Matt Taibbi Takes Up SEC’s Andrew Bowden Regulatory Capture Scandal

Matt Taibbi has written a characteristically informative, incisive piece about the embarrassing spectacle of the SEC’s Director of Compliance Inspections and Examinations, Andrew Bowden, making sycophantic remarks about the private equity industry at a recent conference, a story we broke early last week. It’s bad enough to see a regulator so besotted by firms he oversees; it’s even worse in light of statements Bowden made less than a year ago the widespread fraud and misconduct he said his examiners were finding. As we wrote in our original post:

Bowden stated that the SEC had found “violations of law or material compliance failures” in more than half the firms examined. Let’s not put too fine a point on this: the SEC said that most firms were stealing from investors, either by accident or design. Bowden confirmed that view, later telling the New York Times’ Gretchen Morgenson that “investors’ pockets are being picked.”

In case you have yet to see it, contrast that view of the industry with Bowden’s take a mere ten months later:

So far, the International Business Times, Bloomberg, the Los Angeles Times, Bill Black, Bill Moyers, and Truthout have taken up this incident. As with the Los Angeles Times, Taibbi weighing in means this is no longer just a business story but a broader political one, of the severity of regulatory capture.

As Taibbi writes:

And, worse, it reveals an attitude that’s absolutely poisonous among regulators, this fawning worship of people on Wall Street who maybe break a few rules, but that’s okay, because they make tons of money! Can you imagine Elliott Ness giving a speech gushing over what nice cars Al Capone drives? It’s revolting.

It’s not necessary for regulators to hate the greedy bottom-liners who go around toying with peoples’ jobs and livelihoods using borrowed money.

It’s not even necessary for regulators to hate those same rich takeover artists for paying half the taxes of most ordinary people, because our bought-off government refuses to close the loophole that allows Mitt Romney to call the money he makes “carried interest” instead of income.

We don’t need regulators to be out to get anyone. But is a healthy indifference too much to ask? Do we really need for even the regulators to slobber over these people?

Now it is easy to see Bowden as trying to curry favor with the private equity industry to advance his and his son’s personal interest. But the realty may be even more troubling. From reader Insider:

I actually know Drew – not very well, but well enough to know that you’ve got this wrong. He’s not angling for a job here. He could get one in the industry any time he wanted…

The problem isn’t that he’s trying to get on the good side of the industry because he’s hoping for a job – the problem is that he’s trying to get on the good side of the industry. Drew, like pretty much all of us, wants people to like him. That’s a perfectly natural feeling, but it’s not at all an appropriate mindset for a regulator…

That relates directly to the larger issues in the private equity industry. Every time he brings up the issue with fees in private equity, Drew emphasizes all the changes that have occurred in the industry since he very publicly raised the issue, and the role the agency has played in helping them see the error of their ways and make corrections. In his mind, that’s the accomplishment.

But that’s not the job of the regulator. It’s actually the responsibility of the industry to decide to mend its ways and figure out with its lawyers and consultants how to get on the right side of the law. The job of the regulator is not to convince the industry to do better going forward – the job of the regulator is to identify misconduct and see that it is punished. The regulator is a police officer, not a rehab counselor.

The “rehabilitate, don’t punish” approach toward regulation has only grown in the last few years, and unfortunately, much of that has happened under Drew’s leadership. And there’s a reason it’s an appealing approach: it’s less confrontational. It feels like an “everyone wins” approach, where the regulator can claim successes while the industry promises next time they’ll do better and consultants and lawyers collect their fees and everyone’s happy (except of course for clients, who in most cases are not made whole from past bad behavior). But it’s not justice, and it’s not what the regulator was tasked to do.

For someone who may be too beholden to the industry’s good favor – again, as much for its own sake as for any other reason – the rehabilitation approach is deeply appealing, because it avoids the nasty public battles that unfold in courtrooms as defense attorneys rant about overreach and regulators gone wild, and reduces the level of confrontation at industry conferences and even private events (and don’t underestimate how much of an impact private social settings can have on public decision-making).

I don’t think Drew is looking for a job so much as he is looking for people to like him – but unfortunately, that alone has a profound impact on how seriously the regulator is viewed and how effectively it can do its job. I think at some level he is a sensible person, and can only hope that he eventually realizes that he does not need the industry’s approval to do his job, and in fact will be only the more respected the more attention he pays to punishing bad behavior and the less attention he pays to winning the audience over at conferences.

