OSEC Member Perspective – Occupy the SEC Submits Amicus Brief to the Supreme Court in Bank of America N.A. v. Caulkett, Advocating for Strip-off of Underwater Mortgages During Chapter 7 Bankruptcy

By Simisola Durosomo

Occupy the SEC (“OSEC”) has submitted an amicus brief in Bank of America N.A. v. Caulkett, and Bank of America N.A. v. Toledo-Cardona, two consolidated cases presently pending before the U.S. Supreme Court. Oral argument for these cases is set for Tuesday, March 24, 2015.

These cases focus on Sections 506(a) and 506(d) of the Bankruptcy Code, which, if read together, provide that a completely underwater lien must be voided under a Chapter 7 process. The Petitioner, Bank of America, claims that a Chapter 7 filing should not cause the strip off of an underwater second mortgage. Rather, an unsecured creditor should be allowed to uphold the lien, even if the mortgage is underwater and worthless. Bank of America takes the stance that sections 506(a) and 506(d) should be interpreted separately when it comes to determining the meaning of the term “allowed secured,” in keeping with the flawed reasoning of a prior Supreme Court case Dewsnupp v. Timm (1992).

In its amicus brief, OSEC argues that Bank of America’s position would produce a great injustice to those individuals who have filed for Chapter 7 bankruptcy. OSEC reminds the Court that a central purpose of bankruptcy law is to afford unfortunate debtors a “fresh start.” The banking industry’s misconduct has fueled, and continues to fuel the mortgage crisis. The bipartisan Financial Crisis Inquiry Commission found banks to be culpable in bringing about the Great Recession of 2008. The crisis distressed the economic status of millions of homeowners — currently there are 2.1 million underwater borrowers who are at risk of impending default and possible foreclosure.

The legislative history behind the implementation of §506 shows that subsections (a) and (d) were intended to be read jointly. Numerous House and Senate reports supplementing the passage of the Bankruptcy Code of 1978 confirm this. In fact, any ambiguities in understanding §506(d) can be remedied by reading that statute in conjunction with §506(a). OSEC also points to several policy considerations that favor the strip-off of wholly underwater liens during Chapter 7 liquidation.

OSEC Member Perspective – Bank Lobbyists Tread Familiar Ground in Omnicare Supreme Court Case

By Brandon Lev

Today the Supreme Court heard oral argument in Omnicare v. Laborers District Council Construction Industry Pension Fund, a case arising out of the Sixth Circuit. Omnicare is alleged to have misled investors about the legality of its pharmaceutical rebates and other practices.  The case centers on Section 11 of the Securities Act, which prohibits material misstatements in securities registration statements. Specifically, the Court will decide whether a Section 11 plaintiff must plead that the defendant subjectively knew that an offending misstatement of opinion was false.

By imposing this subjective knowledge requirement, the Court could severely undermine Section 11, which is a valuable tool in the toolbelt of aggrieved investors. Not surprisingly, industry lobbyists have lined up in support of the whittling down of Section 11.

The amici curiae briefs submitted in this case by the Chamber of Commerce (CC) and the Securities Industry and Financial Markets Association (SIFMA) demonstrate the troubling reasoning that underlies legal arguments supportive of Omnicare.

In its brief, the CC attempts to undermine the Omnicare investor-plaintiffs’ Section 11 claims by highlighting the Court’s prior contention that section 11 places a “relatively minimal burden on the plaintiff.” Furthermore, CC asserts that the strict liability interpretation of Section 11 poses untenable peril to businesses by punitively targeting innocent mistakes of opinion. They claim that this interpretation “…would deter issuers from engaging in public offerings in the United States.” Thus, CC believes that companies’ public offerings are predicated at least in part on the ability to express any self-assessing opinion regardless of objective fact and free from any accountability or risk. This is noteworthy because CC suggests that if any transaction between businesses and customers is to be fair, the burden of accounting for risk should be placed more heavily on investors. Because Section 11 does not conform to this conception of fairness, the CC believes the Court should instead rely on precedent formed by cases involving SEC Rule 14a-9.

CC’s argument is based heavily on Virginia Bankshares and the interpretation of SEC Rule 14a-9 contained therein. Under such guidelines, plaintiffs would be required to prove that not only was the information presented to them false, but that Omnicare representatives knowingly presented this false information as true. Thus, CC’s argument can be characterized as demanding that burdens be shifted from businesses to shareholders, and that these burdens be virtually impossible to meet. Indeed, the above interpretation of Rule 14a-9 demands nothing short of gleaning information directly from another person’s mind. Such a burden of proof seems excessively stringent.

