Guest post: WHAT WALL STREET PROTESTORS SHOULD ASK FOR AND THE THIRD BATTLE OF MANASSAS
By Jeff McCord is a former US Senate staffer, Securities Investor Protection Corp (SIPC) executive and has been a free-lance journalist for Dow Jones publications. His academic background in economics includes post-graduate work at the London School of Economics and George Washington University.
THE THIRD BATTLE OF MANASSAS AND WHAT WALL STREET PROTESTORS SHOULD ASK FOR
Although the mainstream media has widely reported the photogenic and growing Wall Street protest movement, and many bloggers have cheered on the demonstrators, no one can explain what these idealists hope to achieve. Yes, they’ve drawn attention to pervasive greed among elites, growing income inequality and widespread unemployment, among other ills. And, the protestors chose Wall Street as the appropriate point of departure for an evolving national movement. So, it is fitting that their goals be directed toward Wall Street and its allies on both ends of Pennsylvania Avenue.
So, what should the demonstrators demand? And what do Civil War battles fought near the Virginia town of Manassas have to do with it? History can wait. Let’s first make a list of demands. To do so, consider the views of people with the gray hair, financial experience, academic credentials and real world orientation to know of what they speak.
Demand Return of Old Time Religion
As readers of Ron Susskind’s “Confidence Men” and daily newspapers are aware, some of the problems we now face stem from tragic changes and lapses in the financial regulatory system. With that in mind, here’s stab at a laundry list of changes — including a return to that old time religion that worked well for the sixty years between the Great Depression and President Clinton’s signing of the Gramm Bliley Act on November 12, 1999 that deregulated much of banking:
- The Feds should start enforcing the laws already on the books against misrepresentation in the sale of financial instruments including mortgage back securities and derived products and abusive mortgage lending practices aimed at unsophisticated consumers. Such conduct was illegal before the financial meltdown and remains illegal today. Yet, the protestors are not the only ones in America who believe violators of these laws still hold senior executive positions and still earn bloated rewards – even as Main Street crashed. Some identifiable perps can and should be prosecuted for misdeeds to set an example for the future and (at the very least) suggest all may well be equal under the law in the United States. The five year federal statute of limitations for prosecutions remains open from 2007 onward. I refer readers to Nobel winner Paul Krugman and his recent column: “Confronting the Malefactors.” http://www.nytimes.com/2011/10/07/opinion/krugman-confronting-the-malefactors.html?hp
- As the lion of the Federal Reserve, Paul Volcker, and others have been saying for several years, it is time to restore the Glass Steagall Act’s separation of commercial banking from investment banking. Congress and the Clintonites (in unholy alliance with then Senator Phil Gramm, R-TX and now Governor Rick Perry’s adviser-mentor) made a serious and very expensive blunder in gutting Glass Steagall. Here’s what Volcker, the real “Maestro” of the Fed, said in 2009 testimony (that remains valid): “I would exclude from commercial banking institutions, which are potential beneficiaries of official (i.e., taxpayer) financial support, certain risky activities entirely suitable for [for others in] our capital markets. Ownership or sponsorship of hedge funds and private equity funds should be among those prohibited activities. So should in my view a heavy volume of proprietary trading with its inherent risks. . . . [These non-commercial banking activities have created] deep-seated, almost unmanageable, conflicts of interest with normal banking relationships – individuals, businesses, investment management clients seeking credit, underwriting and unbiased advisory services.”
