More on Bully's proposed loot of Social Security:
SOCIAL INSECURITY
By CHRISTOPHER BYRON
February 7, 2005 -- FOLKS, it's time to face facts. If President Bush's plans for Social Security become law, nothing short of a white-collar money riot is likely to break out on Wall Street. Yet as things now stand, there will be precious little the federal government can do to contain it.
That is because the president's plan calls, among other things, for allowing private citizens to invest as much as one-third of their yearly FICA contributions in privately managed stock mutual funds, which in turn means that five years from now, when the plan is fully phased in, as much $250 billion a year may begin leaving the government bond market and pouring into common stocks.
This will change the entire nature of Wall Street itself from a place where companies go to raise capital for growth to one that becomes a core system of savings for individual Americans.
Yet who will be standing guard to see that the coffers of capitalism — suddenly swelling with the nation's retirement nest eggs — don't morph overnight into a ringing dinner bell for every white-collar criminal on earth?
Alas, we will be placing at the bank vault door the same bunch who did such a bang-up job for us the last time the market caught fire, in the bull market 1990s — namely, the underpaid, understaffed, and outgunned members of the Securities and Exchange Commission and their equally ineffectual sidekicks at the National Association of Securities Dealers and other various exchanges.
This seventy-year-old system of so-called "self-regulation" served its purpose well enough when only a small percentage of U.S. households held shares in public companies, and a five-million-share day was big volume on the Big Board.
Back in those days, the initials SEC were said to stand for "See Everything Crooked," and the big shots of Wall Street groveled before them.
But that is no longer the case. With strong growth in the markets during the past 20 years, self-regulation has become less and less effective as a deterrent to crime.
AND the bull market abuses of the 1990s have pretty much fin ished the system off entirely.
At least 10 major U.S. companies have collapsed in accounting-related scandals — costing public investors tens of billions of dollars in losses — in the five years after the dot.com bubble popped.
Yet only a handful of top officials are now behind bars as a result of the frauds.
And though there's been plenty of bilious scowling from Washington at the "corporate wrongdoers" of Wall Street, the SEC has brought an average of only about 580 enforcement actions a year during this period — barely 20% more than the commission brought during the five preceding years of the boom.
In 2004, in fact, enforcement actions by the SEC actually went down from 2003 levels.
Not for nothing does the latest Gallup poll of public attitudes toward U.S. professions — released in December — once again rank stockbrokers very near the bottom of the heap of 23 career categories, from nurses and doctors at the top, to car salespeople at the bottom.
Yet with law enforcement on Wall Street in disarray and the system for administering it discredited and broken beyond repair, we now propose to place into its palsied hands for safekeeping the retirement treasure of the entire nation.
Put bluntly, this is not a sensible thing to do.
For well over a year now, I have been pretty much a voice alone in the national media, warning over and over again of the disrespect for the law that imbedded itself into every nook and cranny of the market in the bubble years of the 1990s. That disrespect is now reappearing as stock prices have begun to recover.
Lately, the SEC has become aroused enough (or perhaps simply embarrassed enough) to begin moving against some of the more obvious outrages we've called attention to in this column.
But the gestures are cosmetic — and nothing more — because it lacks the power to do anything more substantive. In the last five years, the annual budgetary appropriations for the SEC have more than doubled but enforcement actions have risen by just 27%.
Last October, this column put the spotlight on a whole new stock-market mega-scam in which rings of pump-and-dump shysters have discovered how to exploit loopholes in various SEC regulations to create worthless shell companies out of thin air, then get them listed on Nasdaq's electronic quotation service for trading around the world — all without ever having to register them with the SEC.
LAST week the SEC fi nally suspended trad ing in two of these companies: Courtside Products, Inc., and Commanche Properties, Inc. But under current law, the SEC trading suspensions will last for just 10 days, after which the companies will be able to begin trading all over again.
How is so light a slap on the wrist going to deter the continuing proliferation of these scam stocks, or shut down the hundreds that are already operating in full public view?
In a similar spirit, consider the court action filed three weeks ago by the SEC against a Jericho, Long Island, bottled-water company called Queench, Inc.
The SEC charged Queench with not only issuing at least 11 false and misleading press releases about itself between January and March of last year, but with misappropriating $2.4 million of company funds through an unregistered initial public offering in violation of federal securities laws.
Then, said the SEC, when commission investigators made inquiries, Queench responded by producing a forged document designed to show that the company had an ongoing business relationship with the 7-Eleven stores when no such relationship existed.
Yet it is doubtful that Queench's top officials are now trembling before the mighty sword of SEC retribution, which seeks to force them to give back the stolen money and promise never to steal again (though they will probably not have to admit having done anything wrong in the first place).
Examples like these barely scratch the surface of what the SEC is up against. And the problems will get massively worse if anywhere near to the amount of money that President Bush wants to carve out of Social Security begins to flow into stocks.
In future columns, I'll put forward some concrete suggestions for ways in which law enforcement on Wall Street needs to be tightened up and improved. But the system as it now stands is beyond tinkering and quick fixes.
It is broken and needs to be junked. And any call for reform of Social Security that does not include a plan for the comprehensive overhaul of regulation of the nation's securities markets will only be half the job — for which all Americans will wind up paying the price. |
