7 ms·

Why the SEC Won’t Hunt Big Dogs

74 points by bpolania 15y ago

anigbrowl 15y ago
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?id=1202508356140&slreturn=1 http://www.law.com/jsp/lawtechnologynews/PubArticleLTN.jsp?i...
- joe_the_user 15y ago
  Hmm, At what point do the claim "they are doing their best" and the claim "clearly they don't have the resources to do anything" collide and explode into burning rubble? I can believe that there are many noble individuals in the Doj who are doing their best. But how can one not call a resource-less investigation a tooth-less investigation if you are talking about intentions of Doj itself?
  - anigbrowl 15y ago
    DoJ puts in budget requests to Congress, which then grants, modifies, or denies them as it sees fit. Heads of agency have a surprisingly limited amount of budgetary autonomy; they can't just reroute millions of dollars because they think it would be sensible. Check out pages 59-62 of this document to get an idea of amount of begging required for the pissant sum of $2 million bucks: http://www.justice.gov/jmd/2011justification/pdf/fy11-usa-justification.pdf http://www.justice.gov/jmd/2011justification/pdf/fy11-usa-ju... Congress has the power of the purse, and can keep the executive branch on a very short lease if it chooses. Meantime, subjects of an investigation can often borrow a tactic from civil litigation and bury the other side (in this case, the DoJ) with heaps of irrelevant or incidental material that will be enormously time-consuming to sort through. Partly because of Congressional funding decisions going back for years and partly because of inefficiency, government legal investigators are badly lacking in the technical department. Sadly, this state of affairs suits some people very well.
    - joe_the_user 15y ago
      Someone up the ladder has a "public voice". It is hard for me to believe that if Eric Holder and/or Barack Obama were loudly saying "Wall Street is getting away because you aren't giving us funding", things would not change. ... I think the "suits some people very well" part is most to the point. It is hard not to imagine that this group includes those at the highest ranks of government.
      - anigbrowl 15y ago
        Oh come on. Every time Obama says the word 'regulate' someone in the Republican party says it's a 'jobs killer.' [EDIT: 8 out of 10 #is wrong; ooops] 6 out of 8 of the GOP presidential candidates claim they'd slash funding for the courts, with Newt Gingrich saying he'd just ignore Supreme Court rulings completely if he disagreed with them. Sure, that's just big talk designed to get cheap news coverage, but surely you've noticed there's a bit of a political stalemate in DC right now. Edit to add reference: http://www.justiceatstake.org/newsroom/press_releases.cfm/candidates_strike_blow_at_checks_and_balances?show=news&newsID=11906 http://www.justiceatstake.org/newsroom/press_releases.cfm/ca... No, I don't make this stuff up.
- FJim 15y ago
  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 15y ago
    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.
  - donaldc 15y ago
    its more than likely that the mess was largely the result of of groupthink and really bad decisions made in good faith. More like bad (but probably legal, and probably profitable) decisions made in bad faith. Anyone with half a brain could see that housing prices would not continue increasing indefinitely. But all the incentives in the industry were to make loans that were likely to head into default.
wanorris 15y ago
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 15y ago
  You're correct, but dogs are rarely used in the pursuit of big game.
  - abduhl 15y ago
    Depends on the game. Dogs are quite often used for flushing out big game (see old bear hunting approaches or boars).
- Klinky 15y ago
  Dog catcher? Animal control?
adamtmca 15y ago
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 15y ago
  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 http://www.youtube.com/watch?v=q1A7LdW0Y_s
  - raganwald 15y ago
    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 https://en.wikipedia.org/wiki/Harry_Markopolos
    - adamtmca 15y ago
      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 15y ago
        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.
dasil003 15y ago
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 15y ago
  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 15y ago
    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?
    - Anechoic 15y ago
      What hard currency?
      - cobrausn 15y ago
        Cash, issued by the government, one would assume.
        Anechoic 15y ago
SagelyGuru 15y ago
It is too little too late
thaumaturgy 15y ago
For a better article: http://www.rollingstone.com/politics/news/why-isnt-wall-street-in-jail-20110216 http://www.rollingstone.com/politics/news/why-isnt-wall-stre... 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 15y ago
  "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 http://www.stopfraud.gov/news.html
T_S_ 15y ago
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.
- Daniel_Newby 15y ago
  > People were acting aggressive, not criminal ... Suppose a hair dresser buys a house for $750k, the interest payments alone consume 50% of family income, clear title has not been established for the house, and the signed mortgage document is filed into a dumpster. Suppose hundreds of similar mortgages are piled together into a mortgage-backed security. The criminals were rating that festering bond as AAA (highest rank) and stuffing it into pension funds. The rating fee was on the order of $500k, but the raters did not even pick a single private eye out of the phone book to verify that the house even exists, nor a CPA to see that if the paperwork exists. The whole thing was a fraud from beginning to end. Thousands of people need to go to prison, and pay trillions in restitution. > Just tell me the the end-of-day positions of every "large" participant. Bernie Madoff Investments had stellar numbers. The whole point of a financial fraud is that the numbers are cooked.
  - wr1472 15y ago

