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2012-02-24

Occupy the SEC: Former Wall Street Workers Defend Volcker Rule Against Banks’ Anti-Regulatory Push

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The latest offshoot of the Occupy Wall Street movement, Occupy the SEC, has submitted a 325-page comment to the Securities and Exchange Commission that calls on regulators to resist the financial industry’s lobbying efforts to water down the Volcker Rule, a section in the Dodd–Frank Wall Street Reform and Consumer Protection Act, that aims to prevent large banks from making certain kinds of risky, speculative investments. The group is made up of former Wall Street professionals who once worked at many of the largest financial firms in the industry. We’re joined by Alexis Goldstein, who worked as a computer programmer for seven years at Morgan Stanley, Merrill Lynch and Deutsche Bank. She left Wall Street in 2010 and joined the Occupy Wall Street movement soon after the encampment began. "Banks shouldn’t behave like a hedge fund," Goldstein says. "Hedge funds are there to make money and take risky bets, and their clients tend to be these really wealthy clients. And the Volcker Rule sort of says, 'Well, wait a minute. These big banks that enjoy all this government support shouldn't be in that business." [includes rush transcript]

Transcript

This is a rush transcript. Copy may not be in its final form.

Some visual material used in this segment is courtesy of Liza Béar, Squaring Off, Mobile Broadcast News.

JUAN GONZALEZ: In the five months since Occupy Wall Street protesters set up an encampment in Liberty Plaza, the Occupy movement has spread around the world. Occupy protests have occurred in hundreds of cities, and scores of offshoots have formed, including Occupy the Hood, Occupy the Super Bowl, Occupy Philosophy and Occupy the Foreclosure Courts. In recent weeks, another offshoot is making news: Occupy the SEC.

The group is made up of former Wall Street professionals who once worked at many of the largest financial firms in the industry. Last week, Occupy the SEC submitted a 325-page comment to the Securities and Exchange Commission, the Federal Deposit Insurance Corporation, and the Federal Reserve Board. The letter calls on regulators to resist the financial industry’s lobbying efforts to water down the Volcker Rule that aims to prevent the large banks from making certain kinds of risky, speculative investments.

AMY GOODMAN: In its letter, Occupy the SEC writes, quote, "During the legislative process, the Volcker Rule was woefully enfeebled by the addition of numerous loopholes and exceptions. The banking lobby exerted inordinate influence on Congress and succeeded in diluting the statute, despite the catastrophic failures that bank policies have produced and continue to produce."

Joining us here in New York is one of the members of the Occupy SEC movement, Alexis Goldstein. She worked as a computer programmer for seven years at three major financial institutions: Morgan Stanley, Merrill Lynch and Deutsche Bank. She left Wall Street in 2010, joined the Occupy Wall Street movement soon after the encampment began.

Welcome to Democracy Now!

ALEXIS GOLDSTEIN: Thank you for having me.

AMY GOODMAN: So, explain your trajectory, from the banks to the encampment at Zuccotti Park to a more than 300-page letter to the SEC.

ALEXIS GOLDSTEIN: So, I had a long dissatisfaction with my job. I think nobody on Wall Street really believes that they’re doing it to help save the world. Everyone is there to make money. And so, I quit about a year and a half ago. And when Occupy Wall Street came about, I was a little bit skeptical, like a lot of people were, but after that first big pepper-spray incident up in Union Square, I knew I had to get down there.

And Naomi Klein came down, and she gave an open forum talk. And I asked her, "Should we bring back Glass-Steagall?" And afterwards, a few people came up to me and said, "What was Glass-Steagall?" So I did a teach-in about Glass-Steagall. And from that, I met Akshat Tewary, who’s the lawyer in our group, and he said, "Let’s write a comment letter." And so what we ended up doing is having a book club, where the Volcker Rule was our book. And so we would meet once a week at first, and then twice a week, and we read through it line by line. And—

AMY GOODMAN: Where did you meet?

ALEXIS GOLDSTEIN: We met in a public atrium at 60 Wall Street, right next door to where I used to work. And so, we sort of went through it, and we came up with bulleted lists of answers, and then we split it up, and we embellished those bullets. And we ended up writing 325 pages.

