfamiliar with the term, Regulatory capture = the judge/controller/law maker has been partially or totally corrupted.

    Remember Arthur Andersen, the (in)famous auditing company? If my memory serves, documents were destroyed as well.

    It’s still the thousand years old problem: Quis custodiet ipsos custodes? Who’s excersing oversight on the oversighters?

    It’s an unsolvable trouble: people will always be bought somehow.

    The question is not wheter it is possible to stop people from becoming corrupt, but rather: is it possible to create a system that would make corruption too expensive, or too complex?

    One fact appears to be evident: it’s no longer possible to have just one database for sensitive data; data has to be distributed en-masse to the public, encrypted, so that while the data itself cannot be easily used, a copy can always be obtained from somewhere.

  16. Siggy

    Pretty serious stuff this shredding the files business.

    Patterns of behaviour demonstrate intent, a critical aspect of any fraud prosecution; but then, if you’ve no intention to prosecute, you really don’t need the files.

    This is very serious business!

  17. Same

    Let the Chinese run it, since they hold US debt. Let the Chinese institute whatever anti-corruption penalties they can. 1. It’s out of the US hands. 2. If China really means no agencies at all, so what? that’s exactly what we have now.

  18. required

    and WHERE is obama’s rebuke of this egregious, pernicious, systemic corruption?

    was that a pin drop?

    obama is an utter FR$UD

  19. Hugh

    We live in a kleptocracy. There is no way the SEC could have been so blind and clueless that it could have missed all of the massive cascades of fraud and looting that have been visited upon us for the last 35 years without knowing about them, and more giving cover to them.

    Nothing has changed. I mean just look at who’s in charge there now. You have Mary Schapiro, a business friendly shill, who was at NASD/FINRA before becoming SEC chairman. While at NASD/FINRA she didn’t see the housing bubble or the meltdown coming. Nor did she see Madoff running his Ponzi right under her nose. You have Robert Khuzami the director for Enforcement who used to be Deutsche Bank general counsel. And there’s Adam Storch from Goldman who’s Enforcement’s Managing Executive. We have instance after instance where the SEC doesn’t bring up a case, brings up a case but it is not the most obvious and powerful one. Or where it intentionally puts its weakest case forward.

    Do people remember the shareholder suit against Bank of America where BAC had lied to them about bonus payments to Merrill employees? Judge Rakoff originally vetoed the BAC/SEC deal, describing it as follows, it

    “suggests a rather cynical relationship between the parties: the S.E.C. gets to claim that it is exposing wrongdoing on the part of the Bank of America in a high-profile merger; the Bank’s management gets to claim that they have been coerced into an onerous settlement by overzealous regulators. And all this is done at the expense, not only of the shareholders, but also of the truth.”

    There was the whole Gary Aguirre story back in 2004-2005 where Aguirre actually tried to investigate a hedge fund and got sacked by his bosses at the SEC for his efforts.

    These aren’t the exceptions. They’re standard operating procedure. The SEC is rotten to the core.

  20. Westcoastliberal

    Taibbi says it and I believe it. Not a big surprise here, but I think right now we should start a recall or resignation push on Holder. He’s doing nothing, just nothing. So disappointing.

    1. Curtsey Berry

      He’s doing the drug war just fine, mass lockups/deportations that exceed the Herr Ashcroft unt Gonzalez era. The Justice Department has remained completely civil to the overlords of plunder, bowing when appropriate, disbelief as proper, train leaves station.

      1. Capo Regime

        Read it carefully–happened in 93 under Madame was it–Reno? sorry to burst your bubble–the corruption is well bi-partisan. Again–it began under clinton and continued today. Yes, much easier to blame tea partiers, soros or Ascroft. See its about systemic corruption not about political parties. Of course if at this late date you believe the parties make a difference I would like to sell you a condo in Miami…..

  21. bkm187

    I took a look at CNN and Fox, guess what no mention of this story. Looks like it’s DOA. Nothing to see here move along.

