FinReg Roundup: Scott Brown "likes what he sees," Wall Street abandons Dems, and more

by: Chris Bowers

Tue Jul 06, 2010 at 11:26

Lots of news on Wall Street reform this morning:

Democrats are very close to the 60th vote on Wall Street reform.
With Maria Cantwell and Susan Collins already indicating they are voting "yes," Republican Scott Brown appears to be the 60th vote.  Annie Lowrey:

Speaking on a Massachusetts local television news broadcast, Sen. Scott Brown (R-Mass.) indicated that he's leaning towards voting yes on financial regulatory reform. "I'm going to be making a decision soon, but I'm liking what I see," Brown said.

This by no means rules out a Lucy and the football moment, where one of the Senators currently on record as favoring passage withdraws his or her support (this includes Democrats, too).  However, if all existing yes votes hold, and assuming Robert Byrd's replacement will be available next week, two defecting Republicans (Brown and Collins) would be enough to cancel out one defecting Democrat (Russ Feingold).

On Feingold's "no" vote
Speaking of Feingold, one question I have been wrestling with is if having credible progressive leverage on future Wall Street reform bills from Feingold's "no" vote is more valuable than the concession Scott Brown wrung out of the conference committee last week (replacing a $19 billion tax on banks over five years with a cancellation of TARP and increases in FDIC insurance fees to larger banks) because Feingold refused to vote yes.  Given the strong political ramifications of ending TARP, it very well might be.  Or, at least it isn't clear right now if Feingold's "no" vote is a net negative.

Wall Street donating less to Democrats
Democrats are getting less money from Wall Street:

A revolt among big donors on Wall Street is hurting fundraising for the Democrats' two congressional campaign committees, with contributions from the world's financial capital down 65 percent from two years ago.

The drop in support comes from many of the same bankers, hedge fund executives and financial services chief executives who are most upset about the financial regulatory reform bill that House Democrats passed last week with almost no Republican support. The Senate expects to take up the measure this month.

There are actually multiple reasons for this decline.  One reason, obviously, is Wall Street reform.  Another is that Chuck Schumer is no longer running the DSCC, and he had strong connections to NYC-area Wall Street doors.  A third explanation is that some of these wealthy donors are also upset over the lack of progressive progress in the Democratic agenda, and as such don't want to donate to party committees that will focus their spending on conservative Democrats.  A fourth explanation is that many wealthy donors simply like to back the party that appears headed to victory, and right now Democrats are far from a lock.

More what we won, lost and compromised on in the bill
In the extended entry, I have placed an addendum to last week's article detailing what reform advocates won, lost and compromised on in the Wall Street reform.  This addendum looks at the parts of the bill dealing with private pools of capital, investor protection, and executive compensation.  It was also prepared by several people who are not me, many of whom are associated with Americans for Financial Reform.

The simple fact is that there are a lot of good reforms in this bill, voting to maintain the status quo won't prevent a financial meltdown either, and that no one I know in the Wall Street reform community thinks this bill ends the overall fight.

Chris Bowers :: FinReg Roundup: Scott Brown "likes what he sees," Wall Street abandons Dems, and more
Private pools of capital

Regulation of private pools of capital
Private equity firms bought companies this decade that employ one of every 10 Americans, 10 million people. Hedge funds control approximately $2 trillion in assets. Yet both private equity - aka leveraged buyouts - and hedge funds operate entirely without government oversight. They are accountable to no one. Making these funds transparent allows for a big picture analysis of what risks they may pose to the system and can allow regulators to head off future financial crises. Transparency also ensures that investors can make educated decisions about whether to put their money into funds that historically strip companies of their assets and destroy them for the sake of dividends, or those that genuinely use capital raised to build long-term value and jobs.

We won:

  • Any firm with $150 million or more in assets will be required to register with the SEC and will be subject to periodic inspections by SEC examiners.
  • Funds must hire a chief compliance officer and set up policies to avoid conflicts of interest.
  • Hedge and private-equity funds will be required to report information to the SEC about their trades and portfolios that is "necessary for the purpose of assessing systemic risk posed by a private fund."
  • The data, kept confidential, could be shared with the Financial Stability Oversight Council that the legislation sets up to monitor potential shocks to the economic system.
  • Should the government determine a fund has grown too large or is too risky, it would be placed under Fed supervision.

We lost: Venture capital funds were exempted from the registration rule. In addition, funds will not be obligated to disclose information to investors and creditors as would have been required under the House-passed bill.

The fight goes on: It's hard to say there was a loss or a compromise in a battle that did not get fought. One major remaining battle is to ensure fairness in the tax code. Under current law, these companies are the beneficiaries of a massive loophole that has billionaires paying lower tax rates than the people who clean their offices. The House of Representatives has recently passed legislation that will mainly impact private equity and venture capital and evens it out somewhat but the bill has stalled in the Senate because of a Republican filibuster.

Advocates for working families are also considering how best to ensure that companies are not rewarded for asset-stripping and how  to encourage private investment to be used as a tool for building real value and American jobs.

Investor Protection
Fiduciary Duty

  • We won:
    • The SEC has the authority to insist that brokers   have a fiduciary duty to their clients - meaning that your investment advisor will have to give you advice that is best for your portfolio and financial future - not theirs.