In contrast to CC’s preference for Rule 14a-9, SIFMA challenges directly the Sixth Circuit’s reading of Section 11. They argue that Section 11 “is not a strict liability statute.” Instead, it provides a narrower form of liability by granting underwriters due diligence protections if they have “reasonably investigated” and “reasonably believe” that the opinion expressed by an issuer is true. In essence, SIFMA argues that the strict liability interpretation of Section 11 is unfair because it punishes companies simply for being mistaken in their own beliefs, and does not provide specific guidelines by which underwriters can assess the veracity of issuer statements. Again, these arguments seem to hinge on the belief that in order for businesses to flourish, they must be absolved of the risks associated with offering securities. Instead, such risks should be placed squarely on the shoulders of investors and consumers, because the opinions expressed by issuers are sufficient for consumers to make educated investment decisions.

The above arguments are rooted largely in precedent established by the Supreme Court, and demonstrate the extent to which financial regulations have been interpreted so as to benefit businesses rather than consumers. Thus, Omnicare presents the Court with an opportunity to reverse these retrograde interpretations. In its own amicus brief, Occupy the SEC has urged the Supreme Court to uphold the Sixth Circuit’s strict liability interpretation.

At stake is here is whether or not our economy can be a fair institution that benefits the public.

Occupy the SEC Submits Amicus Brief to U.S. Supreme Court in Omnicare, Inc. v. Laborers, Advocating for Victims of Misrepresentation in Securities Offerings

Occupy the SEC (“OSEC”) has submitted an amicus brief in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, a case that is currently pending before the U.S. Supreme Court. The case centers on a key provision of the Securities Act of 1933 (“’33 Act”), Section 11, which creates an express right of action against issuers and their agents for material misrepresentations contained in the offering materials of registered securities.

Shoddy mortgage-backed securities played a pernicious role in the recent financial crisis, which destabilized the capital markets, soured the global economy and jeopardized the financial position of the average person. In the run-up to the crisis, the registration statements of many toxic securities falsely touted these instruments’ credit-worthiness, to the financial detriment of investors. Unfortunately, enforcement agencies such as the Securities and Exchange Commission have been of limited effectiveness in adequately addressing these wrongs. Section 11 is an important tool that aggrieved investors can use to seek remedy for misleading statements made by issuers and their agents.

Both Supreme Court precedent and the legislative history of the ’33 Act support the view that a Section 11 plaintiff need only allege a material misrepresentation in order to establish a claim. However, the Petitioners in this case (and numerous pro-industry lobby groups) have urged the Court to upend this history by requiring Section 11 plaintiffs to prove that the speaker of a materially misleading statement of opinion actually held a different opinion than the one expressed (“subjective falsity”).

OSEC’s amicus brief rejects the “subjective falsity” requirement, arguing that this novel standard would severely inhibit aggrieved investors from seeking redress for material misrepresentations contained in offering documents. The Supreme Court will hear oral arguments on the case in the upcoming term.

Occupy the SEC Submits Letter to SEC Re: Clearing Agency Regulations

Occupy the SEC (“OSEC”) has submitted a comment letter to the Securities and Exchange Commission (“SEC”) regarding that agency’s notice of proposed rulemaking on systemically important and security-based swap clearing agencies.

As numerous commentators have asserted, swaps and other exotic OTC derivatives contributed to the recent financial crisis.  These often-complex instruments were traded on shadowy markets and enabled an exponential growth of leverage and unpredictable, interconnected risk.  Under the banner of financial innovation and competition, these derivatives allowed sophisticated market players to exploit ordinary homeowners, municipalities and others.  The Dodd Frank Act has sought to shed light on these opaque markets, by requiring derivatives to be cleared through registered agencies.

This shift could be a useful means to bring shady derivatives transactions “out of the shadows,” provided of course that clearing agencies are themselves robust and stable.  In some ways the risk associated with derivatives has not gone away – it has simply shifted to clearing agencies.  Thus, it is vital that the Commission not only promulgate strong regulations covering such agencies, but also enforce such regulations in a vigorous manner.