      1. aet

        Right-wingers acting like shrill lefties, to make people dis-like them and their politics.

        An old propaganda trick.

        Why doesn’t Attempter tell us about it?

    1. JamesW

      I’m always perplexed when someone (not you, bkm187, I recognize sarcasm and irony) expects anything from the essentially single corporate-owned media today in America (5 corps. own the majority, but given their collusion, it is effectively one corporation), when I was a kid, there were over 1,000 companies which owned media outlets.

      I’ve long ago given up on paying attention to the American Media Corporation; I simply read government and biz documents, and read the foreign press (BBC and CBC are much the same as the American media, Aussie media almost the same). What difference does it make when the same stooges from the same organizations appear on Foxtard, NPR, CNN, CBS and ABC???

      AP “News” reads a press release from a rich white racist outfit like New Century Foundation as “news,” or Heritage Foundation, or Pew oil people Research Center or Trust or Foundation, aptly timed to shift focust on poor people, as opposed to those forces arrayed against the workers and the poor, or some other such foundation or institute.

      Then they label Brookings Institution as “liberal” which is where Robert Rubin set up his Hamilton Project to privatize everything!

      America is a completely fraud-based society, and the corporate-media simply help to perpetrate said fraud.

  22. scraping_by

    Trashing the files by policy shows the depth of disinterest in enforcing laws.

    Both my younger brothers, back in their cop days, lost the case file for several perps. Occasionally, it was street-level adjudication, giving an otherwise decent schmuck a break. But most often in was a bargaining chip with some low level yanker who could lead to the bigger, more guilty operator.

    Since there’s no mention of trashing a file in return for leads on the bigger fish, it was obvious that even pre Harvey Pitt, they thought of themselves as a service organization for money companies. Pah.

  23. mememe

    as a graduate of fancy pants elite school of law, I can attest that literally zero of my fellow classmates wanted to work at the SEC (despite its laid-back quality of life) v. the near unanimity of students wanting to be corporate wage slaves at the white shoe firms or wage slaves for a federal judge.

    The SEC (and American governmental bureaucracy) needs to mimic the Singapore model and pay its career bureaucrats/government career executives on par, or greater than, the private sector. Only then will the revolving door stop.

    Sadly there is zero probability that will happen in AMerica unless we’re stuck by ebola that specifically targets the anti-regulation crowd.

    1. aet


      Note all of the calls above (“from leftists” – yeah, riiiiiight) to dismantle, rather than re-structure, the SEC.

      Put in incompetents to do the expected, a rotten job (as was the intent in appointing the fool) – and then call for dismantlement of the entire institution, when the fool screws up his job – gee, sounds like a plan….

    2. JamesW

      “The SEC ….. and pay its career bureaucrats/government career executives on par, or greater than, the private sector.”

      Dood, they were paid six-figure salaries to sit and watch porn, that’s helluva good deal, best I’ve heard of in my lifetime.

      Most Ameritards pay to sit around and watch porn…..

      1. JamesW

        Watch for the droid, Terminator Seed, to be sent back in time by SkyNet to destroy something…

        1. JamesW

          Sorry, I forgot that BP already took care of that:

          BP’s dispersant + genetically-modified oil spill eating bacteria + natural amoeba = mutated brain-eating micro amoeba from Louisiana

          Good going, BP!!!!!

  24. lexicon

    I worked on the non-legal staff of a large M&A law firm from 79 to 98. In the 1980s I watched lawyers, paralegals and proofreaders frog-marched out in cuffs by the FBI for insider trading. There was a real climate of fear of the SEC, et al. It all stopped in the early 90s, and by “it” I mean enforcement.

    I’m sick of hearing people say Obama is “weak” or “indecisive” or “naive.” No, kids, he’s corrupt, as corrupt as Putin. He lets these jackals loot and drain this country and in return he gets power and campaign cash. How is this not corruption?

