My idea was to use this intro as an analysis of the Republican presidential debate that occurred on Wednesday night. I was going to offer analysis of the ideas put forward by the candidates on the deficit and debt and the big debt ceiling battle that took place a couple of months ago. Well, only one candidate, Nikki Haley, mentioned spending. She also gets extra recognition because she mentioned earmarks. That was it. In fact, the moderators didn’t ask the candidates what they would do about the overspending or the fact that Medicare and Medicaid are going broke. A country that has a $1.7 trillion deficit and a debt that eclipses $32 trillion and two hours with only one mention. It was a missed opportunity for all candidates to lay out their vision of federal spending and the size of government. There was a question about UFO’s… if that doesn’t tell you all that you need to know about this week’s debate.


Summer Reading: Securities and Exchange Commission

Everyone knows the type: the banker, money manager, or day trader who cannot put the phone down. Even adrift in the choppy waters at the beach, they are more interested in waves of short-selling than the real (scary) waves right in front of them. Adding to the turmoil, recent, misguided policies and mission creep at the Securities and Exchange Commission (SEC) have created a perfect storm of market uncertainty and diminished returns for investors, retirees, and pension systems across the country. Millions of hopes and dreams are now beached in the wake of wrongheaded government intervention in financial markets. To help policymakers stay away from rolling billows of bank-breaking policies, the Taxpayers Protection Alliance (TPA) presents "Summer Reading: Securities and Exchange Commission." The SEC was born in the 1930s, just a few years after the Wall Street Crash of 1929 plunged the U.S. into the Great Depression. The SEC was an integral part of then-President Franklin D. Roosevelt’s New
Deal program and was set up to prevent the perceived frauds and abuses that hampered U.S. (and global) financial markets. While these market shenanigans undoubtably existed, it was far from assured that regulators had the wherewithal to stamp out abuses. Former SEC Secretary Jonathan Katz notes, “Mark Twain once said that history does not repeat itself, but it often rhymes. The recent and not-so-recent history of the SEC confirms the wisdom of Twain. In every decade since the 1950s there have been major frauds that went undetected until it was too late. In fact, for each of the scandals of the recent past one may find an analogous scandal from an earlier time. Before the NASDAQ market makers and New York Stock Exchange specialists, there was the Re and Re scandal in the late 1950s. Before Bernard Madoff there was Bernard Cornfeld. Before Enron and Worldcom there was Equity Funding. Before the SEC failed to listen to Harry Markopolous, they failed to listen to Ray Dirks.

It is, of course, all-too-easy to blame agency inadequacies on a lack of funding and manpower. But, even after “Chairman Cary and Chairman Manuel Cohen led a massive effort to rebuild and restore the effectiveness of the SEC” during the 1960s, “a vibrant SEC could not and did not prevent major frauds from occurring... The most notable of these cases was the Equity Funding fraud, in which investors' losses were estimated at $300 million (a lot of money in 1973). Equity Funding was a New York Stock Exchange-listed insurance company that also sold mutual funds. Its dramatic growth was fueled by its creation of false insurance policies, which the company then turned around and sold to reinsurers. Incredibly, the fraud was known by a large number of its employees.” The SEC caught wind of this but failed to act. It was only after a major private organization (the New York Stock Exchange) suspended trading that the SEC acted. In more recent memory, financier Bernie Madoff swindled investors and
stole $65 billion as part of the biggest investment fraud in U.S. history. Madoff was eventually brought to justice, pled guilty to a slew of federal felonies in 2009, and spent twelve years in the slammer before passing away at the age of 82. But, as former Chicago Tribune columnist Steve Chapman noted back in 2009, the SEC seriously bungled investigations into Madoff. According to Chapman’s account, “if regulators had been paying attention, they would have detected what was going on, right? After all, as one expert noted, Madoff was conspicuously unable to attract a lot of big institutions. ‘There's no Harvard management, there's no Yale, there's no Penn … no State of Texas or Virginia retirement system,’ James Hedges IV of LJH Global Investments told Fortune magazine. Why not? ‘Because when you get to page two of your 30-page due diligence questionnaire,’ said Hedges, ‘you've already tripped eight alarms and said, 'I'm out of here.'’ Regulators, it turns out, were not oblivious to what
was going on. Nor were they lacking in means to rein Madoff in. In fact, as The Wall Street Journal reported the other day, the Securities and Exchange Commission had been suspicious of his methods for a long time. It had even heard in 2005 from a competing investment executive who drafted a 21-page report arguing that Madoff was running a Ponzi scheme.”

