Whistleblowers Tried to Stop Market Meltdown & Need to be Protected in Any Fix

Like Sherron Watkins at Enron, an American Century whistleblower warned of the threats posed by fraud and questionable loan practices. A general counsel at New Century, a major subprime lender, warned about the consequences of continuing to offer flexible rate loans to individuals when the company knew they could not afford to pay after the inevitable rate increase. http://abajournal.com/... An SEC enforcement attorney specifically warned of the current crisis when investigating hedge fund corruption. The SEC fired him and suppressed the oversight. http://www.whistleblower.org/... As early as 2004, the chief risk officer at Freddie Mac warned the CEO that the company’s financial health was threatened by ongoing financing of questionable loans.  He was right, but was ignored. http://www.nytimes.com/...

The candidaes are all talking accountability. Sen. John McCain said he was "greatly concerned" by the lack of "meaningful accountability" in the Administration’s unprecedented bailout proposal for Wall Street.  In Wisconsin, Sen. Obama delivered an entire speech on government reform and accountability.  Now, it’s time for the candidates, and, more immediately, those on the Hill in charge of the bailout legislation, to walk the talk.  If they'e serious, they'll protect whistleblowers, because you can't have accountability withut them.  

In 1991 the RTC law after the S&L crisis had best practice whistleblower rights for its time. In 2002, the Sarbanes Oxley law wisely included whistleblower and witness protection as an enforcement cornerstone of that law.  Congress since has perfected weaknesses in these pioneer approaches in four subsequent laws, including three since 2006. A similar provision should be included to provide teeth for any financial industry reforms in the current emergency legislation to help ensure this crisis is not repeated.

Secrecy was the breeding ground for this disaster, because it sustained the reckless decisions and corruption that caused it. Now the administration proposes to give $700 billion -- the largest bailout in history -- without any accountability for how it is spent. No judicial review; no whistleblower rights; no public acces to records; and waiver of normal government contract rules. Apparently, one financial disaster wasn't enough for the Administration.  

Any credible reform must include whistleblower protection, because any paper "accountability" mandate is impossible to enforce unless those who witness corruption can bear witness.  At the loan origination level, disclosures of the following misconduct at major lenders were ignored or suppressed with retaliation:

1. forging customer signatures on declarations alleging that the customer knew they were eligible for, and did not want, lower interest;

1. fixed-rate, non-subprime loans;

1. false statements in loan portfolios and disclosures of risks to borrowers;

1. "arts and crafts" routines to falsify incomes or loan histories;

1. failure to ask borrowers their salaries when determining financial qualifications;

1. training employees to say "anything necessary" to secure a borrower’s signature.

After the "killer toys" scandals, Congress provided "best practices" whistleblower protections to employees at companies that manufacture, distribute and retail some 15,000 consumer products.  This was a huge breakthrough for public safety. The bailout legislation needs similar whistleblower protections for employees at any institution connected to the current economic crisis.  The taxpayers funding the proposed bailout also deserve to know that the $700 billion handed over to the Treasury Secretary will be spent wisely, and according to the law.  Accordingly, the Congress, as part of the bailout legislation, should approve already-drafted whistleblower protections for government employees and contractors. This legislation has been approved in both chambers, but is awaiting reconciliation and time is running out.

Other basic accountability and tansparency measures, like judicial review, contract rules and the Freedom of Information Act, also must be included. The taxpayers are footing the bill for this rescue. What happens to our money is our business.