Monthly Archives: March 2013
The Securities and Exchange Commission v. The State of Illinois
“I believe that we (all of us) have allowed a double standard to develop in America, where citizens in the private sector are held to a higher standard of conduct and accountability than citizens in the public sector. And I believe it is getting worse over time (as the government expands) and it is eroding our individual rights and liberties and hurting the private sector’s ability and desire to take risks and innovate (succeeding sometimes, but more often failing and then trying again); the keys to a dynamic and vibrant economy. It is my view that Americans operating in the government sector (especially those in power, but even those who are not), must be held to a higher standard of duty and care than American’s operating in the private sector. Yet clearly today it is the opposite. Nearly all of our civil laws and regulations and the entire civil enforcement apparatus of the government is aligned against the private sector and private individuals. Nothing, other than our mostly disinterested and uninformed electorate, holds the government and its key officials to account for their conduct and mistakes. Why is it that because you seek to make your career in the “for- profit” sector (and help create jobs and taxpayers), some people think it is not possible to “do good” at the same time? And if something does go wrong (in an unprecedented financial crisis, say), it’s even worse. Your conduct and motives are immediately called into question and your reputation is unfairly besmirched. And years of your professional life are taken away being investigated by the government and sued (there are even calls in the press and among certain politicians for criminal prosecutions, without any knowledge of specific wrongdoing). However, if you are a government official and you are mistaken or fail, nothing happens.” Michael Perry, Excerpt from Statement #38, January 29, 2013
“Kudos to the SEC for shining a light on accounting practices that would get private market participants thrown in jail. But frauds are not committed by buildings or desks or chairs. They are committed by the people who occupy them and the commission should hold them accountable.” March 13, 2013, WSJ OpEd, “SEC v. Illinois”
SEC v. Illinois
The Securities and Exchange Commission announced civil fraud charges Monday against the state of Illinois, which means it’s now official: The Land of Lincoln has the nation’s most reckless and dishonest state government when it comes to pension liabilities.
This week’s order from the SEC reports that in multiple bond offerings from 2005 to 2009 “the State of Illinois misled bond investors about the adequacy of its statutory plan to fund its pension obligations and the risks created by the State’s underfunding of its pension systems.”
Unlike Illinois officials, the numbers don’t lie. The state’s five main pension funds are 40% funded, with a shortfall of close to $100 billion—and much more by some private estimates. It’s hard to express how irresponsible politicians have to be to dig a hole this big. By comparison, the average state plan is funded at 75%, which is itself dangerously low.
Even Illinois politicians admit that their pensions ought to be 90% funded, and in 1994 they pretended they were enacting reform with the ironically titled “Pension Funding Act.” But the law’s methodology “structurally underfunded” the state’s obligations and “backloaded the majority of pension contributions far into the future,” says the SEC.
By 2009, one of the pension system’s actuaries warned of “significant funding peril” while the Governor’s budget office raised “serious concerns about the financial strain,” says the SEC. But “this information was not disclosed to bond investors.”
The only other state ever to be sued for fraud by the SEC was New Jersey in 2010. That case also involved pension shenanigans, but the state has since begun to reform.
In Illinois, there’s little sign of reform, which suggests the SEC has more work to do. According to its sorry custom, the SEC announced a settlement with the state at the same time it announced the charges. As usual, there were no individuals charged, only an institution, and the institution neither admitted nor denied anything but merely promised to behave in the future.
Kudos to the SEC for shining a light on accounting practices that would get private market participants thrown in jail. But frauds are not committed by buildings or desks or chairs. They are committed by the people who occupy them, and the commission should hold them accountable. This OpEd piece appeared March 13, 2013, on page A14 in the U.S. edition of The Wall Street Journal
Did You Know A Government Official Can Intentionally Defame a Private, U.S. Citizen and Not Be Held To Account? They Have Sovereign Immunity!
“When people differ in opinion, both sides ought equally to have the advantage of being heard by the public; and that when truth and error have fair play, the former is always an overmatch for the latter.” Benjamin Franklin
Since resolving the FDIC’s litigation against me in December, 2012 (the SEC’s litigation against me was resolved in October, 2012), I have spent a considerable amount of time on this blog documenting the resolution of the federal government’s civil litigation against me and expressing my views about what I believe to be the true, root-causes of the financial crisis.
I haven’t noticed many crisis-era leaders of major private-sector financial firms doing the same. I think this is because some are still involved in government investigations and/or litigation and have been advised by counsel “not to say anything”, others have been permanently prevented from doing so by mandatory and un-American “squelch provisions” in government settlement agreements, and understandably, a few might be scarred and scared to speak up. And I am guessing that those who remain at Too-Big-To-Fail firms “owe” the government their silence and/or loyalty.
As a result, the popular but incorrect view that has formed about the primary causes of the financial crisis (and that it was Wall Street’s and the banker’s fault) have come largely from federal government financial officials; whose own organizations often had some culpability in the crisis and whose speech was not squelched by government investigations, litigation, and settlements.
(By the way, did you know that a government official can intentionally defame a private, U.S. citizen and cannot be held to account by our civil defamation laws? Unbelievably, these officials have sovereign immunity!)
While my speech remains permanently squelched to an extent by my civil settlement with The Securities and Exchange Commission, I can freely discuss and debate my views about the crisis. And I can also discuss and debate the government’s actions before, during, and after it. People like myself were the ones “in the arena” during the financial crisis and I think our experiences and views are important for the public to hear and judge for themselves.
“It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat.” Theodore Roosevelt
I have never debated anyone, let alone a current or former government official, but am anxious to do so now and confident that I can make a compelling case that the federal government’s (including The Federal Reserve’s) policies and actions, many well-intended, were the primary cause of the financial crisis.
Earlier this year, I informally discussed my concept of a public debate about the financial crisis with a friend who is the Dean of a prominent California university’s business school, and he told me that his university would be willing to host such an event. And if for some reason that can’t be arranged, I am willing to publicly debate any of these individuals at the place and time of their choosing.
“Vigorous debate is an American tradition….” President Barrack Obama
“Freedom means the right of people to assemble, organize, and debate openly.” Hillary Clinton
My preferred list of debate partners are as follows (however, I am willing to debate other key current or former crisis-era officials):
Sheila Bair, Former Chairperson of The Federal Deposit Insurance Corporation
Ben Bernanke, Chairman of The Federal Reserve System
Alan Greenspan, Former Chairman of The Federal Reserve System
Mary Schapiro, Former Chairman of The Securities and Exchange Commission
Robert Khuzami, Former Head of Enforcement at the SEC
Timothy Geithner, Former United State Secretary of the Treasury
Henry Paulson, Former United States Secretary of the Treasury
Shaun Donovan, United States Secretary of Housing and Urban Development
Barney Frank, Former Chairman, House Financial Services Committee
Christopher Dodd, Former Chairman, Senate Banking Committee
Elizabeth Warren, United States Senator (“founder”, Consumer Financial Protection Bureau)
If any of these individuals (or others) are willing to debate, I can be reached through this blog. Thanks, mike