The SEC has proposed a dual framework for the regulation of registered clearing agencies, applying general standards under Rule 17Ad-22(d) for new entrants, and a more rigorous set of standards for covered clearing agencies under Rule 17Ad-22(e).  OSEC supports this dual framework, as it will allow new entrants to more firmly establish themselves as clearing agencies, which is important for the deconsolidation and diffusion of risk across the market.

Even so, in its comment letter OSEC has recommended that the Commission remain vigilant to prevent companies from engaging in regulatory arbitrage to avail of relaxed standards under Rule 17Ad-22(d).  OSEC also urges the Commission to exercise its blanket authority to designate risky companies as  “covered clearing agencies” subject to the stringent requirements of Rule 17Ad-22(e).  Further, OSEC urges the Commission to expand the role of external auditing to ensure compliance with clearing rules.

Occupy the SEC Submits Letters to Federal Reserve Board of Governors in Response to its Advance Notice of Proposed Rulemaking on Risky & Anticompetitive Physical Commodities Transactions under the Bank Holding Company Act

Occupy the SEC (“OSEC”) has submitted a letter to the Federal Reserve Board of Governors (“Board”) regarding that agency’s advance notice of proposed rulemaking on physical commodities transactions under three provisions of the Bank Holding Company Act (“BHCA”). The Board revisits these provisions at a time when the Dodd Frank Act’s momentous changes in systematic risk regulation and recent abuses of the BHCA demand heightened prudential regulation, including heightened examination and leverage-based and risk-based capital requirements, and divestiture of existing commodities operations. 

The Board now has the opportunity to reinstate the historical separation in American law between financial and commercial activities that kept banks from becoming Too Big to Fail and overwhelming the economy.  It can prohibit institutions that receive federal depository insurance and implicit federal guarantees to act in a manner that threatens environmental pollution and risks systematic financial contagion. It can limit or mitigate speculation in physical commodities and derivatives markets that has created artificial scarcity in products such as wheat and oil on which billions of people—and governments—are reliant.

The BHCA, passed in 1956, was only one response to concentration in the banking industry and repeated financial crises at the turn of the 20th century that often began with speculative commodities transactions.  Those crises also led to progressive citizens’ movements, and the Clayton Antitrust and the Federal Reserve Acts of 1913.  These laws helped prevent banks from limiting innovation and controlling financial and commodities markets—as well as the institutions of government themselves.

The Board must implement the systematic risk provisions of the Dodd Frank Act and the Volcker Rules’ limits on proprietary trading in limiting unsafe physical commodities operations.  The Board recognizes in the ANPR the risk that physical commodities operations in such fields as petroleum trading and refining pose to a still heavily leveraged and overly complex financial system.  OSEC agrees that a single environmental risk involving a Bank Holding Company (“BHC”) or Systematically Important Financial Institutions (non-BHCs) under Title I of the Dodd Frank Act could suffer liability, reputational, and liquidity risk that would threaten institutional survival and could contaminate and destroy the financial system.  The Deepwater Horizon disaster and the extensive operations of BHCs in fields such as energy management are excellent examples of the operations’ multi-tiered threats.  As a result, the Board cannot ignore that license that Title I provides for it to institute severe leverage-based and risk-based capital requirements, reporting and disclosure requirements, and liquidity requirements, among other regulations.  The merchant banking rules, with permit passive investments in companies with physical commodities trading operations, are limited under the Volcker Rule’s restrictions on private equity investments.  The Board must also institute reporting and disclosure requirements, more extensive bank monitoring, and limit the duration and active management of merchant banking investments.

The ANPR does not comprehend that BHC physical commodities trading threatens more volatile core commodities prices and the growth of the economy and jobs.  The Board, however, has a dual mandate to limit inflation and ensure full employment and cannot only concern itself with the stability of a jury-rigged and unreliable financial system as it threatens to malfunction and explode. OSEC contends that the physical commodities trading operations risk the productivity and safety of the entire economy and stable, dependable job growth.  They also threaten to limit access to vital commodities such as wheat, soybeans, aluminum, and oil and cause increased poverty and geopolitical disruption.