http://www.ft.com/intl/cms/db7fafe2-a90b-11de-b8bd-00144feabdc0.pdf
- President Obama should talk the talk and walk the walk of real change. He could do worse than studying and acting upon the words of Joseph Stiglitz and Paul Volcker (even if his re-election campaign is asking Wall Street barons for contributions.) Even this late in his term (and within our evolving “Great Contraction” of an economic crisis), the President can use his bully pulpit to again inspire people and re-ignite the populist magic that drew tens of thousands (including my family and me) to his final 2008 campaign speech held late at night in Virginia – an event I called the third battle of Manassas, because the rally was held a couple miles from the fields where two great Civil War armies clashed. In other words, the President could again call for systemic reforms and hire advisors who can help plan and execute them. I refer to the experts on the overarching goals and rhetorical themes of such a campaign:
Columbia University Professor and Nobel Prize winner Joseph Stiglitz:
“The financial sector’s inexcusable recklessness, given free rein by mindless deregulation, was the obvious precipitating factor of the crisis. The legacy of excess real-estate capacity and over-leveraged households makes recovery all the more difficult. . . . The prescription for what ails the global economy follows directly from the diagnosis: strong government expenditures, aimed at facilitating restructuring, promoting energy conservation, and reducing inequality, and a reform of the global financial system.”
http://www.project-syndicate.org/commentary/stiglitz143/English
Paul Volcker, again: “There are some on ‘Wall Street’ who would like to return to ‘business as usual’. After all, for a time, and for some that system was enormously remunerative. However, it placed at risk not only the American economy, but also large parts of the world economy. The challenge is not to paper over or tinker around the edges of the broken system.”
http://www.ft.com/intl/cms/db7fafe2-a90b-11de-b8bd-00144feabdc0.pdf
4. The President and Congress should restore to the American people the legal rights to hold accountable those who defraud and otherwise abuse them. With respect to Wall Street and corporate financial practices, that will require politicians with the guts to override a few Supreme Court decisions. On this one, I defer to the little-known (outside securities law circles) but eminently qualified James Cox, professor of law at Duke University. He is currently a member of the Standing Advisory Group of the Public Company Accounting Oversight Board (PCAOB) and former member of the New York Stock Exchange Legal Advisory Committee and the National Association of Securities Dealers Legal Advisory Board. In June, he told the Senate Judiciary Committee the following: http://judiciary.senate.gov/pdf/11-6-29%20Cox%20Testimony.pdf
“No principle is more ingrained in western civil and criminal law than that individuals and entities that wrongfully harm another should bear the consequences of their misconduct. However, a perusal of law reports reflects that this principle does not apply when the misconduct is securities fraud.
A few cases — (each influenced by Central Bank and Stoneridge [two Supreme Court decisions that together eliminated private liability for those who knowingly aid and abet securities fraud] — illustrate this outlier characteristic. Corporations whose executives knowingly prepared false documents to conceal from their customer’s auditors that $17 million dollars in the customer’s revenues were fraudulent “roundtrip transactions” and did so to retain the customer as a client are not responsible to investors who purchased the customer’s shares at prices inflated due to the fraudulent roundtrip transactions. Stoneridge Investment Partners, LLC. v. ScientificAtlanta, Inc., 552 U.S. 148 (2008).
The president of a newspaper subsidiary who fraudulently inflates the number of
subscribers and revenues for the subsidiary is not liable to those who purchased the parent company’s shares at prices inflated as a consequence of the president’s reporting chicanery having been incorporated into the consolidated financial statements issued by the parent. Pugh v. Tribune Co., 521 F.3d 686 (7 th Cir. 2008).
The outside lawyer who on 17 different occasions engineered on behalf of the
client [Refco, the once giant derivatives dealer] fraudulent sham transactions for the purpose of concealing in various offering documents that the client firm had massive trading losses and was unable to repay millions of dollars due on margin was not liable as a primary participant to investors who suffered significant losses upon the ultimate bankruptcy of Refco. Pacific Investment Management Company LLC v. Mayer Brown LLP, 603 F.3d 144 (2010).