The naivete is stunning. Bowden actually has convinced himself that he can “rehabilitate” private equity? What odds would you lay that he can change the behavior of an industry that is chock full of polished sociopaths? Even after cornering the market on the best legal talent in America to create complex documents that gives them air cover for a lot of their dubious practices, private equity kingpins apparently felt that making themselves obscenely rich wasn’t good enough. They still had to take more if they could get away with it.

As important, notice that Insider tells us that Bowden is singularly responsible for spreading this barmy “no punishment” gospel within the SEC.

It’s time to demand Bowden’s removal for his antipathy for doing a regulator’s job and demand that the SEC get tough with financial crooks, including the ones at the high end of the food chain.

Please write SEC commissioner Mary Jo White. Let her know how disgusted you are by this incident and tell her she needs to prove that this is not what the SEC stands for. Bowden needs to go and the agency needs to get tough with private equity.

Chairman Mary Jo White
U.S. Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549

Please also call or write your Senators (contact information here) and Representative (contact numbers here). Or if the officials in your state are hopelessly bank friendly, call Elizabeth Warren and Maxine Waters. Tell them that this video is proof that the SEC is incapable of doing its job, and they need to have Mary Jo White explain, in detail, what she intends to do to turn the agency around.

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  1. diptherio

    I think at some level he is a sensible person, and can only hope that he eventually realizes that he does not need the industry’s approval to do his job, and in fact will be only the more respected the more attention he pays to punishing bad behavior and the less attention he pays to winning the audience over at conferences.

    Uh…it’s a little too late for a head regulator to be figuring out that he doesn’t need industry approval to do his job. If he didn’t come into the job realizing that, he had no place being in that position in the first place. And what’s all this BS about regulators who don’t like confrontation? If you’re not an antagonistic, pig-headed SOB, you have no place (or should have no place) in financial regulatory enforcement.

    Hopefully, ol’ Drew will have plenty of time to contemplate this while looking for a new career (in PE, one assumes).

  2. so

    “rehabilitate, don’t punish”. That’s right. Punishment is for the little people.
    We have death camps (prisons) for rehabilitation.
    Working overtime now trying to find forgiveness for people with such hard hearts.

  3. Ulysses

    “And, worse, it reveals an attitude that’s absolutely poisonous among regulators, this fawning worship of people on Wall Street who maybe break a few rules, but that’s okay, because they make tons of money! Can you imagine Elliott Ness giving a speech gushing over what nice cars Al Capone drives? It’s revolting.”

    This reflects a much broader problem in U.S. society today– one that Taibbi does a masterful job exposing in The Divide— of the upper classes transforming themselves into an unaccountable aristocracy, not subject to the same laws as the “little people.” While poor people are thrown into jail, for being too poor to pay jacked-up fines for trivial offenses, wealthy people can use the “affluenza” defense to escape jail time for even the most heinous, violent offenses.

    1. Vatch

      I complained before about the lack of an index in The Divide. Reader TheraP suggested using the search function in a Kindle (or, presumably, a Nook) as a substitute for an index. I guess that’s a possible workaround, but I see the lack of an index in a non-fiction book as yet another example of the crapification of just about everything. The publisher Spiegel & Grau should be ashamed.

      1. Ulysses

        You’re absolutely right! The lack of good indices, adequate foot or endnotes, etc. is yet another step on the road to crapification of everything. You can use software to generate indices, yet the resulting product is much inferior to what can be produced by the diligent labors of an intelligent human.

    2. James Levy

      Poor old Max Weber thought that societies had two major modalities of differentiation: class and status. Our problem here in America is that money now exclusively defines both. Birth, education, occupation–none of that matters any more. All that counts is how much capital you have at your disposal. People who would consider it insulting to defer to the expertise of a scientist or a scholar will mindlessly nod their heads and accept as gospel the drivel that pours out of the mouth of a Donald Trump, a Steve Jobs, or one of the Koch brothers. Joseph Heller nailed it in Catch 22 when he described all the locals coming to see Major Major Major Major’s dad “because he was rich and therefore wise” (he also had a wonderful line to the effect that as a farmer his dad considered government handouts, to anyone but farmers, as a sign of creeping socialism).

  4. Expat

    The system is not broken. These are not bugs; they are features.
    I have a solution but discussing it on line would probably result in my being detained and waterboarded.

  5. Anon

    Something else worth talking about: finance is essentially sales, and the people who succeed in it are extraordinarily skilled at manipulating people. That’s the job.

    We need our public servants to understand that when they socialize with these people, they are most likely being played. The number of intelligent, even brilliant, people who allow themselves to become someone else’s tool is really extraordinary.