OSEC contends that the Board intensified these dual crises when it failed to apply the proper criteria in its actions on the complementary, grandfathering, and merchant banking provisions of the BHCA.  The Board, starting in 2003, approved such actions as petroleum trading as complementary to financial activities without properly analyzing their risks to financial system and firm safety and soundness as well as competition in the physical commodities markets.  Evidence of illegal price manipulation and risky activity demands the rescission of those orders and divestiture of physical commodities operations.  The Board improperly interpreted the temporary and permanent grandfathering provisions of the Act to permit new BHCs to hold onto an unlimited swath of physical commodities activities.  The Act generally allows for only a three year temporary conversion period, with two extensions, and institutions such as JP Morgan and Goldman Sachs that became BHCs after Sept. 1999 can only hold onto physical commodities activities they possessed in Sept. 1997.  OSEC asserts that the Board implemented merchant banking rules with few restrictions on the lengthy term they can be held or on active BHC management of subsidiaries and little role for active internal Board monitors at those institutions.

These omissions demand that the Board revisit its regulations and orders and require divestiture or at least extensive prudential limits on physical commodity operations.  The recent financial crisis illustrated the limits to prudential regulation and tools such as Value at Risk for both banks and regulators when it comes to unpredictable and severe crises.  We recommend that the Board adopt a precautionary approach and at least require transparent reporting and disclosure, significant leverage-based and risk-based capital requirements, liquidity requirements, and limits on the duration and intensity of BHC management of operations.  Prudential regulation would mitigate but not resolve the difficulties with the current BHCA operations.

Indeed, the Board fails to recognize in its ANPR that physical commodities operations could result in massive environmental liability and that the Federal government could become responsible for initial remediation and cleanup costs.  Under statutes such as Superfund (CERCLA), the possibility that the Federal government will become responsible for initial remediation costs is significant.  There is a possibility of massive initial, or even permanent, social and environmental disruption even if the polluter does not evade its responsibilities under the bankruptcy or resolution procedures under Title II of the Dodd Frank Act.  There is no justification for providing a further subsidy so that BHCs can engage in risky and socially unproductive activities.

The Board has also failed to recognize that the massive and cumulative physical commodities investments permitted under the complementary provisions of the BHCA require that the agency issue an Environmental Impact Statement.  The National Environmental Protection Act (“NEPA”) requires that agencies make such statements before certain major agency actions, such as permitting risky petroleum drilling, to allow for a fully informed process.

The Board, finally, fails to square the explicit and implicit subsidies that BHCs receive with their negative effects on physical commodities and derivative markets as well as productivity.  Since deregulation in the 1980s, physical commodities and derivative markets have increasingly resembled other speculative financial markets.  Further permission for speculation will allow unfair competition with BHCs using the massive capital structures that are the product of heavy government guarantees to concentrate resources and benefit from insider information to the detriment of customers and the public.  Recent Federal Energy Regulatory Commission enforcement actions against J.P. Morgan and other BHCs manipulating the energy markets illustrate the negative effects on the economy.  Although certain customers could benefit from deals, they threaten the productivity and stable growth of the economy.

OSEC contends there is no justification for allowing activities that were the subject of criminal prosecution in the Enron crisis and which threaten global financial safety to continue.  The Board must significantly revise its prior orders and regulations to permit a safer, more productive financial sector and a wider economy that works for the benefit of all.

Occupy the SEC Submits Letter to FDIC Regarding its Proposed Implementation of Too Big to Fail Regulations Under Title II of the Dodd Frank Act

Occupy the SEC (“OSEC”) has submitted a letter to the FDIC regarding that agency’s proposed regulations implementing Title II of the Dodd Frank Act (“DFA”).  Title II of the DFA contains vital provisions that, if properly implemented, would help address the troublesome risks presented by “Too Big to Fail” (“TBTF”) financial institutions.

Title II seeks to allow for orderly resolution of troubled Systemtically Important Financial Institutions (“SIFIs”) in a manner that spares taxpayers the undue burden of supporting the colossal financial conglomerates that led to the 2008 financial crisis.

Unfortunately, a weakly-implemented Title II would be nothing more than a backdoor-bailout for overleveraged SIFIs.  OSEC has encouraged the FDIC to impose stringent penalties for SIFIs that are required to fall under its receivership under Title II.  The mistakes made by the government in handing out a billion dollar under the Troubled Asset Relief Program (TARP), completely free of any meaningful warrants or conditions, must not be repeated.

