Receiving Wide Coverage ...
SEC Shredded: Rolling Stone's Matt Taibbi gives us a crushing assessment of the Securities and Exchange Commission's integrity in a piece that describes the systematic destruction of closed "matters under inquiry" over the past 17 years. The problem was "brought to the attention of Congress in July, when an SEC attorney named Darcy Flynn decided to blow the whistle."
In a turning of the usual tables, the daily papers followed Taibbi's magazine story. The Journal reports the SEC destroyed "at least 9,000 documents" covering probes of "Wall Street banks and hedge funds." The Times notes that "the S.E.C. is the very agency that is charged with making sure that Wall Street firms retain records of their own activities, and has brought numerous enforcement cases against firms for failing to do so."
The list of destroyed cases that Flynn submitted is "like looking through an infrared camera at a haunted house of the financial crisis, with the ghosts of missed prosecutions flashing back and forth across the screen" writes Taibbi.
He also details the cozy relationships between SEC lawyers and the subjects they are investigating: "The fact that the SEC trusted AIG's lawyers to investigate the matter shows the basic bassackwardness of the agency's approach to these crash-era investigations."
The quote from Harry Markopolos, the fraud examiner famous for breaking the Madoff case, nicely sums up what got lost in the destruction: "The reason you would want to keep them is to build a pattern. That way, if you get five MUIs over a period of 20 years on something similar involving the same company, you should be able to connect five dots and say, 'You know, I've had five MUIs - they're probably doing something. Let's go tear the place apart.'"
Wall Street Journal
The European Central Bank Wednesday loaned an unidentified European bank $500 million for a week, which the paper says shows that European banks may find it difficult to get dollar funding. Of course, the ECB loan was more expensive than it would have been if the bank was able to borrow elsewhere. "It was the first time for that type of borrowing since Feb 23," the paper said. The Fed is keeping a close eye on European bank's U.S. units to insure the debt crisis stays off American soil.
Is it panic time? A seasonally adjusted 1.7% increase in the benchmark M2 gauge of money supply for the week ending August 1 may signal a panic in markets. It was the third largest weekly rise in M2, trailing only the week after the 9/11 attacks and the week after Lehman collapsed, the "Ahead of the Tape" column notes. And risk aversion was a key to the stock market crash that triggered the Great Depression, according to a 1983 research report by current Fed Chairman Ben Bernanke.
Could the yield on the 10-year Treasury really fall below 2%? Two primary dealers believe it will and could end the year below 2%. A survey showed dealers expected a year-end median yield on the notes of 2.5%, off from a 3.6% prediction in June.
New York Times
The Justice Department and the Securities and Exchange Commission are both investigating Standard & Poor's for how it rated mortgage securities in the years before the economic crisis. The SEC probe also involves the Moody's and Fitch ratings agencies. The S&P probe had picked up steam even before this summer's downgrade of U.S. government debt by S&P, the Times cites anonymous sources. One expert on ratings agencies said their business model is conflicted because the agencies make their money off the entities they rate, not the investors who use the ratings.
In a recent meeting hosted by the U.S. Chamber of Commerce, which was dubbed "Dodd-Frank Excesses," lawyers and Wall Street trade groups explored potential new lawsuits to block Dodd-Frank. One road to a legal challenge to the entirety of Dodd-Frank may be a July federal appeals court ruling striking down the SEC's proxy-access rule, which is part of Dodd-Frank. Lawyers said it makes more sense to chip away at pieces of Dodd-Frank, rather than attacking the entire law itself, a strategy that would be too costly and take too much time.