The SEC and the American economic system
George Bush has nominated Christopher Cox to head up the SEC, now that the current chairman, William Donaldson, is resigning. According to Reuters, Donaldson decided to resign "amid mounting criticism from some in business for his aggressive post-Enron reforms."
Having just seen the documentary film Enron: The Smartest Guys in the Room, the mind-boggling scope and nature of the Enron scandal is rather fresh in my mind. This was one of the greatest corporate scandals in American history, if not the greatest. If anything had ever suggested to believers in modern capitalism that reforms were needed, it would have been this scandal. Thus it is interesting, but not surprising, to see that Bush and his cronies ultimately don't see the need for any such reforms, to the point of actively but quietly opposing them; and now that Enron is yesterday's news, they plan on making sure that the country's corporate elite are back to business as usual.
What is interesting about this is why Bush and his corporate friends would wish to establish as few rules as possible governing corporate investment. After all, isn't establishing investor confidence critical to the success of the entire system of corporate ownership? And aren't rules and regulations and organizations like the SEC designed to ensure give investors confidence in the fairness of the system, to make sure that it isn't rigged? Isn't that why we have laws against, for example, insider trading?
All true. And yet, for the rich corporate elite, such rules and regulations still rankle--because investor confidence is only one side of the equation. The other side of the equation is the social darwinist ethic that underlies the modern American economic system, and which sustains and inspires its ruling class. This corporate ethic on the one hand needs the perception of a system of fairness to survive, and yet on the other its very ethic resists actual fairness at every turn. We have a system in which the acquisition of wealth by the owners of capital is the guiding principle. Anything that corporations and their governing elite can get away with in its pursuit of greater profits is acceptable.
Consider that there is nothing "fair" about either suppressing unionization or predatory pricing, but these are both standard business practices by Wal-Mart and other successful corporations. Nor is there anything "fair" about the extremely high salaries that CEOs get in relation to their lowest paid workers. And there is certainly nothing "fair" about incompetent CEOs who get fired and yet receive huge severance bonuses (such as Carly Fiorina, who was fired earlier this year as CEO of HP but received a severance package worth over $20 million).
It's isn't about fairness--it's about acquiring as much money for themselves as possible. That's what underlies capitalism. In order for the ruling class to make lots and lots of it, they have to exploit the system (and the people who work within the system) in every way possible. Thus the raw, naked, and exploitive nature of global capitalism both hates fairness, and yet needs at least some perception that fairness exists. As a result, it reluctantly submits to regulation by a government body like the SEC. But the key word is reluctantly. Perhaps what matters more is the appearance of fairness than the actuality. As long as people think that the SEC makes the system fair, that's more important than any actual fairness.
Bush himself has an interesting history with respect to the SEC. Back when he was on the board of directors at Harken, he sold 212,140 shares of Harken stock--just two months before the company reported a $23.2 million loss. This was clearly a case of insider trading, not unlike the what his friend Kenny Lay did at Enron. On April 20 of the same year, just two months before Bush sold that stock, Harken President Mikel D. Faulkner wrote to the board of directors (which included Bush) that the company was facing a "liquidity crisis." On May 18, the Senior Vice President, Bruce Huff, wrote a letter to senior officers (including Bush) announcing more severe problems with the company's financial situation. Huff told the SEC a year later that "By June 1990, the company was constrained by its worsening cash and credit situation. ... The company was in the midst of the severe cash crisis."
So Bush sold that stock on insider information, raising enough money for him to pay off a loan for his interest in the Texas Rangers baseball team, and thereby became a multimillionaire.
The SEC performed a perfunctory investigation of Bush as a result of this, but Bush was lucky enough to have his father as President at the time, so the SEC then closed the investigation--but, interestingly enough, made a point of saying that even though they weren't going to investigate him any further, Bush actually wasn't cleared of anything. According to the SEC, their decision not to press charge "must in no way be construed as indicating that the party has been exonerated or that no action may ultimately result." But there's more. The very same man who had served as SEC general council during the time period of that perfunctory SEC investigation, a man named James R. Doty, was the lawyer who then represented Bush when Bush sold the Texas Rangers.
Bush's history with the SEC explains why he has come down on the side of less regulation to ensure "fairness". He has no illusions about a "fair" system. If the system were "fair", he wouldn't have become a rich man, after all. The "fairness" that is supposed to inspire investor confidence is a sham, but it servers as a convenient fiction that helps to keep the engine of capitalism going. It allows a small elite at the top to get richer, and that's what it is all about.
