Category Archives: Financial Crisis

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SEC Watchdogs Watching Porn, Not Wall Street

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SEC porn XXX

According to an internal investigation, 33 SEC employees or contractors have been watching porn on company time and company computers. Not only are these obvious and widespread violations of SEC policy — and hopefully, the policy of every company outside of that specific industry — but the transgressions all occurred at a time when the financial companies that the watchdog was supposed to be watching were, ya know, busy burning down the global economy and all.

Rep. Darrell Issa (R-CA), the ranking member of the House Committee on Oversight and Government Reform, had this to say:

“It is nothing short of disturbing that high-ranking officials within the SEC were spending more time looking at pornography than taking action to help stave off the events that brought our nation’s economy to the brink of collapse … This stunning report should make everyone question the wisdom of moving forward with plans to give regulators like the SEC even more widespread authority. Inexplicably, rather than exercise its existing regulatory enforcement authority, SEC officials were preoccupied with other distractions.”

Exactly how widespread were these “distractions”? In at least two cases, it was certainly impairing regulators’ ability to do their jobs.

A regional office staff accountant tried to access pornographic websites nearly 1,800 times, using her SEC laptop during a two-week period. She also had about 600 pornographic images saved on her laptop hard drive.

Separately, a senior attorney at SEC headquarters admitted to downloading pornography up to eight hours a day, according to the investigation.

“In fact, this attorney downloaded so much pornography to his government computer that he exhausted the available space on the computer hard drive and downloaded pornography to CDs or DVDs that he accumulated in boxes in his office,” the inspector general’s report said.

For its part, the SEC issued this response:

“We will not tolerate the transgressions of the very few who bring discredit to their thousands of hardworking colleagues,” he said.

Depending on your moral sensibilities, the news may be worse for what it represents (employees who clearly aren’t fully committed to doing their jobs for 8 hours a day) than for what actually happened.

Either way, not a good look for the agency — both figuratively and literally.

Insurers Turning to Outside Help for Investments

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It seems more and more insurers are choosing to stick with writing policies and collecting premiums while leaving the management of their assets to others.

This is good news for Wall Street since its money managers have watched their asset bases dwindle during the downturn. According to industry estimates stated in The Wall Street Journal, insurers last year outsourced management of more than $1.1 trillion, up from about $980 billion in 2008.

Last year, the company chose BlackRock Inc. to look after $23 billion of bond securities of its nearly $160 billion portfolio. Allstate Corp. got out of the stock-picking business by hiring Goldman Sachs Group Inc. to manage a $5 billion equity portfolio out of its overall $100 billion investment pool.
Other big winners include Conning & Co., of Hartford, Conn.; State Street Global Advisors, part of State Street Corp.; and General Re-New England Asset Management, owned by Warren Buffett’s Berkshire Hathaway Inc.
Deutsche Bank AG and BlackRock are the two biggest money managers for insurers, controlling about $200 billion in insurance assets each, according to data from the money-management firms and Patpatia & Associates, a Berkeley, Calif., consulting firm that tracks insurers’ outside investments and advises them on outsourcing

Last year, the company chose BlackRock Inc. to look after $23 billion of bond securities of its nearly $160 billion portfolio. Allstate Corp. got out of the stock-picking business by hiring Goldman Sachs Group Inc. to manage a $5 billion equity portfolio out of its overall $100 billion investment pool.

Other big winners include Conning & Co., of Hartford, Conn.; State Street Global Advisors, part of State Street Corp.; and General Re-New England Asset Management, owned by Warren Buffett’s Berkshire Hathaway Inc.

Deutsche Bank AG and BlackRock are the two biggest money managers for insurers, controlling about $200 billion in insurance assets each, according to data from the money-management firms and Patpatia & Associates, a Berkeley, Calif., consulting firm that tracks insurers’ outside investments and advises them on outsourcing.

