Economiasma – Recalling Stinky SOX? – December 5, 2011 – by Bill Dahl

Here’s my Weekly Whiff of Economic $cents for December 5, 2011:

It only took 60 Minutes (Steve Kroft – correspondent, James Jacoby – producer) less than 35 minutes on their December 4, 2011 broadcast entitled Prosecuting Wall Street, to remind us that “justice” can also be spelled “just us.”

It also brought back to mind a phrase from author and investigative journalist, Suzanne McGee. McGee’s phrase is “willful amnesia.” She used it in the following context in her most recent book:

  “In place of the magical thinking that dominated Wall Street in the years leading up to the near collapse of the financial market had arisen a kind of willful amnesia. Surely, the large legacy institutions, those that were caught up in the storm but had so far survived more or less intact) reasoned, the events of 2007 and 2008 were nothing more than a giant nightmare from which they were awakening. Announcing Citigroup’s first-quarter results in early 2009,  Vikram Pandit, its CEO, suggested that write-downs on troubled assets may be largely behind us.” (1) (emphasis above is mine – .p.310)

Well, nightmares just bad dreams – they aren’t real, Financial crises are.The first things humans seem to do when encountering an unseemly odor is to is activate our willful amnesia defense mechanisms: (think stinky socks for a moment) —

a. Plug your nose.

b. Hold your breath.

c. Move away from the smell.

d. Try to forget the experience as quickly and completely as possible.

e. Draw a breath of fresh air when “you’re in the clear.”

Supposedly, The Sarbanes Oxley Act of 2002 (aka SOX) was designed to prevent future financial scandals (lying to investors, the government, employees – and the world etc.), by certifying the financial integrity of a company’s financial reporting, internal controls and procedures. The financial scandals at Worldcom, Tyco and Enron (to name a few stinky socks whose miasma decimated the financial viability of millions of real people and vaporized billions of dollars) motivated the genesis of this legislation, prescribing criminal and civil penalties for violations by companies and individual officers of companies. In a nutshell, SOX was intended to prevent the defense of willful amnesia by publicly traded companies and their officers in the future.

Well, here we are…in the future. As the 60 minutes segment of December 4, 2011 vividly pointed out last night, not one of the major financial institutions (specifically, Countrywide and Citigroup profiled by 60 Minutes) has been prosecuted under SOX. The U.S. Justice Dept. was to have used the framework and penalties woven into SOX as the detection system required to catch the whiff of festering impropriety, investigate the source of the $cent,  and cleanse the situation before those relying on falsehoods become victims of the toxins produced.

According to 60 Minutes, SOX has become SO what! Clearly, the U.S. Justice Dept. has succumbed to the human tendency toward willful amnesia – avoiding the stench detected by two credible whistle blowers (whom the U.S. Justice Dept. has never spoken with).

America is struggling mightily to forget the $cent of the financial crisis — still wafting about us. The gains from the crisis were privatized (the equilibrium of financial system was restored), while the losses were socialized (that means you and I, your family and mine — taxpaying American citizens ). Many of us still have conventional mortgages whose values were grossly inflated by the bubble—whose real property values underlying said mortgages have been decimated by the same.

Justice or Just us? Still stinks doesn’t it?



(1) Excerpt from McGee, Susan Chasing Goldman Sachs – How The Masters of the Universe Melted Wall Street Down … and Why They’ll Take Us to The Bring Again, Crown Business New York, NY Copyright © 2010 by Suzanne McGee, p.310

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