Posted today at Economists for Dean
Yesterday's Wall Street Journal's Money And Investing section read like a report devoted almost exclusively to scandal in corporate America. It "Harken"s back to last Summer's stories of scandal at Enron, World Com etc.
Here are some of the stories:
- "Despite Lawsuits, Enron's Bonuses Haven't Been Returned" which discusses how about 300 executives received bonuses totalling $73 million on the eve of Enron's bankruptcy.
- "Civil Charges are Expected in Fund Scandal" which talks about how Massachusetts regulators and the SEC will pursue civil securities fraud charges against several Prudential employees (more on the mutual fund scandal shortly).
- "Mobile-Home Loans Hang Over Fannie Mae" is really about how Fannie Mae's exposure to securities from Conseco Inc has dramatically increased its default rate. Conseco recently became the third largest company to enter into bankruptcy after Enron and World Com. The gory details are reported here.
- "SEC Takes Another Look at Grasso" discusses an investigation into whether former NYSE Chairman Nick Graso pressured a trading firm to buy shares of AIG after hearing complaints from Hank Greenberg, the Chairman of AIG. Greenberg also happened to be a director of the NYSE and helped determine Grasso's $187 million pay package.
- "Spitzer Seeks Forfeiture of Some Funds Advisory Fees" describes how the New York Attorney General is trying to force mutual fund companies that illegally traded to return advisory fees earned based on those trades.
- "SEC's Settlement of Analyst Research is Approved by Judge" reports that a federal judge signed off on the SEC's settlement with 10 Wall Street firms over investor losses related to overly bullish research. The firms included: Citigroup, Credit Suisse, Morgan Stanley, Goldman Sachs, Lehman Brothers, Bear Stearns, US Bancorp, JP Morgan Chase, UBS and Merril Lynch. I'm not sure who they left out, but as you know, it was just "a few bad apples".
And of course, the kicker was the WSJ's front page story describing a leaked SEC report on how poorly the NYSE regulated and enforced "specialist trading firms".
Despite all of this news, the scandals have not yet become a major political story in the Presidential campaign. The mutual fund scandal, however, is one that should resonate with voters. As the New York Times reports today:
The whirlwind of financial scandal that has already rattled Enron and Tyco, Wall Street brokerage firms and the New York Stock Exchange is now engulfing the $7 trillion mutual fund industry, which has long portrayed itself as the model citizen of the investment world.
For the 90 million Americans invested in mutual funds - representing about half the nation's households - the most pressing question is whether funds are more risky than they thought.
People with money at firms under scrutiny are worried about the future of those investments. They are less angry about the small amounts of money they may have lost to favored investors granted special treatment than they are fearful about what else their fund firms are doing that they do not know about.
The lack of adequate oversight by regulatory agencies and the underfunding of the SEC are important areas in which Dean ought to attack Bush. Unlike his fellow candidates (e.g. Lieberman who blocked rules that would expense stock options in the 1990s) who have been part of the problem and his lack of personal ties to corporate boards (like Clark) give him more credibility on this issue than the others. Bush is especially vulnerable both because of his own past (see Harken link above) and his massive fundraising edge from Wall Street firms. This is despite the fact that Wall Street prospers under Democrats...but that's another story
This is also an issue where attacking Bush and his corporate ties can have mainstream appeal especially if it is framed as helping the little guy of which there are 90 million. Recall my earlier post where I argue that what is dismissed as "class warfare" has considerable political appeal if people perceive massive unfairness in the division of the spoils.