OSEC encourages the FDIC to recoup compensation from culpable management at troubled SIFIs, and to set future limits on executive compensation at bridge financial companies under receivership.  Excessive executive compensation at trouble SIFIs only serves to drain vital capital.  Financial executives should not be permitted to profit from their managerial malfeasance, especially when relying on the government to ease their companies’ unwinding and reorganization.

OSEC also encourages the FDIC to require bloated SIFIs to spin off subsidiaries, which would reduce these conglomerates’ anticompetitive market power.  Requiring divestitures would also serve to dilute risk across a greater number of entities, which in turn would reduce the risk that any of those entities would will be considered “Too Big to Fail” due to systemic inter-connectedness.

The final regulations must contain serious disincentives for SIFIs to undergo Title II receivership, otherwise the Title II resolution process will become just another version of a government bailout.

Rebalancing Industry Risk in Finance

One of the unintended consequences of the financial reform movement I’ve witnessed (been guilty of actually) is what I call making the world safe for financialization. This is the reform culture that argues what finance needs is better regulation, a super cop or some new regulatory authority to secure finance. This is the ‘bring-back-Glass-Steagall’ cry, Dodd-Frank, Volcker Rule, Capital Requirement Directive, Financial Stability Board, Basel and other similar regulatory initiatives, each of which has come into prominence in the aftermath of the crisis, a period that has witnessed bank concentration and leverage in the form of notional value of derivatives increase to record levels.

Financial stability is the objective of financial regulation. Only a rent seeking opportunist hoping to exploit vulnerabilities in the financial system would argue that the objective of regulation is something other than financial stability. Thomas Baxter, Jr. argues that financial stability prior to 2008 was a “penumbra” for the Federal Reserve. If he’s right the financial crisis proves regulation doesn’t work or supervision pre-crisis was ineffective.

Fundamentally, there are two ways the financial system can provide the economy with financial intermediation. Financialization is one way. It often goes by names such as sell-side, orginate-to-distribute and securitization among others. At its core, financialization brings buyers of capital together with users of capital to create an obligation resulting in a financial transaction. A contract is written, the obligation is funded, follow-on administration is often out-sourced, the instrument is packaged together with other similar obligations and re-sold to third parties, generally through the facilities of an after-market, specifically created for trading this particular financial instrument.

The reselling or recycling of financial obligations is the principal characteristic of sell-side finance and represents the vast majority of industry practice today.  In modern book-based markets reselling of financial obligations is only restricted by the legal language to create new, innovative contracts and the production of electrons – both of which have proven to be inexhaustible. Sell-side rhetoric is prominent in the language of the financial industry. This is the ‘all-market-liquidity-is-good-liquidity’ argument one hears when industry lobbyists attempt to justify large bank complexes, scale efficiencies and regulatory flexibility.

The other way the economy can produce financial intermediation is through the buy-side of financial commerce. It often goes by names such as the bank channel, balance sheet lending, merchant banking, private equity and others. In this case, the financial contract is written in house, the obligation is funded internally and remains on the books of the institution until retired. It is not resold. There is no after-market.

There are few institutions left in the U.S. whose business model is based primarily on balance sheet lending. The economics of in-house lending has been crushed by the scale efficiencies of book-based finance, modern computer markets and global communications. There are some notable exceptions, however, such as Frost Bank in Texas, which is a model of sterling loan performance and enjoys a local trading area that would be the envy of any local planner. These firms are the quiet, low risk operators who largely missed the ‘financial crisis’ and bypassed the bailout theatrics of the High Street financial districts. Allowing for the ‘opportunity cost’ of the financial bailout and housing crisis, balance sheet lenders in the U.S. are a model for financial stability and supervision.

I don’t believe the problem in finance is one of more or better regulation. On the contrary, regulation results in arbitrage and opportunities for greater sell-side innovation, as we have seen with the recent increase in bank concentration and in the growth of derivative swap transactions, which I estimate have grown at a rate of a trillion dollars a week since the crisis, approaching an alarming $1 quadrillion notionally or approximately 14 times larger than the largest conceivable underlying risk in the world, global GDP. This is directionally betting on an unconscionable scale and is permitted under recently enacted financial reform including the Volcker Rule. These are some of the unintended consequences of financial reform I discussed at the opening of this piece.

The industry model in finance is broken, and industry risk is out of control. Sell-side finance is practiced, in one form or another, by nearly every banking institution in the U.S. and around the world. It represents a gigantic over-concentration of business risk in the industry.