The above cases are leading cases in this area, but they are not aberrations. Indeed, each of the above cases is consistent with [the June 13, 2011] Supreme Court decision, Janus Capital Groups, Inc., v. First Derivative Traders, 2011 WL 2297762 (S. Ct. 2011). The issue in Janus Capital was whether the investment advisor who prepared the prospectus issued by Janus Investment Fund was responsible for misstatements contained in the prospectus. The divided (5 to 4) court held that the advisor „did not “make” any of the statements in the Janus Investment Fund prospectus.‟ The court supports its conclusion with the analogy to the relationship of speechwriter and a speaker where the court concludes that “[e]ven when a speechwriter drafts a speech, the content is entirely within the control of the person who delivers it. And, it is the speaker who takes credit – or blame – for what is ultimately said.” However, the analogy fails.
When a speech is delivered it is delivered by a human being; a corporation is not such a being and can only act through individuals and then can act only through the symbiosis of the entity structure or structures by which the entity operates.”
People who look at Janus will be reminded of the same Court’s Citizens United ruling. In both radical decisions, the Justices subverted human civil justice by granting business enterprises the rights of human beings.
“Protestors Give Obama and Congressional Dems Second Chance”
Be that as it may, the above list of demands is only a start. President Obama, once a community organizer himself, could still wear FDR’s mantle. As Paul Krugman says:
“Democrats are being given what amounts to a second chance. The Obama administration squandered a lot of potential good will early on by adopting banker-friendly policies that failed to deliver economic recovery even as bankers repaid the favor by turning on the president. Now, however, Mr. Obama’s party has a chance for a do-over. All it has to do is take these protests as seriously as they deserve to be taken.”
No doubt, those camping in the park near Wall Street and in the shadow of Trinity Church would agree that, as a start, the federal government should enforce existing laws against defrauding the public, and restore to citizens the legal rights to hold accountable those who did and do defraud them. That part is simple.
The hard part is actually delivering the Rooseveltian change candidate Obama dangled before us at the third battle of Manassas. And that battle has not yet been won, although he was elected President the next day.
Civil War history buffs know that the Confederate States of America won the first and second battles of Manassas. Hopefully, the citizens of the United States of America will win the third one with the help of the Wall Street protestors and President Obama.
Jim McCord at www.the-investor-advocate.com”>The Investor Advocate
jmccord@crosslink.net
good stuff.
Rdan, Excellent guest post. Nice to see someone thinking about what the OWS people should be thinking about. And I actually don’t see anything wrong with these suggestions (other than the idea that keeping Obama in office past Jan 13 would be a good idea). But lets look at the paticulars.
1. Obama and Holder (DOJ) can do this right now. No one is stopping them from going after individuals like the Orangeman (Countrywide CEO – Mozzillo) or any of the others Obama thinks need to be charged. They have waited almost 3 years and done nothing. What’s the statue of limitations? Probably not there yet, but this one is within Obama’s ability right now. Any bets on if Obama will actually carry it out?
I’m not betting on Obama doing anything either…
2. Restore Glass-Steagel. Could have been easily passed during the first two years of Obama’s Presidency when it was obvious it needed to be done. Yet, once again, nothing happened. Odds of Obama making his Wall Street backers mad (whom he needs if he is planning on raising another cool billion again) lower than the proverbial snowball. This would require leadership and Obama burning political capital (which he does not have – see Jobs Bill). This is a good idea that Obama will, at best, make a few rhetorical speeches to but not atually change anything.
Don’t bet on Obama doing anything here either
3. “the President could again call for systemic reforms and hire advisors who can help plan and execute them. ” Bwhahahaha!!! Make another speech? Full of empty rhetoric meaning nothing? He had to have Reid delay his jobs bill in the Senate when the Rs wanted to vote on it becuase he couldn’t count on the D Senators to pass it! Is he going to fire Gietner or Bernecke? Do you really belive that?
Again don’t bet on Obama. Better option would be to primary him with someone who would
4. Again its been almost 3 years. Obama and the Dems have had plenty of time to submit legislation to overturn these precedents (except for the most recent). Citizen United was obviously going to be resolved the way it was months before it made it to the Supremes. Yet Obama and Congress did nothing to change the law.