  25. Peripheral Visionary

    Five pages of ranting by Taibbi, but not a single mention of FOIA or the Privacy Act, and barely a passing mention of the complications of the regulators’ subpoena powers. I suspect they may have come up in the interviews he conducted, but since he doesn’t understand them, can’t be bothered to do the background research on them and/or simply doesn’t care, they warrant nary a mention, when in reality they are very likely at the heart of the issue.

    And then there is the ranting over self-policing. Quick question: is self-policing a sign of a healthy organization or an unhealthy organization? Another, even more important, question: if an organization faces precisely the same regulatory or criminal charges if it self-polices as opposed to if it does not self-police, how inclined do you think organizations are going to be to do their own policing, to get ahead of problems before they metastasize, and to report them to authorities?

    The problem with Taibbi, as always, is that it’s not at all clear what he is trying to accomplish. Is he trying to strengthen regulation, or trying to tear it down? The problem is, his articles can always be read both ways, which broadens their appeal, but which also makes them vehicles for people pushing an agenda which may actually be the opposite of what he and his sympathizers are trying to accomplish. Whatever that is, because I still haven’t figured it out.

    1. JamesW

      “Five pages of ranting by Taibbi, but not a single mention of FOIA or the Privacy Act….”

      First, there’s no “problem with Taibbi” as he’s a first-rate investigative journalist, something in rare supply in this pathetic country today (other than Pam Martens, Nomi Prins, Robert Scheer, and Larissa Alexandrovna [I think that’s her name????]there’s really few others today).

      Secondly, with recent reports that DHS chief Napolitano is sitting on thousands upon thousands of FOIAs, that’s arbitrary and besides the point. Those of us who have wasted a small fortune in subbmitting many of those over the years, realizes what an expensive and gargantuan waste of time that can be, when so very few are ever honored.

    2. monday1929

      I have not read the article, but perhaps what Taibbi is “trying to accomplish” is reporting of facts?
      As you say, that may leave the actions to be taken by readers up to their own inclination. As I have discussed here, what I fear is that some ex or present military types may decide that if the Rule of Law has been destroyed, then assassinating leading bankers, raters and “regulators” is a “legal” act. That is why prosecuting these criminals is the best way to save their lives. We must learn from their logic.

      1. decora

        Right on. Taibbi, in addition to ‘reporting facts’ (what a concept) is trying to translate this gobbldygook into common English language. he may lose a bit of credibility (‘vampire squid’ for example) but he is doing a service by mass communicating the crimes of high finance to the public.

  26. Rumpole Stiltskin

    Do you remember when WTC7 fell down out of sympathy for the other towers? With it all pending SEC and IRS investigations of Wall Street firms and players were destroyed. Whoops!

    Nice to wipe the slate clean for the Bush era!

    1. JamesW

      If you are refering to those active 3,000 cases with source documents (which had to be discontinued owing to the destruction of said source documents) than that is an obvious coincidence, as all coincidence theorists realize.

      Buildings fall down all the time, just like we frequently end up with Speakers of the House, like John Boehner, who never completed Navy boot camp, and presidents like Geo. W. Bush, who couldn’t even make it half-way through USAF enlisted basic training, then returns home where former banana republic prez, his daddy, pins on officer’s bars to his wimpy shoulders?????

      This country is too surreal and then some….

  27. Paul Jurczak

    But, The Maestro himself said that pervasive fraud in free market economy is not possible. He taught us, in his great wisdom, that self-interest of market participants eliminates fraudsters. Government agencies like SEC are not only unnecessary, but harmful and inhibiting to everlasting growth.

    So, if you still perceive existence of massive fraud in financial sector, you must have your reality wrong. Simple and elegant fairy tale of Ayn Rand must be right. It is the stupid reality, which is obviously wrong.

  28. Steve Roberts

    We’ve never needed more regulators, we need SMARTER and more ethical regulators. The rules are in place, they just aren’t being enforced properly. We had the same problem in the banking industry.