Annual restitution, enforcement and fines in the industry are a tiny fraction of annual industry surplus (profit), implying near full industry compliance. Regulators do not enjoy subpoena power, are frustrated by the complexity and enforcement is all but an impracticality. The courts are little help. The problem in finance is not a rhetorical, regulatory or legal problem. It is a lack of effective supervision and regulatory discretion to reduce industry risk.

The Federal Reserve has within its authority the means to provide funding to member banks on terms, conditions and requirements it alone determines. It is well past time to begin shifting industry risk back onto the balance sheet of financial industry participants and not taxpayers through the balance sheet of the Federal Reserve. The discount system can be used to encourage banks to hold and manage risk internally. The Fed can do this by providing low-cost funding to balance sheet lenders and thereby begin to rebalance the competitive dynamic in the industry. Looking of your assistance to lobby the Federal Reserve on behalf of prudent industry risk management and an enhanced role for balance sheet finance.

Occupy the SEC Awaits Agency Votes on Final Version of the Volcker Rule: Promulgation of Vital Component of Dodd-Frank Already Delayed by Two Years

On December 10, 2013, the Federal Reserve, the Office of the Comptroller of the Currency (“OCC”) and Federal Deposit Insurance Corp. (“FDIC”) are scheduled to vote on a final version of regulations implementing Section 619 of the Dodd-Frank Act, better known as the “Volcker Rule.”  The Commodity Futures Trading Commission (“CFTC”) and the Securities and Exchange Commission(“SEC”) are also expected to vote on the regulation around that same time.

Occupy the SEC (“OSEC”) urges these financial regulators to vote favorably on the Volcker Rule, instead of re-proposing it, as has been suggested by the U.S. Chamber of Commerce and other pro-bank lobbyists.  A vigorously enforced Volcker Rule could help avert another financial crisis similar to the Great Recession of 2008.  That crisis was caused in large part by excessive bank speculation in trading markets, and the Volcker Rule seeks to reduce the risk associated with these activities by prohibiting proprietary trading by government-backstopped banks.

In February 2012, OSEC issued a 325-page comment letter to the banking regulators urging vigorous and robust implementation of Section 619.  OSEC also issued letters to members of Congress in the summer of 2012 during the government’s investigation into JP Morgan’s “London Whale” trading losses, which could have been averted with a strongly enforced Volcker Rule.  In February 2013, OSEC filed a lawsuit against the above-mentioned financial regulators and the Department of Treasury for their delay in implementing the Volcker Rule, which by Congressional mandate should have been finalized by October 2011.

OSEC will issue an analysis of the Rule once the final version, which is expected to exceed 1000 pages, is issued later this month.

Occupy the SEC is a group of concerned citizens, activists, and financial professionals that works to ensure that financial regulators protect the interests of the public, not Wall Street. For further information, visit  http://occupythesec.org or email info {at} occupythesec .org.


Occupy Wall Street: Two Years Later

Two years ago today, on September 17, 2011, Occupy Wall Street (OWS) was born.  Spearheaded by the Vancouver-based progressive magazine Adbusters, a relatively small group of protesters set up an encampment at Zuccotti Park, a quasi-public space in downtown Manhattan, to protest malfeasance in the financial industry.  The Occupy Wall Street movement quickly gained spectacular momentum, attracting hundreds of thousands of protesters in outcroppings worldwide.

A common criticism of the movement then, and one which persists to this day, is that OWS has sought nothing and has achieved nothing.  Each of these criticisms is flatly wrong.

At its foundation, OWS was an expression of popular exasperation with a financial industry that had propelled the global economy into the worst downtown since the Great Depression.  Too Big To Fail banks placed excessively speculative and under-capitalized bets that led to the collapse of Lehman Brothers, bailouts of AIG and hundreds of other financial institutions, stultification of the credit and housing markets and the consequent global recession.  That recession negatively impacted virtually every person and every business with any meaningful connection to the economy.  The Federal Reserve reported that, in the three years between 2007 and 2010, the median net worth for the typical American family fell almost 40%.

Yet, despite an initial dip, the financial industry continued to enjoy ever-rising profits, lavish bonus structures, and seeming immunity from regulators and prosecutors.  In the face of these pathetic conditions, it was all-but-inevitable that a popular uprising like Occupy Wall Street would emerge.  Indeed, protests against perceived injustices are imbricated in the essential fabric of American history, and date back to the Revolution and before.

