In addition to the relative poverty of journalists, we’ve long been obsessed with the cheapness of politics. Everyone rants about there being too much money in politics but we’re always surprised by how little there is. Take incoming Senate Banking Committee Chairman Christopher Dodd. Since 1989 Dodd has personally taken about $2.18 million in campaign donations from the investment industry, according to this item in DealBook. For the point of emphasis, the most powerful Democrat on the banking committee has been collecting less than $150 grand a year from the industry.
And yet the media and political watchdog groups are still concerned that this might create the appearance that Dodd is owned by the banks. We’re not saying this impossible. Just embarrassing. We knew that many of our politicians were whores. We just don’t like to be reminded that they sell their stuff so cheaply.
For Dodd, Wall Street Looms Large [DealBook]
Dodd Well-Positioned for White House Bid [Associated Press in Washington Post]
Senate
We’ve been pointing out for a long time that the really (potentially) explosive issue raised by former SEC investigator Gary Aguirre was not the now-officially dismissed suspicions on insider trading by Pequot Capital or illegal tipping by John Mack, but the still largely univestigated charges of favoritism at the SEC. Recall that Aguirre claimed he was fired from the SEC for trying to subpoena John Mack, who was then about to become the top man at Morgan Stanley. Now the mainstream media, for reasons of its own, has enjoyed playing up Mack’s connections to the Bush administration but a more relevant fact is probably his status as the head of a major Wall Street bank. This raises the fear that the SEC has been captured by the very industry its supposed to regulate. (By the way, even this might be too optimistic, since the words “been captured” imply that the regulatory agency was not created, owned and operated by the largest investment banks right from the start.)
In today’s Wall Street Journal, the Senate’s Finance Committee chairman Charles Grassley says that this is precisely the matter on which the committees investigation is focused.
Your Dec. 8 editorial “The Pequot ‘Scandal’” leaves the impression that Gary Aguirre and I are the only two people concerned about the way the SEC handled the Pequot investigation. In fact, Mr. Aguirre’s concerns have been echoed by both former and current SEC officials, who provided candid testimony to our committees.
The focus of the Senate investigation I’m conducting with Sen. Arlen Specter (R., Pa.) isn’t John Mack and Pequot; rather, it is whether the SEC retaliated against one of its lawyers and whether it wields an even hand in looking out for investors big and small. Our review is evidence-based, and so far the evidence suggests the Pequot investigation was fraught with problems, Mr. Aguirre’s termination is suspect, and the inspector general failed in his duty to conduct a thorough and independent inquiry.
Sen. Chuck Grassley (R., Iowa)
Chairman
Committee on Finance
Washington
An SEC Investigation Fraught With Problems [Wall Street Journal]
- Posted in:
Attorney General
Bureaucrats Don’t Hate Hedge Funds, They Just Want Some Of That Money
By John CarneyThat’s the gist of today’s Wall Street Journal editorial discussing the pressure coming for tighter regulations on hedge funds from, well, just about anywhere you look. There’s Senator Charles Grassley’s letter to regulators looking for suggestions on how to regulate hedge funds. (Our bet is that they’ll somehow come up with a couple!) And Connecticut’s Attorney General Richard Blumenthal’s mini-Spitzerism. And the noise from Germany about putting global regulations in place. (Look for more of this if Barney Frank gets control of the House Finance Committee.)
You see, a regulated industry is an industry whose players need to make campaign donations in order to influence lawmakers. It’s a pretty simple formula: regulate an industry and you instantly politicize it. Which is another way of saying that you monetize the industry for politicians.
But it’s not all about wringing donations from hedge fund managers. There’s also corporate managers who are tired of getting those pesky shareholder letters from hedge fund types, and worried they could lose their jobs as hedge funds buy up their shares. And those folks have lots of money to spend on campaign donations, as well. It’s a win-win if you’re a politician.
All the other talk—about “systemic risk” or pension funds or low-liquidity real estate millionaires—is just the sound of a policy in search of a rationale. And that policy, of course, is the enrichment of politicians. That’s always the policy.
Targeting Hedge Funds [Wall Street Journal]
Although the SEC has subsequently reinvestigated and cleared Pequot Capital and Morgan Stanley chief John Mack in connection with Pequot’s acquisition of a large state in Heller Financial in the weeks leading up its acquisition by GE, questions still linger over allegations that the initial investigation was quashed when the lead investigator sought to subpoena Mack. Now two Senate investigations are underway to determine whether the SEC failed to thoroughly conduct the initial investigation and whether politics played a role in that failure.
On Sunday the New York Times ran a story based on files the canned SEC investigator, Gary Aguirre, had turned over to Senate investigators. The evidence seems pretty damning.
The file shows that after Mr. Aguirre was blocked from questioning Mr. Mack about the Heller deal, Mr. Hanson, the S.E.C. branch chief, acknowledged in e-mail messages that he had discussed Mr. Mack’s “political clout” and the “juice” of his lawyers with officials at the commission.
In an exchange of e-mails in the summer of 2005, Mr. Hanson said that he had merely been trying to “alert folks above me,” and that politics did not influence S.E.C. decisions. Mr. Aguirre replied: “Bob, this is spin. You told me it would be tough to take Mack’s testimony because he has political clout.”
Ironically, these allegations of political corruption at the SEC are being substantiated at the same time lawmakers are considering giving the SEC more clout over hedge funds. This summer a federal court struck down regulations requiring hedge fund managers to register with the SEC and permit investigators to examine their books.
But if the SEC has trouble engaging in its core functions—investigating things like insider trading—does it really make sense to give the agency an even broader scope of authority?
S.E.C. Inquiry on Hedge Fund Draws Scrutiny
We’re not sure exactly how he survived the boredom (we did with the help of Adderall), but Gary Weiss, author of Wall Street Versus America, also watched the banking committee hearings. He thinks these were less stupid than the judiciary committee hearings. And he too found it surprising that not one word was voiced about Gary Aguirre.
The elephant on the panel was the whistleblower Gary Aguirre, who was fired after trying to question Morgan Stanely’s John Mack in a trading probe. Unless I missed it, as I may have dozed during the fascinating repartee, not one question about Aguirre emanated from the lips of the senators.
It’s important, by the way, to distinguish between Aguirre’s allegations and the effort to suppress him. As veteran financial journalist Don Bauder noted in a good wrapup on the subject, Aguirre’s widely publicized allegations have been attacked as “flimsy.”
Whether Aguirre is credible or not, this whole Mack business is troubling and should be investigated — by actual investigators, not the U.S. Senate.
Elephant on the Panel [Gary-Weiss.Com]
That was it? The Senate banking committee held its hearing on hedge funds today and the only impression we came away with was that the perennial faith of Senators and bureaucrats that they can pass laws and regulations to protect investors from fraud and loss is, like, stronger than ever. It was like stumbling across a group of druids in the woods practicing a long-dead religion.
Some highlights from our viewing of the webcast after the jump.
- Use the Bloomberg command
NH BLG_DEALBREAKER <GO>
to access Dealbreaker