    1. Johnny Clamboat

      If only the right people* were in charge……

      *May not apply to humans since humans cannot be trusted to lord over other humans. Perhaps Paulie Krugnuts’ Alien Wars can help us out of another jam.

    2. JamesW

      Sorry, but you need to do some serious study of Thomas Linzey and predatory jurisprudence, rampant and increasing over the past thirty years.

    3. monday1929

      We don’t need smarter or more ethical- just pay them one million per year + a bonus. And forbid them ever working for those they “regulate”.

  29. Independent Accountant

    I have posted dozens of times on SEC actions. To no avail. The SEC enforcement division should be disbanded. It is a coverup operation for Wall Street. Similarly the PCAOB should be disbanded. If you are defrauded, sue!


  30. beowulf

    Wow! hese guys can look forward to enjoying future Matt Taibbi articles in a federal prison camp.
    The necessary measure of protection for government documents and records is provided by 18 U.S.C. § 2071. Section 2071(a) contains a broad prohibition against destruction of government records or attempts to destroy such records. This section provides that whoever: willfully and unlawfully; conceals, removes, mutilates, obliterates or destroys; [or attempts to]… any record, proceeding, map, book, paper, document or other thing deposited in any public office may be punished by imprisonment for three years, a $2,000 fine, or both.
    3 years per count (each record destroyed).

    When the subject of how many files were destroyed came up, Storch answered: “18,000 MUIs destroyed, including Madoff.”
    Oops! “The Division is not aware of any specific instances of the destruction of records from any other MUI,” the letter states. “But we cannot say with certainty that no such documents have been destroyed over the past 17 years.”

    More fun for the grand jury! In one short meeting, we have evidence of,err, 18,000 counts of misprision of felony, a “Martha Stewart law” violation for giving false statements to a federal official (at NARA), mail fraud and/or wire fraud (depending on how NARA letter was sent) and conspiracy to defraud the United States (see US Attorney manual linked above, “any conspiracy for the purpose of impairing, obstructing or defeating the lawful function of any department of government”).
    Plus, of course, the SEC lawyers involved (the whistleblower excepted) are at risk for state disbarment proceedings. It will be fun to see who’ll be the first to make a deal with the DOJ Public Integrity Section.

  31. rich

    Goldman Sachs VP Changed His Name, Now Advances Goldman Lobbying Interests As A Top Staffer To Darrell Issa
    Thursday 18 August 2011

    Has Rep. Darrell Issa (R-CA) turned the House Oversight Committee into a bank lobbying firm with the power to subpoena and pressure government regulators? ThinkProgress has found that a Goldman Sachs vice president changed his name, then quietly went to work for Issa to coordinate his effort to thwart regulations that affect Goldman Sachs’ bottom line.


    1. aet

      Yeah, they “create a crisis” – only so as to do the very radical things they want to do to our traditional systems of governance, without the appropriate scrutiny necessary for any informed consent on the part of the populace to those changes….

      Rush to war!! There’s no time to think, we say!! The danger is too great!!

    2. beowulf

      Its a sad sight that the US Government has looser ethics rules than New Jersey’s Casino Control Commission.

      Except for clerical help, no one can be “appointed to or employed by the Commission if, at any time during the three years prior to appointment”, they’ve worked for a casino licensee or applicant. (p. 8). And then for Commission employees who leave, they can’t work for a casino licensee or applicant “for a period of two years following termination of employment” (p. 24). To be fair to the Issa aide, I don’t think New Jersey has any restrictions on changing your name.

