Christopher Cox, chairman of the SEC, says:
"I am concerned that municipalities are taking on more risk..." "It's a serious issue..."
The SEC does have authority to regulate how banks do business. Apparently the SEC views this type of institutionalized scam mounted against unsophisticated local citizens who serve on local school boards without pay to be an acceptable business practice not deserving of regulation. An issue that's apparently not so serious after all.
Complicity by the Federal Reserve.
These types of sickening results were clearly foreseeable and could have been prevented by the Federal Reserve. Instead, Chairman Alan Greenspan encouraged and worked to ensure a complete lack of regulation:
"... regulation is going increasingly to have to rely on private counter-party surveillance to achieve safety and soundness."
Bluntly, Greenspan actively worked to assure the foxes would be put in charge of guarding the hen houses. He urged and actively supported the banks in developing new opportunities to fleece trusting but financially naive American citizens.
Independent Financial Advisors.
The possibility that school boards would be taken advantage of was anticipated by the Pennsylvania legislature. This is why the state law requires municipalities to retain "independent financial advisors" when entering into an interest-rate swap.
The Erie school board did retain an "independent financial advisor". On the basis of a recommendation by JPMorgan Chase, the seller of the swap. The board wasn't informed that the advisory firm's founder had contributed $469,400 to politicians while urging passage of the enabling law
The case of Erie is typical. "Independent financial advisors" are retained based on recommendations by the banks and are paid by the banks.
On a contingent basis. The advisors only get paid if the deals close. This alone utterly destroys all semblance of impartiality. In earlier times, when rational standards of common decency prevailed in American society, this would have unanimously been considered to be highly unethical and grounds for lifetime revocation of professional licenses.
Today, ethics and morality have been cast aside and replaced with predatory attitudes of permissiveness. As SEC Chairman Cox explains:
".. all financial firms should tell clients their fees..."
Should, as in voluntary. For good measure, Cox added:
"... to the extent they are regulated by the SEC, they must."
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