Another Obama neolib fail at the SEC

Obama's pick to run the Securities and Exchange Commission seems to have come close to obstruction of justice in the Bernie Madoff case:

After Bernard L. Madoff’s giant Ponzi scheme was revealed, the Securities and Exchange Commission went to great lengths to make sure that none of its employees working on the case posed a conflict of interest, barring anyone who had accepted gifts or attended a Madoff wedding. 

But as a new report made clear on Tuesday, one top official received a pass: David M. Becker, the S.E.C.’s general counsel, who went on to recommend how the scheme’s victims would be compensated, despite his family’s $2 million inheritance from a Madoff account.
Mr. Becker’s actions were referred by H. David Kotz, the inspector general of the S.E.C., to the Justice Department, on the advice of the Office of Government Ethics, which oversees the ethics of the executive branch of government.

The report by Mr. Kotz provides fresh details about the weakness of the agency’s ethics office and reveals that none of its commissioners, except for Mary L. Schapiro, its chairwoman, had been advised of Mr. Becker’s conflict.

It says Ms. Schapiro agreed with a decision to keep Mr. Becker from testifying before Congress, where he would have disclosed his financial interest in the Madoff account.

This is simply not acceptable. And, it's not unique, certainly not to Mary Schapiro.

Columbia Journalism Review has even more background. This all gives a certain degree of credibility to Ron Suskind's new book. Either Obama is incompetent for listening to others' advice in his financial oversight picks, or we're gathering yet more evidence that he personally is that much in bed with Wall Street. Take your pick.

And, folks, let's be honest. A fair amount of this didn't start with Obama.

But, it didn't start with Bush, either.

Predatory lending, if not necessarily in the venue of subprime loans? It got a bit of start under H.W. Bush and accelerated under Clinton. An overview of the background is here.

Both parties do it. They have for years. And until you stop voting for Democrats as well as Republicans, they'll still do it. Certainly, at a minimum, until we have national public financing of Congressional elections.

NOW Paulson wants to do something about predatory mortgages

Treasury Secretary Henry Paulson wants tougher mortgage lending rules. I’m not against that at all, but, it’s been nearly two years since you took office. Even as the subprime market was starting to implode, we had predatory lenders still seeking out easy marks, and nothing was being done.

Hell, for that matter, how much money did Goldman Sachs make in financial derivates related to predatory lending, when you were running it?

That said, let’s get to what he does want.

“Regulations needs to catch up with innovation and help restore investor confidence but not go so far as to create new problems, make our markets less efficient or cut off credit to those who need it,” Paulson said.

One is “strong nationwide licensing standards” for mortgage brokers. Nice, but won’t happen without a huge fight that Paulson’s boss has no interest in, in terms of political philosophy.

Tougher oversight of mortgage originators, including things such as mortgages offered without income checks, etc.

Better due diligence on originators of securitized mortgage-based credit issuers. Good luck, there. I assume you’re talking about the CDOs and other alphabet soup financial derivatives that have recently gained notoriety. They’ve been around more than a decade. Even if Goldman Sachs didn’t have a lot of exposure to them, I didn’t hear any big worries about them from you when you were in the private sector.

Ban banks: As usual, Ted Rall hits one out of the park

In his latest offing, the usually spot-on, hard-hitting Rall details how corrupt much of the “lending industry” has become over college student loans. Read for why we should, indeed, ban banks, at least from the student loan process.

The current student loan scandal highlights just how corrupt the system has become. It began when Attorney General Andrew Cuomo announced that New York State is investigating a company called Student Loans Xpress for sweetheart-deal stock transactions designed to enrich the company and corrupt financial aid officers at the expense of clueless college kids and their parents. (Student Loan Express' corporate parent is the CIT Group. CIT is a former subsidiary of Tyco, which itself became embroiled in a corporate scandal a few years back.)

According to Cuomo, financial aid officials at Columbia University, the University of Texas and the University of Southern California were paid kickbacks as compensation for steering students to them. (Disclosure: I'm a Columbia alum.) The three bought stocks and options at insider prices in Education Lending Group, the parent company of Student Loan Xpress until 2005, when it was sold to CIT. They then sold them at a profit that would make Donald Trump drool. David Charlow, executive director of financial aid at Columbia, paid $1 for each of 7,500 shares of ELG and dumped the stock two years later at $10 a share--a 450 percent annual rate of return on his "investment."

Student Loan Xpress, which uses phone-forwarding wizardry to masquerade as some institutions' financial aid offices, is recommended to students as a “preferred lender” at the three universities enmeshed in the scandal. As young, novice borrowers--most kids sign their first loan document at the tender age of 17--they trust their colleges' recommendations. "There's an implicit assumption that the financial aid office is an impartial, informed intermediary," says education expert Michael Dannenberg of the New America Foundation. “What we're finding out now is that some colleges and some financial aid administrators may not be so impartial.”

The mess is spreading. The Johns Hopkins University admits that its director of student financial services collected $65,000 in cash and tuition payments from Student Loan Xpress. The dean of financial aid at Widener University in Pennsylvania took in $80,000. John Ryan, chancellor of the 64-campus State University of New York (SUNY)system, is under scrutiny for his spot on the board of directors of CIT, where he collects $150,000 a year on top of his $340,000 salary from SUNY.

Even the feds couldn't resist dipping their paws into the student loan jar. Matteo Fontana, the federal Education Department official charged with overseeing student lending, made a cool $100,000 from a sale of ELG stock. The Bush Administration shouldn't be too surprised at Fontana's conflict of interest. (No pun intended.) It hired him straight out of Sallie Mae, a student loan mill that rakes in spectacular profits on 10 million student loans worth $126 billion.

I have to say I am so glad I got done with college more than 20 years ago, and grad school for a useless professional degree 15 years ago.