RCP Morning Note, 05/16/2017: GOP Senators & Trump; Clapper’s Mistakes; Hate Crimes and Cops; Securities Fraud


Carl Cannon’s Morning Note

GOP Senators & Trump; Clapper’s Mistakes; Hate Crimes and Cops; Securities Fraud

By Carl M. Cannon on May 16, 2017 08:33 am
Good morning, it’s Tuesday, May 16, 2017. Seventy-five years ago today, a relatively young federal agency quietly passed a new rule designed to curb boardroom fraud and insider trading. The agency was the Security and Exchange Commission, and although no one would say that the SEC ended Wall Street greed, it wasn’t for lack of trying. I’ll have more on this episode in a moment. First, I’ll point you to RealClearPolitics’ front page, which presents our poll averages, videos, breaking news stories, and aggregated opinion pieces spanning the political spectrum. We also offer a complement of original material from our own reporters and contributors, including the following: * * * GOP Senators: It’s Time for Facts on Comey, Tapes, Russia. After reports alleging the president shared classified intelligence with Russia, some lawmakers called for clarity from the White House, report Alexis Simendinger and James Arkin. James Clapper’s Assault on Democracy. Tom Bevan reminds the former director of national intelligence that the FBI is part of the executive branch, and that his claim that the firing of James Comey threatens the separation of powers is simply wrong. States Move to Protect Cops With Hate-Crime Laws. Steve Miller has the story in RealClearInvestigations. The Chinese Are Just Like Us: They Want Things. RealClearMarkets editor John Tamny asserts that voluminous Chinese exports reflect a reciprocal desire for imports in return. Warren Buffett’s Shareholder Sophistry. Also in RCM, George Harbison critiques the Oracle of Omaha’s contention that U.S. corporations have gotten around paying their share of taxes. North Korea’s Target-Rich Atomic Archipelago. In RealClearDefense, Todd Crowell has this overview of nearly a dozen known nuclear weapons/ballistic missile sites. Can Rouhani Pull Off a Win in Iran? In RealClearWorld, Saeid Golkar and Dina Smeltz preview the election. Soft Power U: Chinese Propaganda in American Higher Education. In RealClearEducation, Rachelle Peterson uncovers Chinese influence in America’s colleges and universities. GOP Uses Voter Suppression Playbook to Attack Unions. David Madland makes his case in RealClearPolicy. Paging Dr. Siri. In RealClearHealth, Vidya Ramesh and Sandip Shah explore the promises of mobile health care to cut costs and treat illness. Strength in Oil and Gas Sector Bolsters Industrial Economy. Thomas Duesterberg explains in RealClearEnergy. Non-Celiac Gluten Sensitivity Probably Doesn’t Exist. RealClearScience editor Ross Pomeroy revisits a controversial topic. Remembering Martin Luther’s Contribution to Literacy. With 2017 marking the 500th anniversary of the 95 Theses, Richard Gunderman has this report in RealClearReligion. * * * The 1929 stock market crash and onset of the Great Depression wreaked havoc with the nation’s financial institutions. In 1932, the year Franklin D. Roosevelt was elected, 1,450 U.S. banks failed, and the frightening attrition continued into the new year during the presidential transition. In Washington, a bipartisan consensus emerged: a financial system that California Sen. William Gibbs McAdoo colorfully described as “a collection of imbeciles" needed stricter supervision. During FDR’s first 100 days, reform was in the air. Congress passed, and Roosevelt signed, a measure known as Glass-Steagall, after its two main sponsors. This statute was followed by the so-called Truth in Securities Act of 1933, which regulated new companies, and the following year by the Securities Exchange Act of 1934, which extended the reforms to all firms issuing stock. By the next decade, however, SEC lawyers and commissioners were receiving complaints that company officers were defrauding investors not by hiding bad news, but by withholding positive developments. One case generated particular scrutiny. It seems that executives with a Massachusetts firm named American Tissue were systematically spreading rumors that the company was in terrible shape. Worried investors began dumping shares, but the company was actually doing exceedingly well. And after American Tissue executives bought many shares at fire-sale prices, so were they. In early May of 1942, as the U.S. entered World War II in a big way, two SEC attorneys, Mayer Newfield and Milton Victor Freeman, discussed this case at the commission offices in Philadelphia. Freeman told Newfield that one section of the 1934 law seemed to cover fraud in the purchase as well as the sale of securities — and that the commission would be well within its authority to explicitly outlaw what American Tissue executives were doing. And so, on May 16, 1942, four of the five SEC commissioners convened, heard the presentation from the staff attorneys, and prepared to vote. The discussion was brief — the entire session lasted less than 10 minutes — and is remembered for a comment made by Sumner T. Pike, one of the two Republicans on the commission. “Well, gentlemen," Pike said, “we are all against fraud, aren’t we?" It would make a better story if the SEC had eliminated corporate chicanery that morning. Alas, a stylized pattern of behavior had emerged that continues to this day. It’s a familiar kabuki dance that goes like this: Government reformers pass laws designed to curb fraud. Free-marketeers promptly complain that the new regulations stifle innovation. Meanwhile, capitalism’s most inventive grifters find ways to evade both the spirit and the letter of the reforms. And life goes on. Carl M. Cannon
Washington Bureau chief, RealClearPolitics
@CarlCannon (Twitter)

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