  • We compromised:
    • The SEC must first conduct a six month study before issuing rules.

Stronger SEC rules and protections

  • We won:
    • Investor Advocate position at the SEC who will identify the most significant problem areas investors encounter with securities industry practitioners and products and ensure that investor concerns are incorporated into SEC rulemaking decisions.
    • Improved disclosure to investors.  SEC has new authority to test rules or programs by gathering information and communicating with investors and other members of the public.  This type of testing has the very real potential to improve the clarity and usefulness of the disclosures that our securities regulatory scheme relies upon.  The legislation also includes a study of financial literacy and clarifies the SEC's authority to require disclosure before the purchase of certain investment products.
    • Strengthened  SEC enforcement tools.  This extensive package of new tools includes or clarifies authority for the Commission to
      • bring aiding and abetting cases under all of the securities laws;
      • authorize nationwide service of subpoenas;
      • impose sanctions on individuals who commit violations while associated with a regulated entity but who are no longer associated with that entity; ,
      • go after wrongdoers who harm U.S. investors no matter where the fraud is based or who commit significant acts in furtherance of a fraud within the United States, even if the victims are located elsewhere.

    • We lost:
      • Weakens protections against accounting fraud.  The conference report incorporates three provisions that undermine the Sarbanes-Oxley Act's protections against accounting fraud by carving exemptions out of the law's requirement that the financial statement audits of all public companies include an evaluation by the auditor of the company's internal controls to prevent accounting fraud and promote accurate financial reporting.  
      • Equity-indexed annuities oversight loophole. Equity-indexed annuities are exempt from securities regulation and oversight.  Equity-indexed annuities are hybrid products that include elements of both insurance and securities, but are sold primarily as investments. Preventing the SEC from adopting appropriate regulations to supplement state insurance department oversight will deny investors needed protections from one of the most abusively sold products on the market today.

    Corporate governance:

    • We won:
    • Proxy access:  The SEC will adopt rules under which shareholders would be able to nominate directors using the company's proxy

  • We lost: Majority voting for directors of corporate boards- Reformers supported a Senate provision that was taken out of the final bill that would have required directors to be elected by a majority of votes cast to ensure that shareowners' votes count and make directors more accountable to the company's owners.

Executive Compensation

  • We won:
    • Say on pay The bill requires  a non-binding shareholder vote, at least once every three years, to approve the compensation of named executive officers at annual or other shareholder meetings for which the SEC requires compensation disclosure, and a non-binding vote, at least once every six years, to determine the frequency of say-on-pay votes.
    • Disclosure of say-on-pay and golden parachute votes The bill would require certain institutional investors to disclose how they vote with respect to company proposals regarding say-on-pay, frequency of the say-on-pay vote and golden parachute compensation.
    • Shareholder approval of golden parachute compensation The bill includes new disclosure and shareholder approval provisions relating to "golden parachute" arrangements.  Specifically, the bill would mandate disclosure on the proxy of any compensation arrangement with a named executive officer, including the aggregate amount of the potential payments, if the arrangement is based on or related to the M&A transaction.  In addition, the bill would require a non-binding shareholder vote with respect to any such arrangement, unless previously subject to a say-on-pay vote.  
    • The Compensation Committee and its Advisors The bill would require compensation committee members to satisfy independence standards to be established by the stock exchanges.  In addition, a compensation committee could engage compensation consultants, legal counsel or other advisers to the compensation committee only after considering factors to be promulgated by the SEC that might affect the independence of such advisers.  Finally, the bill would authorize compensation committees to retain independent advisers and would require the committees to oversee the advisers they retain.  
    • Clawbacks.  The bill would require companies to adopt a clawback policy applicable in the event of an accounting restatement due to material noncompliance with financial reporting requirements and providing for the recovery of amounts in excess of what would have been paid under the restated financial statements from any current or former executive who received incentive compensation (including stock options) during the 3-year period preceding the date of the restatement.  
    • Additional Disclosure. Additional requirements on proxy disclosures include
      • whether the compensation committee has retained a compensation consultant whether the work of the compensation committee has raised any conflicts of interest,
      • demonstrating the relationship between executive compensation and financial performance,
      • the ratio between the CEO's compensation and the median compensation of all other employees
      • whether employees or directors may engage in hedging transactions on company stock.

  • We compromised:
    • Earlier versions of the bill required an annual say-on-pay vote.  
    • The say-on-pay vote is non-binding

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Brown's happiness might indicate it's the lack of Progressive progress... (0.00 / 0) the cause of shrinking donors.
Surely Democrats at the 25K levels can be just as upset as we of the $25 level are. Probably more so.

Democrats are well known for their weak kneed capitulations. Capitulations that we used to blame on not enough seats/votes.
But the 2008 election was a serious wake up call to all of us. It was a banner year for Democrats, but since then and with more power/seats/votes than ever before they've managed to not only to get very little done, they've  f***ed up their own platform beyond all recognition.

I'm disgusted at my support of Obama. I feel he lied to us. I thought I elected him and not Rahm Emanuel.
Had I donated 25K to him, I'd have moved to British Columbia by now.  

Nationalism is not the same thing as terrorism, and an adversary is not the same thing as an enemy.


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