And this entire article ends with a bunch of wishful thinking.”The hard part is actually delivering the Rooseveltian change candidate Obama dangled before us at the third battle of Manassas.” Obama was never a Roseveltian candidate except in the minds of people looking at the blank slate that Obama was and projecting there dreams onto him. This is just the high-brow version of the young lady who believed Obama would pay her mortgage or the newsmen who got tingles up their legs.
I agree these would be good calls (except for citizens united which I agree with, but I’m always in favor of free speech). Volker has head of the Fed would have a nice symmetry with Obama’s desire to imitate Reagan. But this would require leadership that Obama has not shown one iota of since he took office.
Any bets that Obama actually does any of this?
Islam will change
But……………………
It might involve not socializing billionaires’ losses.
It is all anti PAC, anti republican and anti big bidness. Not in best interest of the billionairistas. Heck it may be viewed as anti Galt.
Not libertarian enough, and not enough suffering for the lower 99%. Not austere.
They could not even put teeth in Dodd Frank or is Frank Dodd.
How about telling BoA they are on the hook alone for their exposure to Dexia, and the impending “hair cut” needed with Slovakia voting “yes”.
Just do what Sweden did with their banksters!
wall st will change.
It makes Lessig’s thesis worth noting . Which of any of the candidates (including the Dems) might actually pursue these aims? Or the economic and regulatory top dogs inner circle recommend them even if prior to their gig at the WH they were recommending other policies than the WH? or any in Congress?
The conversation appears to be happening in a different room than I am in.
Libertarians would have let them all go bankrupt. Then their salaries and bonsues would have dissappeared. But, governmnet bailed them out so they could keep their jobs. Occupy should be on Capital hill, not wall street.
Then maybe Occupy can convince governmnet to get out of its own way and get projects going faster. Even Obama is realizing the problem – “It’s Jobs stupid”.
http://www.reuters.com/article/2011/09/30/us-usa-obama-infrastructure-idUSTRE78T5MU20110930
http://townhall.com/news/politics-elections/2011/09/30/red_tape_slows_dozens_of_infrastructure_projects
“It’s just the whole process itself. The way we build things in this country ensures that it will take decades,” said Mark Policinski, executive director and chief executive of the Ohio Kentucky Indiana Regional Council of Governments.
ilsm,
If your going to be my personel internet stalker I would really appreciate it if you could up your game a little and make coherent posts. It will help my cred.
Thanks in advance!
Buff
i agree about obama. but what makes you think the R’s would do it better?
Without demanding change in our candidates and actually VOTING , VOLUNTEERING AND DONATING TO SUPPORT any such candidates how can we recocile these solutions with out propensity to continue voting either:
D) The party who takes all the cash it can, while pretending it doesn’t take any and then ignores the problem while bolstering their own entrenchment through defending the Danegeld of unsustainable entitlement expansion.
R) The party who pretends that enforcing laws on business is pinko slop, while trying to convince us that everything would be just fine if gays couldn’t get married and teenagers couldn’t get abortions; all the while masquerading as a “small government” and “personal responsibility” party.
I have no beef with any of McCord’s goals. I find the packaging a bit weak, though. After years of letting the Overton Window of our economic discourse be pushed toward enriching the rich by cynical smarty-pants arguments, a handful of people have drawn attention to problem, and now everybody is telling them they are doing it wrong. Not organized enough. Don’t have a clear agenda. Whatever. Maybe those things aren’t their job.
The rest of us, who have been scandalized by the behavior of the financial sector and their political minions, have plenty of agenda to go around. Let’s allow these dear, darling rable rousers to do what they are doing. We need to figure out how to turn their success into an agenda and get that agenda a hearing.
coberly,
They actually could, in a Nixon goes to China type thing (which I have beaten to death – is their another such cliche available?). But Obama needs to go for a host of reasons. This is just one.
I would actually go for even more draconian regulation of the banks than Mr. McCord proposes. I would also close up Fannie and Freddie and get the Feds totally out of the lending business (no Fed backup of mortgages or student loans – just use merit and give deserving students in STEM majors the money). I would not close the Federal reserve though. The US Gov should not be back-stopping business.
