Replacing smears with the truth about former SEC head Christopher Cox, the left’s scapegoat for the credit crisis if not the entire recession.
Time magazine last week aimed an utterly counterfactual and intellectually dishonest hit piece against Chris Cox, the conservative former chairman of the Securities and Exchange Commission. It’s time to set the record straight — and, in doing so, to help correct the overall narrative about the current economic crisis. It’s a narrative in which conservatives have received short shrift.
For some odd reason, Cox increasingly has become a scapegoat for the credit crisis, and indeed for the whole recession. Simple logic and basic facts refute this blame-casting, as we shall see momentarily. But to get a sense of the general level of unfairness of the attacks against Cox, consider just a few of the flagrant falsehoods in Time’s article co-written by Michael Weisskopf, whose general leanings are captured in the title of his 1996 book called Tell Newt to Shut Up. (Please bear with the length of the first example below: It serves as a good case study for how dishonest the Time piece was, with the Time article in turn serving as a perfect microcosm for overall media misinformation about the current crisis.)
The false narrative that has been taking shape about Cox is that he let the SEC’s enforcement efforts wither, with supposedly disastrous consequences for the whole economy. The added falsehood is that he further hobbled enforcement efforts through a new rule, as Time tells it, “requiring SEC staff to get authorization from commissioners for financial penalties before settling a case.”
In the key passages that serve as the hinge of the whole rest of the article blaming Cox for, well, everything, Time continued:
In fact, [the new rule] quickly created delays and obstacles, so much so that SEC officials often stopped seeking penalties. “It wasn’t worth it,” a former commissioner says. “All they got was abuse every time they went before the commission and asked for penalties.” Some investigations didn’t get even that far. Gary Aguirre, a senior SEC lawyer, sought to question the chairman of Morgan Stanley in a fraud investigation but was denied permission before Cox arrived. He later told Congress that his superiors, fearing the banker’s “very powerful political connections” in Washington, had delayed the probe, dooming any chance of making a case—allegations that a Republican Senate report later found credible.
Eventually, enforcers at the SEC grew demoralized. One by one, key officials left the agency; Aguirre was fired under Cox. Sensitive cases seemed to lag. Cox has admitted that his staff brushed off “credible and specific” reports of fraud committed by Madoff over the past 10 years and did not seek subpoena power or bring tips to the attention of commissioners.
The clear implication of the Time account is of a deleterious series of causes and effects: as if the rules change by Cox precipitated abuse of honest enforcement staff, which precipitated a Cox-led cabal to fire Aguirre, and in turn to a demoralized staff that caused the failure to catch Ponzi-scheme king Bernard Madoff. Step by step, Cox is presented as the bad guy who kept investigators from unearthing the information that would, by golly, have stopped the whole financial crisis from happening.
The dishonesties in Time’s account are legion. First, the rules change at issue came two years after Aguirre left the agency, so they couldn’t have helped cause him to leave. Second, the rules change, far from causing frequent obstacles, was a minor pilot program used in only nine cases out of hundreds handled by the SEC, and the commissioners actually backed the staff — rather than “abused” them — all nine times. Third, Cox had nothing to do with firing the troublesome Aguirre, who announced he was quitting, rescinded his resignation, and then came under full disciplinary review before Cox even joined the agency. Yes, it was a few weeks after Cox arrived that Aguirre finally was fired, but Cox didn’t even know Aguirre was there in the first place, much less cause his firing.
A later Senate investigation of Aguirre’s firing not only found no fault with Cox, but actually praised him: “We commend SEC Chairman Christopher Cox for his full and complete cooperation…. By making documents and witnesses available, Chairman Cox demonstrated a commitment to accountability and transparency.” And: “We also commend the SEC for increased enforcement efforts regarding insider trading, and specifically insider trading by hedge funds, following our investigation.”
Finally, what any of this has to do with Madoff is anybody’s guess. Madoff’s subterfuge had been going on, undiscovered, for nearly 40 years, with the SEC staff fumbling specific allegations against Madoff for six full years before Cox even came on board. Why is Cox, at the SEC for just three years, being blamed for 40 years of investors and SEC staff being fooled by Madoff’s fraud? And why was Madoff suddenly shoehorned into the article just then? To even mention Madoff in the same paragraph with Aguirre and an SEC staff supposedly newly demoralized by Cox (and his new rule) is to raise falsely syllogistic innuendo to a scurrilous new journalistic art form.
Now — why is all this important?
Because only by such misdirection, by finding a convenient conservative scapegoat to feed the narrative of conservative neglect and/or ideologically based obstruction, can the establishment media shift the blame for today’s mess onto the whole idea of free markets and onto its advocates. What’s at stake here isn’t just Chris Cox’s reputation, but the popular history that could shape economic decision-making for decades to come.
Time’s misuse of the Aguirre incident — a gentle zephyr, not a tempest nor a Teapot Dome — was just one example of how the magazine accomplished its smear. The whole Weisskopf article was rife with similar flagrant dishonesties. Cox was blamed for not being at meetings to which he wasn’t invited and wasn’t needed (or even was wise to avoid). Cox was blamed for allowing Bear Stearns to have a “yawning ratio of debt to capital,” even though in the three months leading up to Bear’s collapse the firm’s capital ratio was between 13. 5 percent and 14.4 percent — well above the 10 percent cushion required by the internationally accepted “Basel II” standards and by the Federal Reserve’s rule for being “well capitalized.”
Time further blamed Cox’s SEC because it supposedly “didn’t urge the bank to improve most of its practices,” even though the SEC had worked closely with Bear for a full year to raise its pool of liquid assets from $5.5 billion in February of 2007 to $17.3 billion in February of 2008 and $18.1 billion on March 10 of that year, just four days before Bear collapsed. Again, that was well above, nearly double, the expected cushion — and it tracked the SEC’s treatment under Cox of all five major investment banks, which at the SECs urging had raised their total liquidity pools from $158 billion to $232 billion.
A man of faith in a godless age is hitting Americans where it hurts.
Mr. and Mrs. American Spectator Reader, let P.J. O’Rourke talk sense to your kids.
In Britain, defending your property can get you life.
It won’t take long for conservatives to scratch this presidential wannabe off their 2008 scorecard.
Was the President done in by the economy, or by the politics of the economy?