Reuters Investigates
Insight and investigations from our expert reporters
Can the SEC learn from its mistakes?
All too often, the U.S. Securities and Exchange Commission gives its critics plenty of ammunition to complain about.
The SEC’s spectacular failure to detect the massive Ponzi scheme being run by Bernie Madoff is only the most high-profile miss by the agency. Over the years, the nation’s top securities cops have been slow to police abusive trading by hedge funds and spread of complex structured products–including subprime ones–churned out by Wall Street banks.
But it appears when it comes to handling tips and complaints from the public, the SEC may be learning from its mistakes and getting its act together. A new computerized database for processing tips about corporate and securities fraud is winning praise from some of the SEC’s most vocal critics. The SEC’s new approach is even making a believer out of Madoff tipster Harry Markopolos.
For more on the SEC’s new database and its closer partnership with the SEC read our story here.
Fake documents suggest bigger problem
Action in March by federal bank regulators wasn’t enough to scare banks away from the way they handled foreclosures. Reuters found that big banks that service mortgage loans continue to use robo-signers, file false documents and mislead courts in their efforts to take houses from homeowners delinquent on their mortgages.
The findings point to the need for a widespread audit of mortgage documentation by federal bank regulators, a step they have so far strongly resisted. The pervasive use of questionable documents in foreclosures suggests that the cause is deeper than just corner-cutting by mortgage loan servicers. It suggests that to a large extent, original lenders never turned over the required ownership documents when pools of new mortgages were securitized and sold to investors. Investors may have spent billions to buy mortgages they never received.
By Scot Paltrow
Link to PDF: http://link.reuters.com/kyb72s
All time largest massive fraud ever perpetrated on the American people and the world, blatant non-stop criminal activity by the bankers, a complicit lame government that does nothing about the abuse, extortion by bankers to bail them out, entire political parties (GOP) that defend the criminals, resulting in massive unemployment and housing foreclosures – this is America today. And yet a few days ago one Judge wanted to put Willie Nelson in jail for possession of 3 oz. of marajuana. The small minor infraction which hurt not one person gets full or more than full punishment, while the giant criminals who have practically brought down the entire globe through their greed and felonioius crimes hurting billions of pwople get no jail time and continue unabated overtly pursuing their crimes. The entire country is socially and spiritually upside down. Evil is Ok, and Good must be irradicated.
Ethics in economics? Who cares?
Back in December, a Reuters investigation examined the ties between economists who testify to Congress on financial regulation and big financial institutions.
A Reuters review of 96 testimonies given by 82 academics to the Senate Banking Committee and the House Financial Services Committee between late 2008 and early 2010 — as lawmakers debated the biggest overhaul of financial regulation since the 1930s — found no clear standard for disclosure.
In fact, roughly a third did not reveal their financial affiliations in their testimonies, based on a comparison of the text of their testimonies available on the Congressional committees’ websites with their resumes available online.
Similar issues had been raised in the 2010 documentary “Inside Job” which vilified a number of big-name economists for arguing in favor of deregulation while on Wall Street’s payroll.
In response to the widespread criticism, the American Economic Association earlier this year charged a five-person panel with looking into ethics and economics. The panel, chaired by Nobel prize-winning economist Robert Solow, asked for input from the broader membership, with an end of June deadline, but so far, Solow said, he has received at most a dozen responses.
Read today’s follow-up story “Economists display little interest in ethics code” by Kristina Cooke and Emily Flitter here.
Below, watch a clip from “Inside Job” featuring Frederic Mishkin, a former governor of the influential Federal Reserve Board in Washington, who discusses a glowing paper he wrote about Iceland’s financial system in 2006 — for which he was paid by the Icelandic Chamber of Commerce.
There are three things that drive a lack of ethics in economics:
1) Neoclassical economics is not Positive but Normative only. It does not consider what should be, but only how the economy seems to work. This produces economists that are less concerned with ethical questions, because there is no single standard for what is ethical in economics.
Is it ethical for a central bank to inflate, or engage in quantitative easing? Is it ethical for a government to run deficits? Is it ethical for a government to create social programs that will burden future generations disproportionately? Neoclassical economics offers no answers.
2) Academic economists have a need to publish in order to get tenure. This leads to substandard research where data is tortured to reach conclusions, or advanced math is applied in obscure ways to generate unusual findings that are at variance with common sense. They create fake worlds where their policy conclusions are valid, and pretend that our far more complicated world is like the fake world.
3) Economists need to make money using a flexible discipline, so as consultants they can justify the answer needed by the businessman. Consider the cost of capital. I have lost consulting engagements telling clients that their cost of capital is too low. But with Modern Portfolio Theory, you can justify almost any cost of capital if you are clever enough. It’s a fake world that bears little resemblance to the way real capital markets work — but it is standard theory… who cares whether it works or not?
The only thing that has changed for economists since the crisis is that a few of the younger ones see the need to reflect real financial markets in their models, but they are in the minority.
The economics profession needs wholesale change, first realizing that the application of advanced mathematics to the economy has not worked, and that we need to go back to studying economic history, and think more broadly about economics — give up the idea that physics-type mathematics has any relevance, and think more in terms of economies as ecologies. Economics should be more of a qualitative discipline, and recognized for the art that it is, rather than the science that it could never be.
The end of an era for British tabloids?
No sooner had our special report today on British tabloids hit the wire than Rupert Murdoch’s News Corp shocked everybody by announcing it would close down the 168-year-old News of the World.
Steven Barnett, professor of communications at London’s Westminster University, spoke for a lot of people when he said of the news: ”Astonishing. I’m completely gobsmacked. Talk about a nuclear option.”
The big question now is what happens to Rebekah Brooks, a close confidant of Rupert Murdoch and a friend of Prime Minister David Cameron. Her editorship of the News of the World a decade ago is at the heart of some of the gravest accusations about phone-hacking at the paper.
Our story by Mark Hosenball and Kate Holton asks what makes British tabloids tick — and what makes them different from newspapers in other countries.
Read the (updated) story “Murdoch row – why UK tabloids bin-dive and blag” in PDF format here.
smartermind, the problem is leadership at Rupert Murdoch’s media agencies. To simply fire the culpable people sends precisely the wrong message as those usually fired are fall guys. No CEO is ever dumb enough to admit wrong doing. That is a financial liability. By the way did you see the bonuses Rupert handed out to himself and his sons?
In the 1960s when I was growing up there was a “Rule of Sevens” the in the news business. A corporation or individual could not own more than seven TV stations, seven printed publications and sven radio stations. Of the almost 30,000 such media companies today, approximately 22,000 are owned by either GE, Westinghouse, Viacom, The Tribune, Fox News and Clear Channel. Their ownership is not always direct but through subsidiaries (conglomerates). The erosion of these rules by the FCC has been directed by every President since Carter.
Westinghouse, GE and Viacom are all military contractors for the U.S.. The Trib, Fox and Clear Channel are all heavy contributors to the RNC. I believe all six of these corporations to have excessive influence over our political process. They also have influence over what is reported as news and what is not. This is why the rest of the world refers to U.S. news agencies as corporate media. I think their assesment is correct. Every thing is about their bottom line. You know, fiduciary responsibility to the stock holders and all.
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