  32. Uncle Tom

    Yves, I have a question I am perplexed by. I am not a frequent poster but I have previously made points about regulatory capture and how the political system is thoroughly corrupt (that even the supposed “good” guys/gals cant be trusted to stay “good” once there), that more regulation is futile. We would be better off having less faith and confidence in the regulatory agencies to enforce nuanced rules and instead deregulate. Instead of obfuscating what’s permissible and what’s not by creating more rules, more agencies, and more power to the federal government where it is virtually certain to succumb to corruption, have less but more clear-cut rules (like no bank balance sheet can be above X hundred billion) that are more straightforward and easier to enforce. But you have stated on these pages that any deregulation is “right wing.” How can you defend that stance when it is clear that regulation (especially complex regulation that requires interpretation) is a path to corruption?

      1. Uncle Tom

        No, I did not say go to no rules. Clearly there are areas of public goods (the tragedy of the commons) that require intervention and rules, and Adam Smith himself said we must protect capitalism from the capitalists. Note in my post I advocated for a simpler and more transparent regulation. Do less simply so it can be done well.

        It is my opinion that more power to the federal government and more complicated regulation is precisely the avenue by which the capitalists take control of capitalism.

  33. elf

    Yves, Does this impact your read on – “So why hasn’t the SEC used Sarbox?”- as posed in “Why are the big banks getting off scot-free?”

  34. Phichibe

    I am incredulous at the suggestion here that the best response to SEC failures is to gut the agency and embrace a “caveat emptor” approach. Very few readers of NC are libertarian/laissez-faire capitalists, so I’m assuming these suggestions are coming more from the perspective of “let’s have things get so bad that there will be no mistaking it and then we’ll get the revolution we want.” This is the mindless policy of a certain left-wing school of thought that I personally despise and for which I have nothing but contempt, not least for the shallowness of its analysis.

    It took the Great Depression, the Pacora commission, and FDR’s skills as a politician to get us the SEC to begin with. To suggest the best progressive course is to throw it overboard is, to put it plainly, benighted. The solution to an organization that is failing because of misdirection and especially because of lack of resources is not to destroy it, it is to augment it with new leadership and additional resources. Would the readers who advocate closing the SEC respond similarly to a police department that was found to be corrupt and ineffectual? The suggestion to gut the SEC is just as juvenile and jejune as that would be.

    In addition, here’s a thought for those who’ve written this in earlier comments to ponder: Grover Norquist, Karl Rove, et al, want nothing more than to roll back the consumer protection and regulatory agencies. What you advocate is exactly what they want. It has often been remarked that in politics there is often a convergence of the extremes, as for example when the extreme left and the extreme right both oppose foreign military interventions. These comments reveal another area when the lunatic left and the lunatic right seem to be making common cause.


    1. attempter

      I’m going to assume that I’m one of these “shallow, contemptible” leftists* to which you refer, and that you were too cowardly to reply to me directly. (There’s another such coward above who names me, but does it way down in the thread.) But I’ll answer anyway.

      As anyone who’s read my comments knows, I’ve never once said “gut the government and let caveat emptor prevail”. I said gut the government, including its extensions called “corporations” and “propertarianism” and “concentrated wealth”, and all recognition of “contracts” upholding these criminal concepts. We don’t need the SEC because the con jobs it allegedly polices, all financialization, would no longer exist, because all contracts involving financial “products” would be void. Think of it as one big bucket law. That’s what civil society has to do if it wants to continue to exist at all. That’s what has to be done if democracy is ever to exist.

      Those are empirically proven facts. Regulation of rackets is impossible. You can’t tame kleptocracy.

      Therefore, to still support the criminalized State can only be ignorance or pro-kleptocratic malevolence. In your case, since you respond to calls for full economic democracy with such vitriol (I assure you, your hatred is my honor and my pleasure), I have to assume the latter.


      It has often been remarked that in politics there is often a convergence of the extremes, as for example when the extreme left and the extreme right both oppose foreign military interventions.

      Yes, how extreme to oppose aggressive imperial war. Criminal aggression, according to Nuremburg. What they hanged the Nazi defendants for. So with this quote you lay bare what a vile thug you are.

      *You still talk in terms of that obsolete spectrum and yet accuse others of stupidity and shallowness!

