AUSTIN, Texas -- I'd really like to know: What were they thinking? What did the traders, directors and managers of mutual funds think they were doing? Did they think, "Everybody does it?" Did they figure, "It's not really stealing; not actually taking money away from someone, it's just that they won't make as much as they might have?" Did they think the big customers were entitled to more? Why?
A series of mutual fund folks appeared before the Senate governmental affairs hearing on the issue this week. "Outrage," "Shocking," "Betrayal," they all said. Better compliance system, rule changes, regulatory action, reforms, restitution, they all said. Among other things, these Senate hearings should be required viewing for every right-wing ideologue that rants against government regulations -- those horrible, onerous government regulations. If you want to know why government regulations get written in the first place, this is the perfect opportunity. It's a huge, stinking scandal that affects the savings and pensions of millions of people, and the very people who created it are now begging for new regulations.
It's an indictment of the collective news judgment of American media that the mutual fund mess hasn't made it off the business pages to the front pages. And it's too bad it's too complicated for television, because this is a classic news story -- it affects your life.
It pretty much covers the entire American middle class, quite of few of whom don't think of their 401Ks or pension plans as mutual funds, but that's where most of them are invested.
So what's been going on with your money in mutual funds? Late trading, short trading and insider trading. And in a depressingly familiar pattern, the regulators who were supposed to be watching mutual funds didn't notice a thing until after New York Attorney General Eliot Spitzer jumped in and started talking criminal fraud charges. If there were a Democratic candidate with a brain, he'd be talking about making Spitzer either head of the Securities and Exchange Commission or attorney general. We are talking about billions of dollars in total rip-offs.
Why do they do it? Because they can get away with it.
More and more mutual funds, which used to be privately owned, are now owned by huge financial conglomerates. If we have not already seen enough warning signs of the folly of permitting these huge combinations to exist, what will it take? That's why there were regulations to begin with! And then came all those right-wing ideologues moaning about that terrible government regulation, and so Phil Gramm passed the law repealing the regulations, and now here we are again.
This is not just a financial story, it is a political story. Once again, the SEC has failed to police financial institutions that are under its regulatory authority. Why? Because the SEC has been deliberately under-funded for years by Republican congresses that don't believe in government regulation. Likewise the Internal Revenue Service, now letting tens of billions of dollars in corporate taxes escape because it has been so under funded by Republicans that it doesn't have the means to go after them.
Instead, the IRS now prefers to audit working-class Americans. That is a consequence of Republican rule. It is also a consequence of huge campaign contributions made over the years by both large corporations and by the financial industry, which is among the most generous of all campaign donors.
We have to keep connecting these dots. These are not isolated instances of misbehavior, not "a few bad apples." Enron, WorldCom and all the rest of the frauds took place because they were allowed to, because the perpetrators had bought off or bent enough regulations to get away with it. Hey, you take away the regulations and it's all legal! Just as though you'd repealed the law against sticking up the Jiffy Mart.
As usual, I'm more interested in trying to get people to see how and why they're being screwed than I am in the moral questions involved -- I leave morality to William Bennett and Pat Robertson. But I am genuinely curious about where the sense of upper-class entitlement comes from -- that sort of We who are already rich are entitled to more, We who run things don't have to break the rules, we can just pay the politicians to change them for us.
I suppose it's variant of Leona Helmsley's famous remark, "Only little people pay taxes." And by the way, Leona was right -- only little people do, anymore.