Think it Through

image used under CC license from f-l-e-x.

When President Obama says “shame on” those corporate executives on Wall Street who took $18.4 billionno real legal means to do so – it all rings hollow to me. It is as meaningless as Sen. Dodd’s comments yesterday that if he gets really angry at the Wall Streeters, he will hold a committee hearing on the topic. in bonuses last year and Senator Chris Dodd fulminates that we will “use all legal means” to get the money back – knowing full well there are probably

Recognizing that most experts say it is not possible to pass laws limiting compensation or to force companies to take away bonuses already given, there are some things our leaders could do that are more effective than denouncing the bonuses.

For starters, the President and the Treasury Secretary could call upon the executives who received the excessive bonuses to give the money back to the companies. The President should address the nation, urge the banks and securities companies to list the bonuses and the executives who received them, and urge the executives to return the money to their struggling companies.

Next, since the Treasury Department is propping up many of these firms with bailout money, and many such as Bank of America, its subsidiary Merrill Lynch, and American International Group, are on track to receive billions more.  The Treasury Secretary should inform all the companies on Wall Street receiving bailout money that they may have money deducted from their next federal bailout checks unless a large proportion of the executive bonuses are returned. Call it bailout minus bonus.

All of these things will be more effective than Presidential finger wagging or Senatorial bloviating.

The President can use his moral authority to move the nation to demand changes on Wall Street. President Obama could make this his first effort to bring the country together around the value of responsibility that he stressed in his inaugural speech. It is an opportunity he should not pass up.

Like the Bill Murray character in the movie What About Bob, who is so immobilized by fear that he cannot move forward, the U.S. Senate took a “baby step” yesterday toward becoming a functioning institution which actually represents the hopes and needs of the rest of the country. The Senate passed a law providing health insurance to about 11 million low-income children who have not had access to affordable health care.

Last year the bill, known as SCHIP, died after two Bush vetoes and Republican opposition. This year, more Democrats in the Senate and House were able to expand SCHIP, but not before some Republicans tried to defeat it by raising the specter of immigrants using services. The Republicans objected to giving health care coverage to immigrant children whose parents are legal residents of the United States, who live and work in our communities and pay taxes.

One of the most contentious changes in SCHIP, and an improvement over the bill Bush vetoed, is the elimination of the current requirement that children of immigrants who are here legally wait five years before being included. Five years may seem like a flash to a U.S. Senator – just barely enough time to raise the $15 million+ needed for the next reelection campaign.

But five years is a lifetime to a child. That is exactly the phrase average Americans told BRS researchers in focus groups we conducted across the country for the National Immigration Law Center. When given the chance to think it through, the voters we heard from believe children should not suffer for a situation they did not cause.

Armed with the righteousness of their cause and that simple phrase – five years is a lifetime to a child– SCHIP coalition advocates won their case on Capitol Hill and persuaded them to include legal immigrant children. The president will sign this bill and the Senate will have done some good. Baby steps.

President Obama’s pledge to bring back some meaningful regulation of the financial markets may be more difficult than he imagines. The reason: Senate Democratic leaders not only enabled the deregulation, they were cheerleaders.

In America, unlike other nations, the structure of investor protections against securities fraud stands on two separate legs: Government regulators and private lawsuits. Senator Chris Dodd, Chairman of the Senate Banking Committee, and other Democrats, worked diligently to saw off both legs.

Here is how the people’s representatives took the side of fraud defendants over the fraud victims.

STEP ONE: CURTAIL PRIVATE INVESTOR LAWSUITS

When in the mid 1990’s Dodd and fellow Democrats Charles Schumer, Patty Murray, and Harry Reid worked to curtail private lawsuits by investors who were victims of securities fraud, they weakened what has traditionally been the most effective deterrent to securities fraud.

Their actions represent the result of a determined effort by giant corporations seeking to do away with accountability in the financial markets because they felt it got in the way of their profits. In 1992 these companies spent millions of dollars on lobbying to get Congress to enact a law to shield them from private lawsuits. (Siconolfi, Michael, and Anita Raghavan. “Securities Firms Make Large Gifts to Congressmen.” Wall Street Journal 22 Aug. 1995: C1+.)