      1. Phichibe

        whoa, there, sparky! the voices in your head have been talking to you again, i think it’s time to put the aluminum foil hat on before you get so agitated.

        as it happens, i didn’t even read your comment. so, no, i’m not too cowardly to call you out directly; i was too cowardly to call out directly some of the earlier commenters who posted similar thoughts. after the first three or four of its ilk, i just gave up any more of them. i have the same policy about reading threatening notes written in crayon.

        that said, your response to my comment amply confirms my original assessment. if you want to try to build a society without contracts, property, or corporations, i can only wish you well. the one thing you left out of your diatribe was an invocation of the “dialectic”. does the spartacus youth league still meet at the unitarian coffee house on alternate thursdays?

        as for me, i’ll be happy with a capitalist economy that is highly regulated, with a highly progressive tax code and a generous social safety net. you can call me a dreamer ….


        ps: just for my edification, is there such a thing as a non-aggressive imperial war? an aggressive non-imperial war? a mildly irritated neo-colonial police action? inquiring minds want to know…

        1. attempter

          as it happens, i didn’t even read your comment. so, no, i’m not too cowardly to call you out directly; i was too cowardly to call out directly some of the earlier commenters who posted similar thoughts.after the first three or four of its ilk, i just gave up any more of them.

          Mine’s the third such comment, so you’re a liar about that as well. But yes, you were cowardly toward the others as well.

          as for me, i’ll be happy with a capitalist economy that is highly regulated, with a highly progressive tax code and a generous social safety net. you can call me a dreamer

          Something you know cannot exist, since it’s never existed. Only a few brief interludes afforded by cheap oil, something that will never exist again. Your liberal welafare state (and your car-powered suburban middle class “ownership society”, which I suspect is what you’re really dreaming of here), such that it ever existed, was context-specific to the Oil Age. It was ahistorical. It never existed prior to cheap, plentiful fossil fuels, and it won’t exist after they’re gone. You’re not only denying morality and history, you’re denying physics.

          I would call you a dreamer, but your pro-war remarks (which, news flash, make you the extremist by any rational, moral, or practical measure) reveal you to be far more malign than that.

    2. decora

      you realize the SEC was headed by Joe Kennedy, a well known crook, and when people asked FDR why he appointed him, he said you have to hire a crook to catch a crook?

      1. Yves Smith Post author

        I think the flaw is that Kennedy was a super rich crook and had little to gain by being a crook any more. By contrast, the people who’ve been tasked to run the SEC aren’t knowledgeable enough to know what the choke point are, or if they do, aren’t rich enough to be willing to rat the industry out.

  35. Stuart

    For any top official at the SEC, AG or the Treasury to say this was not known, is like Pakistan saying they had no idea Bin Laden was living just outside the gates of one of their main military bases.

  36. monday1929

    My only knowledge of Levitt is from a story my Dad told me years ago; It was Mid-town Manhattan in the mid to late 70’s, my Father was “broker of the day” Ie. got any walk-ins at Hayden Stone. Mr. Levitt stole a client as he headed to my Dad’s desk.
    He certainly does make the correct sounds in the Press, because he comes across as at least believing in SOME regulation. In the land of the blind……..

    1. jim

      there truly has not been a recovery…..a weak dollar has boosted corporate revenues …..47 million on food stamps…….80 million baby boomers ready to retire…….banks cannot take back the homes because they do not want to take the losses……its a tough game out there,,,,but there is great volatility for trading….

      http://www.floridadaytrading.com is an interesting sight

  37. Nathanael

    Destruction of federal government records… destruction of evidence…. these are all felonies.

    Wonder if the federal courts are so crooked they’ll let this go, or whether they’re not quite that crooked yet.

    I *know* AG Holder is this crooked, as were Gonzales and Ashcroft. So who’s going to bring the case? We need to restore Private Prosecutions like they have in the UK.