A major issue today at the SEC today is mission creep. The agency and its overzealous staff are venturing off into areas it doesn’t belong. TPA’s project, “SEC Mission Creep” shines a light on the incremental, but continuous, venturing by the SEC into areas of public policy for which it has no mandate or congressional authority. In the case of new climate-related disclosure regulations, for example, the SEC is straying from its mission by inserting itself unnecessarily into matters of climate change policy. If the Biden administration has its way, the SEC will soon force public companies to spend as much as $10.2 billion annually evaluating and reporting their direct and indirect impacts on climate. The SEC was never intended to act as a climate regulator, but its latest proposal would mandate that public companies report on their direct greenhouse gas emissions, emissions from their use of electricity for steam, heat or cooling, and even indirect emissions from their suppliers and those
who transport their goods. This has led to widespread criticism from elected officials and the business community who are highly concerned about the SEC’s attempt to stray from its mission by inserting itself unnecessarily into matters of climate change policy.

The SEC has also unwisely pushed the issue of shareholder mandates to the forefront of public policy. In a July 2023 letter to Congress, TPA noted, “[c]ompanies, in consultation with their shareholders, should be free to manage their businesses as they see fit. This includes efforts regarding various societal issues tangential to their core business. However, it has become clear that public policy, specifically [SEC] regulation, is playing a significant role in driving political and policy outcomes pertaining to publicly traded corporations in an extra-legislative manner. In addition, this dynamic is costing companies millions of dollars in additional compliance costs that are ultimately passed on to consumers... SEC regulations and guidance on shareholder proposals currently establish a relatively low bar for submission and inclusion of proposals into companies’ proxy statements. With this process predominantly governed by regulation and guidance, the SEC has wide latitude to raise or
lower this bar unilaterally. Over the last few years, the number of proposals submitted to companies has risen significantly while the numbers excluded by the SEC and those ultimately passed by shareholders have fallen. This suggests that the SEC has recently lowered the bar for shareholder proposals, resulting in an increase in the quantity but decrease in the quality of shareholder submissions.” By enabling shoddy shareholder submissions, the SEC has essentially been regulating through the backdoor by allowing activists to dictate company policy based on objectives that “are inherently subjective and center on various contentious societal issues, such as those advanced by environmental, social, and governance (ESG) investors.”

The compulsive stock-checkers of the world can rest easy knowing that TPA and like-minded groups are keeping a look out for whitecaps and rip tides in federal regulatory policy. So, buy low and buoy high!


BLOGS:



** Monday: Congress must close this Fourth Amendment loophole ([link removed])
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** Tuesday: Loss ([link removed]) Congress must close this Fourth Amendment loophole ([link removed])
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** Wednesday: Tort Reform Helps Businesses and Consumers ([link removed])
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** Thursday: The European Carbon Tariff Fails on Both Environmentalist and Economic Terms ([link removed])

Friday: Summer Reading: Securities and Exchange Commission ([link removed])
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MEDIA:

August 20, 2023: The American Institute for Economic Research ran TPA’s op-ed, “Adam Smith Provided a Moral Foundation for Workers’ Freedoms

August 21, 2023: WBFF Fox45 (Baltimore, Md.) interviewed me about Maryland’s deficit.

August 22, 2023: Inside Sources ran TPA’s op-ed, “Tort Reform Helps Businesses and Consumers.”

August 22, 2023: The Center Square quoted TPA in their article, “Policy experts offer forecasts on Durham County's guaranteed income program.”

August 24, 2023: Townhall.com ([link removed]) ran TPA’s op-ed, “The European Carbon Tariff Fails on Both Environmentalist and Economic Terms.”


August 24, 2023: I appeared on WBOB 600 AM (Jacksonville, Fla.) to talk about the Republican debate and ESG investing.

August 24, 2023: WBFF Fox45 (Baltimore, Md.) interviewed me about stadium subsidies for the Baltimore Ravens and Orioles.

August 25, 2023: TPA Policy Analyst David McGarry appeared on Austin Petersen’s Wake Up America podcast to discuss the dangers of the Kids Online Safety Act.

August 25, 2023: I appeared on KRC 550 AM (Cincinnati, Ohio) to talk about the United States Postal Service, the Republican Presidential debate, and carbon tariffs.

Have a great weekend!

Best,
David Williams
President
Taxpayers Protection Alliance
1101 14th Street, NW
Suite 1120
Washington, D.C. xxxxxx
www.protectingtaxpayers.org ([link removed])

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