Monday, April 27, 2009

A Lost Faith in the Federal Gov't

Most people with common sense clearly understand why the dishonestly and moral coruption by those in DC have ruined this country. Here's just another example of the deceit and dishonesty:

If anyone questions why the American people have lost faith in those who represent them in Washington, one need look no further than the front page of Thursday's (Apr. 23) Wall Street Journal. The above the fold headline reads "Lewis Says U.S. Ordered Silence on Deal" referring to Bank of America's purchase of Merrill Lynch which triggered the bail out of B of A. Who in the U.S.? None other than Hank Paulson, former Secretary of the Treasury and Ben Bernanke, current Chairman of the Federal Reserve. Mr. Lewis, the CEO of Bank of America. He testified under oath that he was told not to disclose to shareholders of Bank of America the full financial loss of Merrill Lynch Brokerage prior to shareholders voting to approve the purchase of the brokerage. In other words, he was ordered by the U.S. Government to not tell the truth to the shareholders of the company. And, unfortunately, he did what he was told to do.

This government ordered failure to disclose is precisely why we are in this financial mess. Not only is it absolutely wrong and unfair to the shareholders of Bank of America, this lack of disclosure is what contributed to the collapse of the credit markets. Markets cannot operate without credibility and trust. All financial information that is materially important to financial decision-making by the investor and shareholders must be disclosed or else that trust is violated and credibility is lost. If the public thinks that public companies are hiding information - guess what - they aren't going to invest in them.

As State Treasurer, I changed our investment policy in December of 2007, prohibiting investments in short term commercial paper issued by financial institutions because of my concerns about transparency and full disclosure. My job was to protect taxpayer investments and I no longer believed that the major financial institutions were disclosing the full amount of their toxic assets nor did I know which institutions were credible and which ones were not. Therefore we stopped investing in all of them.

However, what I did not realize was that those who were charged with regulating the securities industry would arguably break the law and order silence about information that was materially important to shareholders. This is absolutely outrageous and should not be tolerated.

The stock market and our economic system work because investors rely on financial information that is required by law to be disclosed allowing individual and institutional investors to draw their own conclusions about whether it is a profitable investment. It is this requirement that ensures that our markets our free. Freedom has never meant no laws or regulation - that would result in chaos. It also requires that there are consequences for not doing the right thing - that's called justice. Capitalism works because we require disclosure of accurate information to individuals about publicly traded companies. Efficient markets reflect information about the company in share price.

This kind of reckless behavior by Paulson and Bernanke undermines the very institutions that they are suppose to be regulating and they should be held accountable for their actions. But since, government officials cannot be sued in most instances because of sovereign or official immunity, retirees who have seen their pensions disappear will have to seek restitution by keeping their fingers crossed and hope that their Congressmen or Senators will correct this wrongdoing and provide a meaningful remedy for these losses. Americans must send the message to Washington that they cannot trample on shareholders rights, destroy credibility in the markets, and then demand more money from the American taxpayer to subsidize bad decisions and interference by regulators. It is not right - it is not fair - and it must be stopped.


Sarah Steelman

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