The Coalition to End Abusive Securities Suits, or CEASS as it was known, included some large accounting firms caught in fraud scandals of the 1980’s and 90’s, such as Arthur Anderson, Coopers and Lybrand, Ernst and Young, Deloitte Touché. Other CEASS members included securities firms and insurance companies, such as Prudential Securities, Chubb insurance, Morgan Stanley, and Amdahl corp. It was the beginning of a massive, costly, and successful lobbying effort.

The CEASS lobby in the early 1990’s pushed hard for Congress to approve a new law that would make it more difficult for people to bring class action lawsuits in federal courts against companies allegedly involved in securities fraud. The legislation was called the Private Securities Litigation Reform Act of 1995 (PSLRA), and it changed the rules to require that investors prove intentional lying by company executives in order to get into court. This standard is so high that investors now practically need to have an executive make a videotape and say he lied before investors can challenge suspicious behavior.

Making these lawsuits harder to bring to court diminishes the main deterrent to securities fraud in the U.S., since federal and state government regulators are notoriously understaffed. Most of the big cases, such as the billion dollar scandal of Charles Keating’s Lincoln Savings and Loan selling worthless bonds to elderly retirees in the late 1980’s, were uncovered by private lawsuits which then led to SEC investigations. Under the new standards in the PSLRA of 1995, the Keating fraud and others like it would not have been uncovered. We now know the sleepy state of federal watchdogs is one reason why Bernie Madoff was able to operate for decades without getting caught.

Two members of Congress championed the Private Securities Litigation Reform Act of 1995, and took credit for its enactment over President Clinton’s veto:

Republican Christopher Cox, then a Congressman from Orange County, California. Cox collected campaign contributions from high tech executives who also happened to be fraud defendants.

Democratic Senator Chris Dodd, Chairman of the Senate Banking Committee, who became very popular among banks and securities companies who were fraud defendants and among insurance companies who pay the investor settlements in financial fraud cases.

Dodd enjoyed the eager support of many top Democrats in favor of restricting investors’ access to the courts.

Not everyone thought this was a keen idea, however. Consumer groups, states attorneys general who enforce the securities laws, the AARP, and the securities regulators in all 50 states sent messages to Cox and Dodd that the bill was a bad idea that would weaken safeguards against fraud. (”Less protection for investors.” Consumer Reports Sept. 1995.)

Rick Roberts, a former Securities and Exchange Commissioner under the first President Bush, warned in September 1995, “if you look at the whole picture, congress is taking away the right to bring an action if there is a fraud; it’s cutting the level of information investors receive; and third it will try to slash the SEC budget so there are no public remedies. If I was an investor, I would be getting very queasy about plugging my money into the securities market.”

STEP TWO: LETTING THE FOX GUARD THE HENHOUSE AT SEC

In 2004, President Bush appointed Chris Cox to be Chairman of the SEC and the Senate, with the approval of Dodd and the other Democrats, voted unanimously to confirm Cox. In so doing, Dodd and the Democrats agreed to place the protection of investors in the hands of a man who had already made it his cause to shred the most potent deterrent to securities fraud.

As chairman, Cox allowed securities firms to avoid legal requirements to be audited by accounting firms that were registered with the government. The result was that firms like Bernie Madoff’s used their own accountants to do friendly audits and fraud can remain undetected for years. Also, under Cox, the SEC’s budget declined in 2006, and 07.

Why bring up all of this recent history? Because when Sens. Dodd and Schumer cried out this week about how the SEC “missed Madoff,” it is hard to remain silent.

President Obama and Treasury Secretary Geithner should know the sorry record of the Congressional team it has inherited, before they suit up to pitch for stronger protections for investors. And voters should know when their Senators talk like Teddy Roosevelt and act like Jay Gould.

Accountability. The Russonello Washington political dictionary defines it as: an overused term that means requiring those you oppose to do something they do not want to do. In reality, Websters defines it as: “the state of being accountable…. Subject to being answerable to something.”