Islam will change
I agree with what is presented in the post. The problem is that Wall Street is not the sole cause of our financial situation. The waist of the Stimulus, the no strings attached TARP, the growth of government and government spending, the EPA over-regulation, the lack of a solution to our energy needs, NAFTA, Freddie Fannie, Government-Union collusion, the anti-capitalist rhetoric, and the uncertainy and complexity of the tax system all play major roles in this epic fail.
I sympathize with what some in the OWS protest want, but they seem to be stuck on Class Warfare instead of broadening the debate to envelope real change with realistic solutions. This post made be a good start!
All I have seen and heard so far has been embarrassing, and will accomplish nothing, except to make things worse. But…….it would be good for the country to appease the left a little and help them solve some issues that may benefit large swaths of the population. The only problem is I don’t believe that the type of change the Left is looking for resembles anything like what the majority of the population would be interested in.
buffy,
You are quite welcome.
What no “ilsm will change”?
In the future I will just present for your review a fallacy of logic you exhibit and not use too many words.
Check this video: http://www.rocketboom.com/fallacy/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+rocketboom+%28Rocketboom+All+Shows%29
You use “ad hominems” all the time, let’s see what else you got in the way of logical fallacies……………..
wall st will change
Who owns the US government?
wall st will change
Matthew
i would be inclined to agree with you at least a little bit. but “unsustainable entitlement expansion” sounds ill thought out.
i at least prefer an insurance model of what you call entitlements, where the people pay for their insurance themselves… as they already do with Social Security. since it would quickly become apparent that the people cannot afford to pay for their own health care needs, something would have to change in the way the labor market is balanced. even to the extent of revisiting the “protective tarriff” that made america a great economic power in the first place.
but, just so you know i heard you, there is some evidence the dems are calling for a welfare solution to the needs of workers. whether they are sincere about this, or just playing to the mob, i don’t know. suspect the latter.
kharris,
i agree. unfortunately i also despair.
Darrem
unfortunately the majority of the population appears to believe that Rush has the answer.
what YOU happen to believe or want is not necessarily what is true or will work.
Who are these white knights that we hope will come to the fore and initiate the changes that are necessary to return the country’s economy to a “fair and balanced” process? There are none on the horizon. There are none that have come to the fore ground. There are none in the present Congress and certainly not in the White House that seem to have any inclination to initiate significant and effective changes in the corporate legal system. It is not only the banking industry that is the culprit in the demise of the working class in America. the corporation has been given equal status with the individual citizen. Will corporations soon be eligible for citizenship? Laws need to be changed and change needs to be implemented, but who do you see in a position to do so that will take the necessary action to initiate such change? I don’t see it. Tell me who there is in the present political system that we may count on to take the lead?
I just finished watching the Republican debates on the economy. Without even getting into what was said, I’ll just note that it was sponsored by the Peterson Foundation. The ads featured cute young kids, sitting at a desk in front of a blackboard, talking and “acting” like adults, reciting “educational” scripts about spiraling debt, the failure of Social Security and Medicare… the Peterson wish list. The fact that it was kids made you listen, even if you had absolutely no context in which to judge what was being said.
Citizens United can be addressed by legislation. Or by a Constitutional Amendment.
There is currently a campaign being waged to Get Money Out of politics. It proposes a Constitutional Amendment that would completely remove money from campaigns for political office. It makes no attempt to suggest where the money would come from, and it’s absolutely true that running for office requires money. Little chance that our Govt will pass a law requiring free air time for candidates, for instance. Nevertheless, I signed it because the point must be made. In about 12 days, it has garnered nearly 180,000 signatures and seems to be gaining speed. If you’re interested go to getmoneyout.com.
That said, while it might help to get fund-raising activity out of our representatives’ obligatory activities (Lessig says they spend 30-70% of their time fund-raising), it would do nothing to get billionaires’ money out of our national debate.