JUAN GONZALEZ: And the Volcker Rule turned out to be Volcker-lite or Volcker-full-of-holes. Could you talk about some of the holes that people don’t know about?

ALEXIS GOLDSTEIN: So one that really concerns us is a blanket exemption for what’s called repurchase agreements, or "repos" for short. And the way I always try to explain that is, that’s like going to the pawn shop and selling your gold watch, and they give you maybe 75 bucks, and then a few weeks later maybe you go and buy it back. The problem with repos is they were really a big part of why Lehman fell so hard and so fast, because a lot of these big banks rely on them to raise money and finance things. And they are completely outside the remit of the Volcker Rule. And we’re also concerned that banks could use these to sort of do what they’re not supposed to do via repos, because Wall Street is really good at what we call financial engineering and getting around regulations by being really crafty about the way they do things.

AMY GOODMAN: You mentioned Glass-Steagall and everyone coming up to you: "What is that?" So, start there. What is that?

ALEXIS GOLDSTEIN: It was a law that was passed in the '30s in the wake of the Great Depression as a response to that big 1929 crash. And it said the sort of casino arm of banking, the investment bank, should be separate from the commercial bank, which is like your grandma's savings account and a sort of depository institution. So they said, "You have to choose." And that’s why JPMorgan was sort of broken up into Morgan Stanley and JPMorgan, as JPMorgan decided to stay a commercial bank and take depositor funds, and then they spun off the investment bank arm, and that became Morgan Stanley.

JUAN GONZALEZ: And that’s why Goldman Sachs, overnight, in the midst of the crisis, suddenly became a bank during one weekend—

ALEXIS GOLDSTEIN: That’s right. That’s right.

JUAN GONZALEZ: —when it was actually an investment bank previous to that.

ALEXIS GOLDSTEIN: Exactly.

JUAN GONZALEZ: But what has happened? I mean, obviously, Glass-Steagall was done away with, actually during the Clinton administration. But now, what has Congress done to rectify the problems of banks combining their speculative arms with their regular banking arms?

ALEXIS GOLDSTEIN: So the Volcker Rule is not quite Glass-Steagall, but the idea was, Paul Volcker wrote this three-page memo to President Obama saying, what is the riskiest part of banking? The riskiest part is this proprietary trading, where banks take their money and invest it and try—and basically bet. And the other risky part is when they own hedge funds or private equity funds, which basically do the same thing. And so, the idea behind the Volcker Rule is, let’s take the stuff that put the entire economy at risk in 2008 and say that these big banks that enjoy the Fed discount window and all of this implicit government backing aren’t allowed to make these risky bets anymore.

AMY GOODMAN: Has anyone leaked you information from inside the Securities and Exchange Commission? And what has been their response? I mean, so here the Occupy represents a more than 300-page letter to the SEC and these other agencies.

ALEXIS GOLDSTEIN: So, we don’t know what the response is yet, but we’re trying to schedule a meeting with them to come and say, "Here’s our high-level points." And I’ve certainly called them up on the phone to make sure they received the letter. So we are in contact with them, but as for the response, we’re not quite sure yet. But we’re very—we’re looking forward to finding out what they think.

JUAN GONZALEZ: And to get back on this issue of the loopholes in the Volcker Rule around safeguarding from hedge funds and—what’s happened there?

ALEXIS GOLDSTEIN: Well, the idea is that banks shouldn’t behave like a hedge fund. Hedge funds are there to make money and take risky bets, and their clients tend to be these really wealthy clients. And the Volcker Rule sort of says, "Well, wait a minute. These big banks that enjoy all this government support shouldn’t be in that business. And if they want to be in that business, fine, but they don’t get to enjoy the Fed discount window, and they don’t get to enjoy all these benefits." So they need to either spin off that part of the arm or, you know, not be a bank holding company anymore.

AMY GOODMAN: Talk about private equity funds and carried interest, why, for example, Mitt Romney gets to pay a lower tax rate.

