Several of the world’s largest pension funds have urged the US’s Securities and Exchange Commission to finish the job of implementing financial reform in the face of resistance from industry, the Republican party and corporate legal challenges to the introduction of new rules.
Republican candidates for the presidency have spoken of their desire to roll back the Dodd-Frank financial reforms, and since the party won control of the House of Representatives it has held hearings to look at revising portions of the legislation. The SEC, meanwhile, has struggled with the breadth of new rules to be written.Calpers, the largest US public pension fund which is leading the initiative, began discussing the move last year after the US Chamber of Commerce successfully challenged in court new rules that made it easier for investors to propose candidates in boardroom elections.
“Our concern was that the agency has been buffeted by court decisions, is struggling to secure the resources that it needs and has faced a political storm in the House,” Anne Simpson, head of corporate governance for Calpers, told the Financial Times. “The prime role of the SEC is protect investors, so it is our responsibility to back them up.”
It also comes after the $234bn pension fund decided in November to expand its corporate governance activities beyond its stock market holdings. On Monday Joe Dear, chief executive of Calpers, also attacked the tax treatment enjoyed by private equity as “indefensible”, and urged the industry to support public policies to assist workers dislocated by their activities.
The 14 pension funds and plan sponsors, which manage more than $1,600bn in retirement savings, wrote to Mary Shapiro, SEC chairman, to say they “stand ready to assist the commission to combat efforts to weaken or roll back the important investor protection provisions of Dodd-Frank”.
The letter also draws attention to areas of reform where the SEC is yet to begin work on new rules – in particular reform of the credit rating agencies, which failed to correctly assess the risk of mortgage-backed securities that caused extensive losses for banks and investors during the financial crisis.
Dodd-Frank requires the agency to develop a way to track the accuracy and effectiveness of ratings, and undertake a study of alternative ways to finance the credit rating agencies.
The group includes several of the biggest US public pension funds, as well as the largest UK fund, the BT Pension Scheme, AustralianSuper and the €109bn ($144bn) Dutch fund PGGM.
The funds presented the SEC with six reform priorities, which ranged from the completion of specific proposals such as writing new rules to grant equal access to shareholder ballots, to calls to work on international accounting standards and promote sustainability and diversity issues.
The investor group also called on the SEC to appoint an investor advocate to advise the agency on “matters of concern to investors in the securities markets”.
The SEC said: “We appreciate their recognition of the SEC’s progress in protecting investors and welcome their views on the additional measures the SEC should implement.”
I wonder if any Canadian pension plans joined this group in supporting the SEC. The fact of the matter is that investors are not protected in these markets and corporate governance remains the single biggest issue that all investors, large and small, struggle with.
Unfortunately, the SEC has a history of covering up Wall Street crimes. It still hasn't dealt a death blow to high frequency trading scams (reintroduce the goddamn uptick rule!) and it hasn't been too successful uncovering and prosecuting insider trading crimes.
Whether or not this is all a show and smokescreen remains to be seen but it seems the SEC is responding to growing public outcry. Mother Jones reports, in a 325-page SEC letter, Occupy's Finance Gurus Take on Wall Street Lobbyists:
Highly doubt banks will give up proprietary trading but they are scaling back. There is a sea change that is occurring. The winds of regulatory change will hit Wall Street hard and for many, not a moment too soon. Financial lobbyists will bitch, scream and fight any new regulations, but their days are numbered.
Yesterday, a group affiliated with Occupy Wall Street submitted an astounding comment letter to the Securities and Exchange Commission. Point by point, it methodically challenges the arguments of finance industry lobbyists who want to water down last year's historic Dodd-Frank Wall Street reforms.
The lobbyists have been using the law's official public comment period to try to kneecap the reforms, and given how arcane financial regulation can be, they might get away with it. But Occupy the SEC is fighting fire with fire, and in so doing, defying stereotypes of the Occupy movement. Its letter explains:
Occupy the SEC is a group of concerned citizens, activists, and professionals with decades of collective experience working at many of the largest financial firms in the industry. Together we make up a vast array of specialists, including traders, quantitative analysts, compliance officers, and technology and risk analysts.
The letter, which has been in the works for months, passionately defends the Volcker Rule, a provision of the Dodd-Frank Wall Street reforms meant to prohibit consumer banks from engaging in risky and speculative "proprietary" trading. That barrier had collapsed in the 1990s with the gradual watering down, and eventual repeal, of the Glass-Steagall Act. Occupy the SEC explains why this became a problem:
Proprietary trading by large-scale banks was a principal cause of the recent financial crisis, and, if left unchecked, it has the potential to cause even worse crises in the future. In the words of a banking insider, Michael Madden, a former Lehman Brothers executive: "Proprietary trading played a big role in manufacturing the CDOs (collateralized debt obligations) and other instruments that were at the heart of the financial crisis. . . if firms weren't able to buy up the parts of these deals that wouldn't sell. . .the game would have stopped a lot sooner."
What makes Occupy the SEC so unique and inspiring is the way that it straddles the two worlds. On the one hand, it's authentically grassroots, forged in Zuccotti Park's crucible of discontent. As such, it is transparent, open to anyone, and accountable to everyone. On the other hand, it includes financial insiders with the education and regulatory vocabulary to challenge high-powered lobbyists at their own game. That's a powerful combination that the SEC can't easily ignore. From the letter:
The United States aspires to democracy, but no true democracy is attainable when the process is determined by economic power. Accordingly, Occupy the SEC is delighted to participate in the public comment process. . .
For more on how Occupy the SEC came to be, read my story on its umbrella organization, the Alternative Banking Group.Occupy the SEC Comment Letter on the Volcker Rule
They have themselves to blame for this reaction and they will get no sympathy from Main Street who is still paying the price for unbridled greed and gross negligence that caused the 2008 financial crisis. And if pension funds are serious about supporting the SEC and protecting investors, they'd stop funding hedge funds, banks and other funds that engage in predatory trading activity, lobbying the SEC hard on reintroducing the uptick rule.
Below, Lee Munson, author of the book "Rigged Money" has a stark warning for investors: "You can be long or be wrong this year," says the unabashed former broker. He believes the second half will be even better than the first, and I agree with him. Don't get caught up on developments in Greece and the eurozone. If you do, you'll get burned.