OWS has rebuffed any attempt to pigeonhole them in the D party. Thank goodness. I think they’re sincere when they say they want a 99% movement. Of course, we know there are some who will turn away from their ideas or methods, but I am hopeful they will get through to many. My bet is that many Republicans could get behind enforcement of laws already in place pre-crash, and certainly some prosecutions for fraud.
Face it. We sponsored, fed, and empowered the wolves that are eating us for dinner. We can’t outspend them. We’ve had difficulty out-shouting them. And that’s where OWS comes in. When you’re head is bloody from banging it against a wall, sometimes it’s smart to step back and look left and right. Sometimes, what you’ll see is that the wall is only 10 feet wide. OWS didn’t seek to outspend or overpower the rich and powerful. They walked around. They went ahead and did what they could do. And because the time was right, they are being heard and they are making a difference.
As others have noted, there’s no telling how it will work out. There is power in numbers, so the more people they can reach, the more chance real change could happen. It looks like it will be a long road.
Buff:
Sorry, Derivatives, CDO, CDS, naked CDS, shitty ratings by Moody, etc are all outside of the realm of Section 20 of Glass Steagall and furthermore The Bank Act was altered to allow banks greater latitude. As Brooksley Born, Iris Mack, Senator Dorgan and other Senators pointed out, transparency is the issue with these financial weapons of mass destruction.
Linda:
I agree. I did get Matt to come to Angry Bear!
The good serfs in the better cottages do not want their masters’ feelings hurt.
run,
I said I would go further, much further. And I’m all for more transparency.
Islam will change
Linda,
Exactly what difference are tehy making? Seriously what have they accomplished? Any legislation passed? Anyone charged? Any pro-OWS goals (whatever they are) congressmen elected?
Laying around and protesting and walking around risking sunburn may feel good but it doesn’t get you the votes. And the idea that OWS isn’t swinging into teh D orbit is a joke. Look at teh oprganizations that are lining up to support them? Unions, MoveOn, Michael Moore and holywood limosine liberals, etc etc. Its going D. Which doesn’t make it 99% of anything. More like a finge group right now.
If they want to accomplish something they will have to politically organize and get people that want these things elected. They should look at the Tea Party as a model of how to bring change and get people organized.
Islam will change
buffy,
ad hominem is a form of the logic fallacy of relevance or lack thereof.
The “politically organize” statement also lacks “relevance” and has no basis in fact being your opinion.
The GOPeaParty is in formation with the desires of the 1%.
The GoPeaParty’s main logical fallacy is “ambiguity” based on strawman and misleading terminology ala Goebbels’ propaganda.
OK, I’ll bite. Just this much. How much had the TP accomplished 4 weeks in? (except for the trend, already in motion, to be co-opted by Dick Armey and the Koch Bros)
Consider cause and effect. I don’t see OWS asking for recognition or begging for D speakers/visitors. I see various factions circling, wanting to show support and perhaps some identification with the movement. IOW, who’s orbiting whom?
OWS has already accomplished drawing attention to the fact that it isn’t just the TP who are dissatisfied, that the TP’s demands aren’t universal, and that the dissatisfaction runs deeper and broader than guns, anti-government, anti-tax, anti-science, and anti-compassion. IOW, those who don’t agree with how things are going are not all TP and they’re not alone.
Would Romney have changed his stance to “I’m not worried about the 1%. The 99% are the ones who need help” absent OWS? I suppose that’s arguable.
I totally disagree about looking at the TP for a model. A movement can so easily be distorted when it accepts sponsorship from the very people it started out protesting.
buff,
Exactly what difference are tehy making? Seriously what have they accomplished? Any legislation passed? Anyone charged? Any pro-OWS goals (whatever they are) congressmen elected?
Seriously? In 4 weeks? You can’t elect a candidate when there hasn’t been an election! And how’s the TP agenda doing in Congress, other than success at obstruction?