Having just seen the documentary film Enron: The Smartest Guys in the Room, the mind-boggling scope and nature of the Enron scandal is rather fresh in my mind. This was one of the greatest corporate scandals in American history, if not the greatest. If anything had ever suggested to believers in modern capitalism that reforms were needed, it would have been this scandal. Thus it is interesting, but not surprising, to see that Bush and his cronies ultimately don't see the need for any such reforms, to the point of actively but quietly opposing them; and now that Enron is yesterday's news, they plan on making sure that the country's corporate elite are back to business as usual.
What is interesting about this is why Bush and his corporate friends would wish to establish as few rules as possible governing corporate investment. After all, isn't establishing investor confidence critical to the success of the entire system of corporate ownership? And aren't rules and regulations and organizations like the SEC designed to ensure give investors confidence in the fairness of the system, to make sure that it isn't rigged? Isn't that why we have laws against, for example, insider trading?
All true. And yet, for the rich corporate elite, such rules and regulations still rankle--because investor confidence is only one side of the equation. The other side of the equation is the social darwinist ethic that underlies the modern American economic system, and which sustains and inspires its ruling class. This corporate ethic on the one hand needs the perception of a system of fairness to survive, and yet on the other its very ethic resists actual fairness at every turn. We have a system in which the acquisition of wealth by the owners of capital is the guiding principle. Anything that corporations and their governing elite can get away with in its pursuit of greater profits is acceptable.
Consider that there is nothing "fair" about either suppressing unionization or predatory pricing, but these are both standard business practices by Wal-Mart and other successful corporations. Nor is there anything "fair" about the extremely high salaries that CEOs get in relation to their lowest paid workers. And there is certainly nothing "fair" about incompetent CEOs who get fired and yet receive huge severance bonuses (such as Carly Fiorina, who was fired earlier this year as CEO of HP but received a severance package worth over $20 million).
It's isn't about fairness--it's about acquiring as much money for themselves as possible. That's what underlies capitalism. In order for the ruling class to make lots and lots of it, they have to exploit the system (and the people who work within the system) in every way possible. Thus the raw, naked, and exploitive nature of global capitalism both hates fairness, and yet needs at least some perception that fairness exists. As a result, it reluctantly submits to regulation by a government body like the SEC. But the key word is reluctantly. Perhaps what matters more is the appearance of fairness than the actuality. As long as people think that the SEC makes the system fair, that's more important than any actual fairness.
Bush himself has an interesting history with respect to the SEC. Back when he was on the board of directors at Harken, he sold 212,140 shares of Harken stock--just two months before the company reported a $23.2 million loss. This was clearly a case of insider trading, not unlike the what his friend Kenny Lay did at Enron. On April 20 of the same year, just two months before Bush sold that stock, Harken President Mikel D. Faulkner wrote to the board of directors (which included Bush) that the company was facing a "liquidity crisis." On May 18, the Senior Vice President, Bruce Huff, wrote a letter to senior officers (including Bush) announcing more severe problems with the company's financial situation. Huff told the SEC a year later that "By June 1990, the company was constrained by its worsening cash and credit situation. ... The company was in the midst of the severe cash crisis."
So Bush sold that stock on insider information, raising enough money for him to pay off a loan for his interest in the Texas Rangers baseball team, and thereby became a multimillionaire.
The SEC performed a perfunctory investigation of Bush as a result of this, but Bush was lucky enough to have his father as President at the time, so the SEC then closed the investigation--but, interestingly enough, made a point of saying that even though they weren't going to investigate him any further, Bush actually wasn't cleared of anything. According to the SEC, their decision not to press charge "must in no way be construed as indicating that the party has been exonerated or that no action may ultimately result." But there's more. The very same man who had served as SEC general council during the time period of that perfunctory SEC investigation, a man named James R. Doty, was the lawyer who then represented Bush when Bush sold the Texas Rangers.
Bush's history with the SEC explains why he has come down on the side of less regulation to ensure "fairness". He has no illusions about a "fair" system. If the system were "fair", he wouldn't have become a rich man, after all. The "fairness" that is supposed to inspire investor confidence is a sham, but it servers as a convenient fiction that helps to keep the engine of capitalism going. It allows a small elite at the top to get richer, and that's what it is all about.
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