  38. Tony Ryals

    While I am happy to hear of any scrutiny of Bernie Madoff crony Mary Schapiro the SEC remains an agency dominated by Beltway and offshore interests whose greed and economic incest has destroyed the American middle class and created the U.S. deficit perhaps even more than their war,drug and petroleum trafficking frauds combined.
    Unfortunately both Rolling Stone’s Matt Taibbi and Senator Grassley among many others have misinformed purposely or out of ignorance about usually unnamed stock selling ‘compies’ having had their shares ‘naked shorted’.Con artist and Overstock.con CEO has claimed it is a or THE ‘Sith Lord’ – of Star Wars fame I am left to presume.
    The coming of the internet while being a source of information and misinformation at our finger tips has also become precisely what James Dale Davidson founder of the NTU and Agora Inc so
    proudly boasted it would in his book, ‘The Sovereign Individual’coauthored with UK sleazebag the Lord William Rees-Mogg. And Mr.Davidson was the creator of the ‘naked short selling’ lie(at first used to distract from his illegal penny stock pump and dumps Genemax and Endovasc in 2002),that was later used by so many pseudo-‘business’ reporters such as Matt Taibi to ‘explain’ the massive insider maniulations and pump and dump of the entire stock market before its collapse in 2008 that SEC IG H David Kotz and ex SEC Chairman Christopher ‘Naked Shorts’ Cox both used the sec.gov website to blame on ‘naked short selling’.
    Unfortunately not only the Utah Mormon mafiosi have helped foister this lie but even Grassley,Senators Carl Levin,ex Senator Arlen Spector themselves among many others.
    Indeed someone should investigate but it appears every present and past ‘securities dealer’ or Wall Street parasite and their mother has a vested interst in the lie.In fact I try not to even say ‘Wall Street’ because that term is also a lie in the Post 9/11 computer age when the NYSE itself has its ‘official’ home in Angela Merkel’s,(who also lied about Euro bonds being ‘naked shorted’),Germany and in truth is located in un counted offshore accounts from the Carribean to Switzerland to NASDAQ’s Dubai and Israel AND OFFSHORE ENTITIES IN BETWEEN.And no Fannie Mae and Freddie Mac and AIG and Bank of America and Goldman Sachs shares WERE NOT ‘naked shorted’ in 2008 even though that is what you will find if you read the sec.gov website ‘explaining’ the collapse of the market in 2008 as posted there by ex SEC Chair Chris Cox who himself removed the uptick rule in order to set the stock markets up for insider manipulation upon first taking over as SEC Chair ! And SEC IG H David Kotz has aided and abetted the lie himself because he is such a pervert he must recite the term ‘naked short selling’ every night in his bed while his wife is sleeping to help him masturbate himself to sleep.

    SEC Enhances Investor Protections Against Naked Short … – The SEC
    15 Jul 2008 – SEC Enhances Investor Protections Against Naked Short Selling … protections against “naked” short selling in the securities of Fannie Mae, Freddie Mac, … is more important now than it has ever been,” said SEC Chairman Christopher Cox. … Goldman, Sachs Group Inc, GS. Royal Bank ADS, RBS …

  39. Random Blowhard

    Meh, the small people exist only to serve those deemed “Too Big Too Fail”, it is simply thier lot in life.

    Let them eat peas (or catfood.

    Hoax and Chains your getting.

  40. TC

    “Joe Lieberman, the Senator from Hedgistan.” LOL!

    Maybe this upstate New Yorker is too far removed from NYC to be familiar with its language, but this is just plain funny! Suddenly, the careers of former Senator Dodd, as well as Senator “Pat” (of SNL fame) Lieberman are better understood…

  41. jsteve

    Indeed. Something like this had to have been going on. Otherwise, how could like Bernie Madoff have carried out his ponzi scheme for so long without getting caught. I saw Matt Tabbei’s interview today on Democracy Now! where he was talking about his expose and corruption at the SEC. His interview is here: http://bit.ly/nqmOTj

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