The zeitgeist of OWS has not been limited to economic concerns, however, as the energy behind the movement galvanized around many other progressive issues, ranging from foreign policy to local police brutality.  Indeed, the primary “demand” of OWS has simply been a demand to be heard.

In the 1978 movie Network, Oscar-winning actor Peter Finch played Howard Beale, a disenchanted veteran news reporter.  In a seminal scene in the movie, Beale talks directly into the network’s cameras and recounts some of the troubles of the day, including inflation, crime, the prospect of war with the USSR.  Beale admits that he does not have the solution to all of these problems, but insists, quite poignantly, that before they can be addressed, “first, you’ve got to get mad.”  He instructs each member of the audience to get up, open the window, and yell out “I’m as mad as hell, and I’m not going to take it anymore.” The initial Occupy Wall Street protesters followed in this vein, choosing Zuccotti Park instead of their windows.

A second common criticism, that OWS achieved nothing despite its vehemence, is also a myth.  To some extent, recognition of one’s own oppression can be an achievement in of itself.  Goethe said that “none are more hopelessly enslaved than those who falsely believe they are free.”  At the very least, OWS protesters understand the constraints of power that frame their lives.

Even so, the movement’s impact has hardly been circumscribed to the protesters themselves.  By raising the possibility of truly progressive politics — a possibility that had been largely abandoned by the Democratic mainstream — OWS served as a counterbalance to the conservative agenda disseminated by the Koch Brothers, Fox News and the Tea Party.  The movement’s emphasis on progressive causes arguably shifted the political discourse towards the left, paving the way for Democratic victories in the 2011 and 2012 elections.

Activists in various subgroups within OWS have also taken concerted and sustained actions to advocate for specific changes.  Occupy the SEC has advocated before members of Congress, submitted amicus briefs at the Circuit Court and Supreme Court levels, and recently filed a federal lawsuit against financial regulators including the SEC and the Federal Reserve over their delay in implementing the Volcker Rule.  OWS Alternate Banking Group has staged protests against HSBC and recently published a book on the financial system.  Groups like Occupy Our Homes and Occupy Homes Minnesota have successfully battled against unfair home foreclosures.  In April of this year the Rolling Jubilee Fund announced that it had bought out and forgiven over $1 million worth of medical bills owed by over 1000 people.  When Hurricane Sandy devastated the New York metropolitan area in October 2012, even traditional first responders marveled at the efficiency and diligence of Occupy Sandy volunteers who assisted with food delivery and reconstruction efforts.

In the course of two years, the Occupy movement has sought change and has effected change.  Unfortunately, OWS activists have their work cut of for them.  Even in the face of sanguine news reports regarding stock market rallies and economic growth, the struggles of the poor and disenfranchised have not abated since 2011.  A recent study based of IRS statistics revealed that the disparity in income between the top 1% and the 99% is now the worst it has been in a century.  The country could really use a resurgence of the activist spirit that overtook Lower Manhattan two years ago.

- Akshat Tewary

Occupy the SEC Submits Comment Letter to Securities and Exchange Commission on Proposed Money Market Regulations

Occupy the SEC (OSEC) has submitted a comment letter to the Securities and Exchange Commission (Commission) in response to its proposed regulations covering the money market fund industry.

Five years ago the Money Market industry suffered a severe crisis caused by a multitude of factors.  Inadequate and feckless regulation was indubitably one of these factors.

In its comment letter, OSEC commends the Commission for now taking positive steps to fill this regulatory lacuna with prudential regulations that have the potential to preserve market stability and investor confidence. The SEC proposal follows some of the recommendations that OSEC submitted earlier to the Financial Stability Oversight Council (FSOC), but misses several important reforms.

OSEC has submitted its comments in order to ensure that the new MMF rules are developed with input from the perspective of the public, in light of the fact that the public is likely to bear the greatest costs of the systemic risk stemming from the MMF industry.

In its letter, OSEC recommends that regulators consider a series of measures that address gaps in the SEC’s 2010 MMF reforms.  Specifically, OSEC calls for enhanced diversification, increased liquidity and transparency, and greater fund board accountability so that fund investors have full knowledge of the risks involved, and can choose the fund structure that best aligns with their preferences.

The comment letter is available at OSEC’s website as a PDF.