What’s Inside?

• Paul Volcker to Better Markets: “Carry on the Battle!”
• Lawless SEC Going After ESG & Investors Rather Than Protecting Them
• Better Markets Calls Out FDIC for Not Protecting Depositors & Taxpayers
• Better Markets Demands Industry Corruption & Fraud in SEC Rulemaking Be Investigated & Prosecuted

Paul Volcker to Better Markets: “Carry on the Battle!”

Although he was a former Chairman of the Federal Reserve and held many other high positions with august titles throughout his storied career, the title Paul Volcker earned, deserved and most cherished was that of “public servant.” For many decades, he served his country with class, humility, self-deprecation, and steadfastness. As Robert Kennedy extolled, real courage is a rare commodity, but Paul had an abundance and it fueled his fearlessness. His moral compass could not be swayed by money, power, connections, or passing matters of the moment. Self-interested and fact-free criticism rolled off him with an indifference that offended the mighty who think they must be obeyed.

Paul was always very encouraging of the mission and work of Better Markets. In our last conversation, he said “Now it is up to you to carry on the battle!” Our President and CEO was fortunate to moderate a panel Paul was on last year (discussed here), where they had an “eye-to-eye” conversation about those coming battles!  

Much has been written about Paul, but two of the best were by Martin Wolf and Gillian Tett in the Financial Times here and here. They are well worth the read. Our short statement is here. And, don’t forget to read his autobiography: “Keeping At It: The Quest for Sound Money and Good Government.”

Lawless SEC Going After ESG & Investors Rather Than Protecting Them

Ignoring the laws that are supposed to mandate its actions, the SEC has perverted its mission from protecting investors to protecting Corporate America, incumbent management and financial giants. The latest is the attack on ESG (environmental, social and governance issues), a bete noire for corporate suites, the Chamber of Commerce and other industry trade groups. It is now being driven by SEC Commissioner Pierce, who derisively referred to ESG as “enabling stakeholder graft.”  The SEC is reportedly targeting ESG with both examinations and enforcement, draining valuable resources away from focusing on real fraud and misconduct throughout corporate America and the financial markets.

This is, unfortunately, part of a pattern with this SEC. For example, it comes on top of the SEC’s fraudulent, misleading and mis-labeled “Regulation Best Interest” adopted earlier this year, which pretends to be a fiduciary duty rule requiring brokers to put their clients’ best interest first yet has no such actual duty. It’s an anti-investor fraud.

This pattern of dereliction of duty by the SEC continues literally through today when it met and proposed a series of actions that can only be described as delivering early anti-investor holiday presents to Wall Street and buckets of coal to Main Street. Hard to believe just 11 years after the last catastrophic financial crash, the SEC is proposing to gut its own rules on dangerous, high risk collateralized-debt obligations (CDOs), derivatives and swaps, which were at the core of causing and spreading the last crash. That’s why Warren Buffet said, “derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.” That’s not all the SEC did today: it also assaulted the foundational “accredited investor” rule that has protected retirees and financially less sophisticated Americans against high risk, hard-to-understand financial products and the many unscrupulous financial “professionals” who peddle these products. You can read more about these anti-investor actions here and here.

Better Markets Calls Out FDIC for Not Protecting Depositors & Taxpayers

The Federal Deposit Insurance Corporation (FDIC) exists to protect bank depositors and taxpayers, but – shockingly – the new Chairwoman ranks this priority as a “third goal” behind helping finance “innovate” and a new-found “balanced” interpretation of the law. Our President and CEO, Dennis Kelleher, was on a panel right after her speech at the Brookings Institution and he pointed out that the law requires protecting bank depositors and taxpayers above all else – that is actually why the FDIC was created and why it exists. However, as he discussed, the FDIC can do that and promote innovation, but that requires a data-driven, unbiased, balanced approach that prioritizes protecting investors as required by the law.

In addition to being part of an industry and ideology driven deregulatory agenda being masked behind claimed benign if not beneficial changes, the FDIC’s actions are also the latest example of people jumping to the conclusion that anything referred to as “innovation” (no matter how self-serving) is by definition good (which is why so many in finance are labeling virtually everything they do as innovative). However, as pointed out by Gillian Tett, Paul Volcker has a more informed view:

“In recent years, most political leaders and entrepreneurs have assumed that innovation is automatically a good thing, be it in finance, technology or any other field. However, Volcker took a different view: he believed that innovation should only be applauded if it made people’s lives better. That might sound obvious. But Volcker argued — quite correctly — that entrepreneurs often use the mantra of innovation to introduce practices that are needlessly complex and opaque, and designed to extract more profit from consumers (or ‘rent’ to use the economics term).”

We agree with Paul’s standard: “innovation should only be applauded if it made people’s lives better.” 

In case you missed Dennis Kelleher at the Brookings Institution last week, arguing for innovation and competition while protecting depositors and preventing crashes, here is a short video with a series of highlighted clips: 

Better Markets Demands Industry Corruption & Fraud in SEC Rulemaking Be Investigated & Prosecuted

Hard to believe, but the SEC recently proposed a rule to gag independent proxy firms from providing their unbiased opinion to investors who hire them. In fact, the SEC is proposing that proxy firms provide their opinions on corporations to the management of those corporations for review and editing before they are allowed to provide their opinions to their own investor-clients who are paying them for their independent views. Given that incumbent management already controls almost all the information investors receive about their corporations, the last thing investors need is management influence over one of the very few independent voices for investors.

Per usual, this anti-investor proposal is packaged and spun as pro-investor (even though it is a top priority for the Chamber of Commerce and Corporate America). To drive home this point, the Chairman of the SEC read – at the public SEC meeting that discussed and adopted the proposal — from letters he received from ordinary Main Street investors who were demanding the SEC rein in the proxy firms, including he said from “an Army veteran and a Marine veteran, a police officer, a retired teacher, a public servant, a single mom, [and] a couple of retirees who saved for retirement.” What a perfect cross section of appealing Americans to support your policy proposal!  

As many suspected when they heard the Chairman speak at this meeting, this perfect cross section of so-called “ordinary Main Street investors” sitting at home thinking about proxy firms and writing to the Chairman of the SEC to rein them in was too good to be true. Turns out, these letters were fake and part of what appears to be a corporate campaign to fraudulently induce the SEC to enact this anti-investor rule, as reported by Bloomberg news: “SEC Chairman Cites Fishy Letters in Support of Policy Change.”

It is not “fishy” – it is fraud and fraud of the most pernicious kind: intentionally designed to induce a financial regulator to enact an anti-investor rule Corporate America wants to control if not silence those who might disagree with management. That is, in our opinion, a violation of the federal laws against mail and wire fraud, among other laws. It is a brazen attempt to corrupt the policy making process at a key financial regulatory agency and it must be punished severely to deter anyone else from engaging in such egregious conduct. That’s why we have demanded that the Department of Justice and others open investigations and prosecute those who perpetrated this fraud. Read our letter to DOJ here.