One tenet of Occupy Wall Street – no specific demands.
But you have your Occupy Wall Street.
And then you have more than one hundred working groups.
One of which is called – Occupy the SEC.
And Occupy the SEC has some very specific demands.
In a 325-page letter to the Securities and Exchange Commission, seven members of the group said that the Volker Rule was shot through with loopholes, and came up with some very specific suggestions on how to plug them.
The Volker Rule aims to stop proprietary trading at government backed big banks.
But when the SEC issued its draft rule, there was no iron clad prohibition on proprietary trading.
“The Volker Rule says – no prop trading and no owning hedge funds,” Occupy the SEC’s Alexis Goldstein told Corporate Crime Reporter in an interview last week.
“But the actual SEC rule allowed for much more than that.”
“The SEC rule says that you can own a hedge fund or a private equity fund as long as you only own three percent of it,” Goldstein said. “In the first year, if you seed a fund, organize a new one, you can own up to 100 percent of it in the first year.”
“We feel that is a problem. If the bank can own up to 100 percent in the first year, we asked – what prevents them from opening a new fund, pouring a bunch of money into it, managing the fund, acting as an investment advisor to the fund, do all their prop trading in that fund – and then close it down after a year, and start over again?”
“They get around the rule that way. And then they can apply for an extension at the end of the year – so it can be up to two years.”
“Another problem we had with the draft rule is that they have a blanket allowance for a repurchase agreement, or a reverse repurchase agreement – which are called repos for short.”
“You are not allowed to do prop trading. But repos are not included in prop trading.”
“We were concerned about that for two reasons. We have some people in our group who have worked in the industry. And we put on our thinking caps and said – how could they hide a prop trade in a repo?”
“In the letter, we came up with a few examples of how you might want to do that. Essentially, it’s through financial engineering, or just a clever use of repos. You can hide a prop trade with a repo. Repos are completely outside the Volker, we are worried that might be a way the banks might be able to get around it.”
“The other reason it concerns us is that the banks are reliant on short term financing through repos. And that was a big reason why Lehman fell as hard and fast as they did, because they were so reliant on these repo agreements.”
Occupy the SEC has anywhere from 20 to 30 members. But seven worked actively on the letter to the SEC.
One person signed as “George Bailey.”
“That’s a pen name,” Goldstein says. “I can’t speak on his behalf.”
Can you say who George Bailey is?
“No.”
If George Bailey’s name was known, would we recognize it?
“I don’t want to speak for him. But he’s not like Jamie Dimon.”
Have you spoken with Paul Volker?
“No,” Goldstein says. “We have reached out to him. Apparently, he does not do e-mail. We had to actually mail the letter to him. We have done that. We are trying to set up a meeting with him. But we don’t know if it will happen or not.”
Goldstein graduated from Columbia University in 2003 in computer science. She worked on Wall Street for seven years – at Morgan Stanley, Merrill Lynch and then Deutsche Bank. And then she quit.
“My training was in computers. But later I was doing business analysis. I was the person between the techie and the traders. I had to understand the business.”
“But I don’t have any legal training. The legal training I have is from working on the letter we wrote. It was like law school 101.”
Why did she quit Wall Street?
“For a long time I had a sense that I wasn’t doing much more than making wealthy people more wealthy,” Goldstein said. “And I wanted to do something more meaningful with my life. So, it was something that I had thought about for a real long time.”
“I had a great job. My colleagues were really smart. I was well paid, relative to what I would make outside the industry. So, it was something that I struggled with.”
What have you been doing to pay the bills since you left Wall Street?
“I am self employed. I do consulting. I do private technical training. But mostly I teach in private sessions and public groups, teaching programming and web development. I also wrote a programming book.”
How did you get involved with Occupy Wall Street?
“I got involved after the first week or two – after the first pepper spray incident.”
“I watched it with a bit of skepticism – as a lot of people did when it first started. But after the first incident with the three girls who were pepper sprayed, I felt like I had to get down there to show my support. I felt what was happening with the peaceful protesters was wrong.”
[For the complete q/a transcript of the Interview with Alexis Goldstein, see 26 Corporate Crime Reporter 10(12), March 5, 2012, print edition only.]