ALEXIS GOLDSTEIN: So, the way that private equity funds and hedge funds work is they work on fees. And there’s a flat fee every year, but there’s also a performance fee that’s based on how much profit they make. So Mitt Romney pays no taxes because all of the sort of earnings from all the companies that Bain Capital invested in are still coming in to him. And so, carried interest is taxed at a lower rate because it’s considered ownership. It’s as if you bought a stock, and you own the stock, and then you sell the stock. That’s considered a capital gain. Carried interest is also considered ownership, so it’s taxed at a capital gains rate. In the Volcker Rule, carried interest is very explicitly not an ownership interest. And that helps the banks, because the Volcker Rule says you can only own up to 3 percent of one fund. But if you’re earning carried interest, because you’re managing that fund, that doesn’t count towards the 3 percent. So they get to have their cake and eat it, too. In the realm of taxation, carried interest is ownership; in the realm of Volcker, it is not an ownership.

AMY GOODMAN: Who are the people who did this? What exactly is Occupy the SEC? How do you come up with this extremely technical report? I think people would be surprised when the video of the Zuccotti protesters is shown. The media, they rarely talk to the people involved in the protests.

ALEXIS GOLDSTEIN: Well, we’re—you know, we’re, I guess, like any other Occupiers, but some of us happen in finance, but not all of us. I think probably we’re about 50-50 split. We have a lawyer; that’s Akshat. We have a former derivatives trader; that’s Caitlin. We have Corley. We have Elizabeth, who works in credit unions. We have Eric, who’s in the Army Reserve. And we have a sort of, you know, George Bailey. We have a mix of people, but we just happen to have this particular area of expertise. And everybody at Occupy Wall Street has their passion and their area of expertise, and I guess we’re just sort of the dorky financial people of Occupy Wall Street.

JUAN GONZALEZ: And what was the decision-making process that went into deciding on the content of a over 300-page letter? Because, obviously, Occupy has at times not wanted to reach agreement on particular demands, obviously, in the movement, but now you’ve done a whole treatise.

ALEXIS GOLDSTEIN: Right. So we always are very careful to say that we don’t speak for Occupy Wall Street, because we did not go through the New York City General Assembly and get approval of a 325-page letter, because we just didn’t see how that was possible. So working groups are autonomous, so we’re acting as our capacity in a working group. We don’t have the endorsement of Occupy. But I would also say that we sort of try to engage with the larger Occupy Wall Street, you know, group as much as possible. We worked with the Alternative Banking working group. And hopefully, now that we’re finally done with this letter, we’re going to have some more time to do some more education and teach-ins and hopefully engage more.

AMY GOODMAN: Can you describe the scene for us we played in billboard? I’m going to play it in one second. Where were you standing outside of with a group of people holding up your signs?

ALEXIS GOLDSTEIN: We marched to two places. I believe the footage is of outside the Federal Reserve. We had about probably 75 to 100 people, and we basically said, "Protect the people, not the banks."

AMY GOODMAN: And this is you shouting. Let’s go to the clip.

ALEXIS GOLDSTEIN: [echoed by the People’s Mic] How stupid do they think we are? How short do they think our memories are? So we’re here today to say, "Ignore the banks. Listen to the people. We need a strong Volcker Rule."

Video Courtesy Liza Béar

AMY GOODMAN: That’s Alexis Goldstein, a member of Occupy the SEC. She was the one who was doing the chant that they were repeating. What are you asking people to do—people especially who feel it’s very hard to understand this stuff, but they care?

ALEXIS GOLDSTEIN: So, two things. One is we have a petition, so if you go to our website, occupythesec.org, you can find our letter, and if you agree with it, you can sign our petition.

The other thing is, the reason that we were able to comment on this is because of something called the Administrative Procedures Act. And this is basically the period after something becomes a law but before it becomes the final regulation, where the public can weight in. And we happen to have expertise in finance, but this happens for any new regulation. So we really want people, first of all, to know that this exists, and maybe to pay attention to regulations that they happen to have expertise in. Maybe it’s environmental regulation. Maybe it’s something else. But this is something that’s available for everyone. So we would really love to see more people submitting public comment in this—it’s called the rulemaking process.

AMY GOODMAN: We want to thank you very much, Alexis Goldstein, for joining us, of Occupy the SEC.

ALEXIS GOLDSTEIN: Thank you.

AMY GOODMAN: Worked for seven years on Wall Street as a computer programmer at Morgan Stanley, Merrill Lynch and Deutsche Bank.

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