74 points by bpolania 15y ago

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

joe_the_user 15y ago
Hmm, At what point do the claim "they are doing their best" and the claim "clearly they don't have the resources to do anything" collide and explode into burning rubble? I can believe that there are many noble individuals in the Doj who are doing their best. But how can one not call a resource-less investigation a tooth-less investigation if you are talking about intentions of Doj itself?
- anigbrowl 15y ago
  DoJ puts in budget requests to Congress, which then grants, modifies, or denies them as it sees fit. Heads of agency have a surprisingly limited amount of budgetary autonomy; they can't just reroute millions of dollars because they think it would be sensible. Check out pages 59-62 of this document to get an idea of amount of begging required for the pissant sum of $2 million bucks: http://www.justice.gov/jmd/2011justification/pdf/fy11-usa-justification.pdf http://www.justice.gov/jmd/2011justification/pdf/fy11-usa-ju... Congress has the power of the purse, and can keep the executive branch on a very short lease if it chooses. Meantime, subjects of an investigation can often borrow a tactic from civil litigation and bury the other side (in this case, the DoJ) with heaps of irrelevant or incidental material that will be enormously time-consuming to sort through. Partly because of Congressional funding decisions going back for years and partly because of inefficiency, government legal investigators are badly lacking in the technical department. Sadly, this state of affairs suits some people very well.
  - joe_the_user 15y ago
    Someone up the ladder has a "public voice". It is hard for me to believe that if Eric Holder and/or Barack Obama were loudly saying "Wall Street is getting away because you aren't giving us funding", things would not change. ... I think the "suits some people very well" part is most to the point. It is hard not to imagine that this group includes those at the highest ranks of government.
    - anigbrowl 15y ago
      Oh come on. Every time Obama says the word 'regulate' someone in the Republican party says it's a 'jobs killer.' [EDIT: 8 out of 10 #is wrong; ooops] 6 out of 8 of the GOP presidential candidates claim they'd slash funding for the courts, with Newt Gingrich saying he'd just ignore Supreme Court rulings completely if he disagreed with them. Sure, that's just big talk designed to get cheap news coverage, but surely you've noticed there's a bit of a political stalemate in DC right now. Edit to add reference: http://www.justiceatstake.org/newsroom/press_releases.cfm/candidates_strike_blow_at_checks_and_balances?show=news&newsID=11906 http://www.justiceatstake.org/newsroom/press_releases.cfm/ca... No, I don't make this stuff up.
FJim 15y ago
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 15y ago
  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.
- donaldc 15y ago
  its more than likely that the mess was largely the result of of groupthink and really bad decisions made in good faith. More like bad (but probably legal, and probably profitable) decisions made in bad faith. Anyone with half a brain could see that housing prices would not continue increasing indefinitely. But all the incentives in the industry were to make loans that were likely to head into default.

wanorris 15y ago

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 15y ago
You're correct, but dogs are rarely used in the pursuit of big game.
- abduhl 15y ago
  Depends on the game. Dogs are quite often used for flushing out big game (see old bear hunting approaches or boars).
Klinky 15y ago
Dog catcher? Animal control?

adamtmca 15y ago

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 15y ago
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 http://www.youtube.com/watch?v=q1A7LdW0Y_s
- raganwald 15y ago
  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 https://en.wikipedia.org/wiki/Harry_Markopolos
  - adamtmca 15y ago
    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 15y ago
      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.

dasil003 15y ago

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 15y ago
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 15y ago
  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?
  - Anechoic 15y ago
    What hard currency?
    - cobrausn 15y ago
      Cash, issued by the government, one would assume.
      - Anechoic 15y ago

SagelyGuru 15y ago

It is too little too late

thaumaturgy 15y ago

For a better article: http://www.rollingstone.com/politics/news/why-isnt-wall-street-in-jail-20110216 http://www.rollingstone.com/politics/news/why-isnt-wall-stre... 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 15y ago
"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 http://www.stopfraud.gov/news.html

T_S_ 15y ago

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.

Daniel_Newby 15y ago
> People were acting aggressive, not criminal ... Suppose a hair dresser buys a house for $750k, the interest payments alone consume 50% of family income, clear title has not been established for the house, and the signed mortgage document is filed into a dumpster. Suppose hundreds of similar mortgages are piled together into a mortgage-backed security. The criminals were rating that festering bond as AAA (highest rank) and stuffing it into pension funds. The rating fee was on the order of $500k, but the raters did not even pick a single private eye out of the phone book to verify that the house even exists, nor a CPA to see that if the paperwork exists. The whole thing was a fraud from beginning to end. Thousands of people need to go to prison, and pay trillions in restitution. > Just tell me the the end-of-day positions of every "large" participant. Bernie Madoff Investments had stellar numbers. The whole point of a financial fraud is that the numbers are cooked.
- wr1472 15y ago