Movement on the Neo-Pecora Front: Senator Warren Rebukes Regulators
By Staff News & Analysis - February 20, 2013

Senator Warren's rebuke of regulators goes viral … Democratic Senator Elizabeth Warren's strong criticism of U.S. financial regulators last week has inspired a liberal political action committee to launch an online petition urging the Securities and Exchange Commission to take more Wall Street banks to trial. The petition, introduced by the Progressive Change Campaign Committee on Sunday, came a few days after the freshman senator from Massachusetts made her debut on the influential Senate Banking Committee. In an exchange that drew applause from protesters in the audience, Warren demanded to know the last time banking and financial market regulators had taken Wall Street banks to trial, as opposed to settling the cases. – Reuters

Dominant Social Theme: It's about time these crooks were brought to justice. And central banking had nothing to do with it.

Free-Market Analysis: We've regularly tracked the progress of what we call the neo-Pecora meme – elite dominant social theme, really – and now we note Senator Elizabeth Warren's contribution. Reuters, an aggregate backer of regulatory democracy, is giving her latest outburst significant play.

Ferdinand Pecora was the cigar-chomping appointment of Franklin Delano Roosevelt who presided over the Pecora Commission back in the 1930s. Under Pecora, the SEC was created and Wall Street regulatory functions were divvied up under the so-called self-regulatory organizations, including the NYSE and the NASD.

The NASD is no more as a single entity, having been illegally split up, but the NYSE is more bloated and corrupt than ever. That's what happens when you create a government monopoly like the NYSE and then give it the green light to regulate itself.

Under the Pecora "reforms," the NYSE's specialist system took center stage. Never mind that history shows us that the specialist system was developed as a bribe after the Civil War for the "uptown boys" who had continuous trading to merge with the "downtown boys" (NYSE) who did not.

A deal was made to give the uptown boys stock franchises in which they could "specialize" in return for the merger. Once it was consummated, the NYSE converted to continuous trading and dropped its Gallic-influenced auction system.

The specialist system lived on, however. It was a bribe, of course, but never has a bribe been legitimized in so many ways and featured in so many righteous declamations over what constitutes securities regulation and the formation of an "orderly market."

The justification used by the NYSE – and implicitly endorsed by the Pecora Commission – was that an orderly market would reduce investor losses and help the NYSE run securities markets in a scientific (technocratic) way. In this manner, a bribe was transformed into a regulatory imperative.

But think for a moment: If a stock price is on the way down, do you want a specialist interfering with its descent? You'll buy it at 50 but by nightfall it has reached 40 – its destination – gradually reduced point by point by a specialist who was charged with bringing the stock up and down gradually.

Wouldn't you rather the stock had just taken the hit all at once? At least you'd have received an honest price. Instead, your price was interfered with, manipulated.

There's no justification for it any more than there is justification for market makers generally. They are a product of regulatory engineering, from what we can tell, rather than any legitimate evolution of the market.

This is how regulation evolves – from convenient business practices to statutory enshrinement. The initial impetus usually has nothing to do with the end result. And the urge to use regulations to punish the "guilty" is a further manipulation of the initial rationale.

Nonetheless, calls for Wall Street justice are popular. Sen. Warren's is just the latest. Here's some more:

"I'm really concerned that too-big-to-fail has become too-big-for-trial," Warren told the regulators.

After the hearing, Warren's staff posted clips of the exchange on YouTube that soon went viral. So far, three separate postings of a version of the clip have collectively received more than 1 million hits.

The Progressive Change Campaign Committee, which helped Warren raise more than $1.6 million in her 2012 campaign to defeat Republican incumbent Scott Brown, posted its petition to the SEC on Sunday.

The petition, which urges the SEC to end its practice of "too big for trial," garnered more than 10,000 signatures in the first 24 hours, a number that has climbed to more than 16,000, according to Matt Wall, a spokesman for the group.

Wall said he expects the group to deliver the petition to the SEC in the "near future."

Last week SEC Chairman Elisse Walter told reporters after the hearing that she does not believe the agency should bring banks to trial if it can obtain relief through a settlement.

She added that the SEC, whose budget must be approved by Congress, needs to take account of its resources in deciding which cases to settle and which to take to trial.

On Tuesday, SEC spokesman John Nester said the agency is "fully prepared to go to trial every time" it files a suit.

However, he added, "There's no reason under our authority to delay justice and financial relief for investors when we can get it all without a trial."

In a statement, a spokesman for Senator Warren said she "believes that everyone has a stake in an honest system where people are held accountable if they break the rules."

"She has fought for a long time to make sure that lenders that provide real value to their customers aren't forced to compete with institutions that build their profit models on deceptive or abusive practices," the spokesman added.

Keep in mind, please, this is the same Senator Warren that continually claimed that a smidgen of Native American blood made her a "minority" – which basically granted her a preferred status in numerous situations. We're not certain if she is still claiming Indian blood but it certainly became a campaign issue.

So Ms. Warren's calls for Wall Street justice seem a tad hypocritical at best. In any event, her statements miss the point. What has caused all the large securities crises of the past 100 years has involved monopoly central bank stimulation, mostly created by the US Federal Reserve in concert with the Bank of England.

By overprinting money, these central bankers cause first tremendous booms and then terrible busts. Nobody knows how much money is too much and central bankers almost always overprint. The result is that businesses are fooled into over expansions and bankers and advisors are carried away by the mania and make questionable decisions.

Of course, this explanation is inconvenient to the powers-that-be that would much rather focus culpability on the agents of financial destruction rather than the ingredients.

By whipping up public resentment against Wall Street, Ms. Warren and others are conveniently diverting attention from central banking, where most of the ultimate blame for economic crises should be lodged.

In addition, such rhetoric whips up popular sentiment against what is perceived as free-market capitalism. Finally, the endless campaign for "justice" is no doubt intended to create another Pecora-style securities hearing that will provide further justifications to constrain the free market.

Money Power is behind all of this, of course. Elites seek to constrain the marketplace, the better to control it. Calls for economic justice reinforce the current US penitentiary/Gulag system and hold out the opportunity to further control the marketplace.

After Thoughts

These are the ultimate goals and Senator Warren is facilitating them.