We are hearing a great deal now about making sure the government is accountable for the funds it will spend in the President’s economic stimulus package. The Republicans argue that the stimulus package spending on building bridges and roads, modernizing energy plants, and allowing state governments to keep employees in their jobs teaching children and caring for the elderly lacks accountability because government programs are by definition wasteful. The Republicans’ idea of accountable is more tax cuts. Yes, they actually argue that giving people more money in their pockets, no strings attached, is the essence of accountability. Well, I know my brother would take the money and go directly to the Off Track Betting office in Manhattan and my cousin Jimmy would buy more movies on cable. Brilliant use of federal dollars.

It has taken 25 years for Americans to begin to realize the folly of this Ronald Reagan-inspired doctrine that individual selfishness will produce an overall positive result for the nation. That is why House minority leader John Boehner’s comments this week about the virtues of tax cuts have struck so many people as out of step with reality.

If Boehner wants a real proposal on accountability try this: If you are a member of the House of Representatives and you do not vote to fund a particular program – Head Start, roads and bridges, libraries, meals on wheels for seniors, job training, etc –your district will not receive any of the money for the program.

If you want to make government more accountable, then how can you defend voting against a program and then willingly accept the money? Not only do Members of Congress accept the money they voted against, they put out press releases claiming credit for the programs they voted against.

I first proposed this to my boss, Congressman Peter Rodino in 1981 when Reagan was cutting programs and Democrats were following like myrmidons. He grunted at his 20-something press secretary and that was the end of it. But this is an idea that is needed now more than ever. Call it tough love.

It would at least bring some accountability to the word accountability.

The dollar may be falling against the Euro, but it still has purchasing power in Illinois politics.

That is the view of the Illinois public according to a new statewide poll by Belden Russonello & Stewart for the Joyce Foundation.  We find Illinois residents are fed up with what they perceive as widespread political corruption in the state, stemming from too much influence of money in politics.  The next few months will be a good test to see whether voter disgust can fuel efforts by reform groups to devalue the dollar in Illinois politics.

image used under CC license from Tracy Olson

There is reality and there is Washington reality. Reality is when you do something based on the facts in front of you. Washington reality is when government does something based on the appearance of facts and the need to leave an impression.

President-Elect Barack Obama last week struck a blow against Washington reality when he let it be known that the Domestic Security Council in the Department of Homeland Security would be eliminated and its duties taken over by the National Security Council inside the White House. How many councils does it take to make us secure? One. How many to make us feel secure? Two?

This action should give all of us hope that Obama will extend the logic of last week’s move and do away with DHS entirely.

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If we ever had any doubts that the United States Senate was truly the nation’s most exclusive — and perhaps isolated and calcified — club, this week’s behavior by majority leader Harry Reid wiped away those doubts.

The Senate Democratic leadership for the past four years has refused to rally Democratic Senators to stand up and face down the Republicans on issue after issue. When Democrats were in the minority, Reid did not think it was worth a Democratic filibuster over two right wing appointments to the Supreme Court – Samuel Alito and John Roberts.  Roberts even refused to hand over the legal advisories he wrote as a Justice Department official in the Reagan administration, which would have given the nation a better idea of where he stood on Constitutional issues. Roberts said no, and the Democrats, being consistent, said well, ok, never mind that we asked for them — go ahead and take a job (Chief Justice) that you will have for the rest of your life, from which you cannot be fired, and which will allow you to set policies that will affect all Americans for decades to come.

Similarly, Reid did not rally his party to stop the Military Commissions Act of 2006 which gave President Bush the authority to imprison people indefinitely and torture them based only on his suspicions rather than on evidence.

When the Democrats became the majority party in the Senate, Reid did not rally his party to call the Republicans’ bluff that they would filibuster bills to expand health care for low income children, restore habeas corpus rights taken away in the Military Commissions Act, and give longer home leave time for U.S. service personnel in Iraq. A majority of Senators supported each of these proposals but when the Republican leadership threatened a filibuster, maintaining order in the club was more important than taking a stand.

This past Sunday on Meet the Press, Reid finally seemed to stiffen his spine and prepare to fight – over whether or not to seat Roland Burris, the Illinois politicians chosen by Governor Blagojevich to fill Barack Obama’s vacant Senate seat.  Today, he refused to allow Burris to be sworn in.

John Roberts is not worth a fight – and Roland Burris is? Think it through, Democrats. Maybe it’s time for a change.