Both Deutsche Bank and BlackRock claim that 2009 was a record year for them in terms of new insurer assets. Goldman Sachs has seen their asset base increase 50% in just a few years. In 2007 Goldman had “five people on the team managing $32 billion of assets; it now has a staff of 38 managing $66 billion.” We can clearly see the increase in insurer assets under management with the following chart:

Picture 3

But not all insurers feel the need to outsource their asset management. Prudential Financial is one example. The company employes a staff of 3,000 to manage it’s $260 billion investment portfolio, along with billions of dollars in assets from other companies. Prudential is a unique exception however, as it considers asset management one of its core business units.

It remains to be seen if 2010 will surpass last year in terms of insurers turning to others to manage their investment portfolio, but all signs are point to yes as most insurers realize outsourcing is more economical.

Bailed Out Execs Now Have a Salary Cap

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Now that we all have universal health care (wait? It doesn’t really kick in for four more years? Oh), the White House has given us another piece of progress from the “probably should have happened a long time ago” file.

Yes, now that only a handful companies are still benefitting greatly from public assistance, the administration has agreed to cap the pay for the top 25 executives of the five companies “still receiving extraordinary aid” via bailout. And really, it’s more like three companies since it comes down to only AIG, GM and its financing company GMAC, and Chrysler and its financing company Chrysler Financial.

Feinberg’s announcement was the administration’s latest effort to deal with public outrage over bonus payments provided to executives at companies receiving billions of dollars in taxpayer support.

Detailing the 2010 pay rules, Feinberg said cash salaries would be capped at $500,000 for 82 percent of the top 25 executives at the five firms. These executives would have to receive any further compensation in stock. Feinberg is seeking to link the executives’ decisions more closely to the success of their companies.

In addition, “pay czar” Kenneth Feinberg is also mandating that 419 companies that benefitted from bailout money before February 17, 2009, give detailed information on any salaries in excess of $500,000 paid to executives in late 2008 and early 2009. What exactly Feinberg plans to do with this information eludes me, but companies have 30 days to comply.

Under the law, Feinberg cannot require executives to return any compensation such as 2008 bonuses that he deems excessive. But Feinberg said he would review the compensation paid during that period to see if any of it could be deemed “inconsistent with the public interest.”

I think many interested members of the public could tell Kenneth their thoughts on that topic immediately, but it’s nice to know that he will have some more detailed info into the matter next month.

greedy executive businessman

Before the cap, he would have been carrying three bags.

Treasury Secretary May Gain More Power

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capitol building

It looks as though the Treasury secretary may soon have a role overseeing individual financial companies. In a move to help monitor systemic risk throughout the financial arena, Senator Chris Dodd (D-Conn) is looking to release a bill next week that would overhaul financial regulation with sweeping reform.

Lawmakers and government officials have agreed that Washington should be working to identify risky activities that could threaten the entire system — a job no single regulator had during the lead-up to the financial crisis.

But because of the financial crisis, that job may now fall under the Treasury secretary’s duties, an idea both Dodd and Senator Richard Shelby (R-Ala), both of the Senate banking committee, favor since “the Treasury secretary has a higher international profile than most regulators” and because that position is more accountable to Congress.

Dodd’s new proposal represents a shift for the senator.

Last fall, he introduced a bill that would have created a separate Agency for Financial Stability. Dodd envisioned an agency responsible for identifying, monitoring and addressing systemic risks and with the authority to break up large, complex companies if they posed a threat to financial stability. He called for it to be governed by an independent chairman, appointed by the president and confirmed by the Senate, as he said, “to provide insulation from political manipulation.”

Shelby and other conservatives did not completely support the idea of a new agency. Dodd then “embraced the idea of a council of regulators, with the Treasury secretary at the head.

” But this bill will, and has, drawn criticism referring to the opportunity for political influence to play a part in the position.

If the bill should pass, it would mark significant milestone by granting a Cabinet member a measure of regulatory authority. For even more on this topic, don’t forget to check out the April issue of Risk Management, in which we will feature an in-depth piece on banking regulation and risk and what is being proposed by the Basel committee.