    1. Yves Smith Post author

      To your point, there’s a classic, short book on social psychology that everyone needs to read: Robert Cialdini, Influence: The Psychology of Persuasion. He explains that he was driven to write the book by the fact that he could see after the fact how salesmen were able to manipulate him, yet he was unable to resist or even see it was happening while it was happening. Not that Cialdini’s book will necessarily make you any better at shielding yourself from sweet-talking salesmen, but it at least make you aware of how vulnerable people are, and avoiding or limiting encounters is half the battle.

      1. Gerard Pierce

        Out of all the items mentioned in “Influence”, Reciprocity can be the most enlightening. The example of the Kirshnas (back in the 70s or 80s) ambushing people at airports and forcing a flower or a pamphlet on them indicated the incredible power of Reciprocity. Almost everyone felt strongly obligated to give something back.

        The reason Reciprocity is important is that it’s effect is very much unconscious. But when you showed that this kind of reciprocity was a con game, a very few people were able to take the flower, smile sweetly and say “thank you very much”. Even people who accepted it was a con game, found it more comfortable to make that small reciprocal gift.

        What Cialdini missed completely was the power of the “pecking order” in human life. He missed the fact that most of his six? items were strongly related to pecking order. (Reciprocity was one that seemed distinctly different). And you might be able to come up with some arguments that Reciprocity was itself based on the same mental mechanisms as the others.

        You can try to avoid those who use Cialdini’s ideas to manipulate you, but it’s a losing proposition. You can’t always avoid those Influences. The people who use them have set it up so you find it difficult to avoid them, just as the people at the airport would almost run away trying to avoid the Krishna until they were finally cornered and had the flower forced on them.

      2. Kyle


        It’s probably more like the obstructionism detailed in Thomas Frank’s “The Wrecking Crew”.

        “Mary Jo White hired him, so she clearly wants exceedingly nice regulators

        Just a cover for obstructionism? I have seen articles on the net that the SEC isn’t even enforcing payment of the fines that it has on the books against various firms.

  6. Katniss Everdeen

    How much things have changed in just a few short decades.

    According to Wikipedia, ” In 1988, then United States Attorney Rudy Giuliani indicted the Helmsleys [Harry and Leona] and two of their associates on several tax-related charges, as well as extortion.


    The infamous, at the time, “Queen of Mean,” Leona Helmsley, reportedly had said to an employee, “We don’t pay taxes. Only the little people pay taxes.”

    “On August 30, [1989] Helmsley was convicted and sentenced of one count of conspiracy to defraud the United States,[14] three counts of tax evasion,[15] three counts of filing false personal tax returns,[16] sixteen counts of assisting in the filing of false corporate and partnership tax returns,[16] and ten counts of mail fraud.[17][18]

    CONSPIRACY TO DEFRAUD THE UNITED STATES! Can you imagine that happening today?

    Helmsley reported to prison on Tax Day, April 15, 1992. Yes, she went to actual PRISON. As recently as 1992.

    What could possibly account for the about face in the attitude of the US “justice” and regulatory systems toward tax and financial cheats that is strangling our country today?

    I would suggest that the answer lies with another pivotal moment in the history of the US that occurred in 1992–the election of one William Jefferson Clinton as president of the United States, one of the most thoroughly dishonest and corrupt individuals to ever hold the office.

    We have been circling the drain ever since.

    And here comes his lovely “wife.”

    1. MaroonBulldog

      And here comes his lovely “wife.”: Now that’s putting the scare in scare quotes. There ought to be a name for that device.

  7. juliania

    Thanks to all involved in this series on loan manipulation and corruption at the highest levels of both finance and government. I am hoping that similar attention will be paid (as was when the problems first surfaced) to the hardcore elements affecting the American public so grievously. They have not gone away, in fact are becoming increasingly onerous upon all sectors. Specifically, student loan debt is a travesty. My son recently signed up to try to defray his at $50 a month, a sizeable amount at his stage of minimal empoyment (his original loan having doubled while he was unable to afford any payments at all.) It sounded very good, the terms he was offered, and he made the first payment only to discover that the interest now was so huge his loan would still be increasing at a faster rate than his monthly payments. This is no loan shark operation but the New Mexico student loan system. Remember that when our governor’s name surfaces this election season.

    I’m sure he is not the only young person in this predicament, who wishes now he had never attempted a college education. What that is doing to this country’s potential across the board, I can only imagine.

    1. Steve in Flyover

      As described above, a “feature” not a “bug”.

      Your son has been drafted, whether he know it or not.

      Mark my words, pretty soon we’ll see a program to “forgive student loan debts” in exchange for “community service”

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