Letter to Paulson, Sec. of Treasury, US

25 January 2007


Henry M. Paulson Jr.
Secretary of the Treasury
Department of the Treasury
1500 Pennsylvania Ave. NW
Washington, DC 20220

Re: Consistent calls by Mr. Paulson to dumb down or do away with the 2002 Sarbanes-Oxley Act

Dear Mr. Paulson,

In yet another Wall Street Journal article published today titled “In Call to Deregulate Business, a Global Twist”, your endless efforts to undue the rules enacted by the United States Congress in 2002 under the Sarbanes-Oxley Act are once again put on display.

It is completely clear and without doubt you should not be in a position to represent the interests of American Citizens in public service in any capacity. Your appointment as Secretary of Treasury was obviously and without mistake an attempt by President Bush to make a direct assault on the rules governing the conduct of large American corporate entities and to shield the burgeoning Hedge Fund and Private Equity industries from scrutiny. I have no doubt you have experience that would be lauded by any person obtaining such a position only that your allegiances are completely misplaced. You should be removed from office immediately.

Let me give you a short background on myself. I was born in Washington, DC and raised in Maryland. After high school and 2 years of community college I entered the USAF. Following my time there I finished my degree in Economics at the University of Maryland and started my own business. I successfully sold the business in late 2004. I currently manage my personal portfolio and am renovating a house in DC with which I plan to live.

While at community college a lousy Economics professor who bragged about using the same notes to teach his class for 20 years suggested we read the Wall Street Journal. I took him up on his suggestion and although I could not comprehend exactly what I was reading at the time I soon realized where my future would be. As soon as I exited basic training in the USAF and had saved $750 I anxiously found a way to invest it. I opened a brokerage account shortly thereafter and proceeded to save every dollar I could to buy stocks. By 1986 I had accumulated about $20,000 in equity, followed about 400 British and American companies and spent several hours per week researching and keeping charts.

During this time I was serving in the UK so I focused most of my time on the market there, following the Thatcher Government sell offs etc. At the same time I watched from a distance the US undergo a Reagan economic boom. That was a boom in the merger and acquisition business (along with commercial and to some extant residential real estate) financed by increasingly worthless “junk” bonds that by the end of the day were being sold to pensioners by unscrupulous bankers. Eventually the house of cards created by the “junk” had expanded to the S&L and banking industry and a variety of factors I am sure you are keenly aware of led to the collapse of the stock market, S&L industry and nearly the entire banking system.

This was my first direct experience with economic collapse and as a student of Economics at the time I was fascinated to watch it unfold. The US Government ended up assuming about half a trillion in debt from the balance sheets of failed financial instructions (40 year debt if I remember correctly), the Fed orchestrated mergers and Citibank was bailed out by Saudi Prince Alwaleed bin Talal amongst other amusements. Essentially,1989 was 1929 all over again only the banks doors were kept open by the actions of the government. What citizens got was no locked bank doors and the Resolution Trust Corporation.

Well, I lost about 90% of my hard earned investments during this fiasco and immediately began to accumulate money to start over again. I started my business and experienced the early 90’s recession in the booming telecommunications industry. I did not feel the pain. I kept a keen eye on the world of finance and vowed never to use an American stock broker for the rest of my life, Period.

Strange things started happening by the mid 90’s. The death of the Evil Empire and shrinking of the Corporate Welfare Industry (defense industry for you insiders), left lots of smart people to do something useful. Technology was exploding and the PC was becoming a household item. Many people had great ideas about what to do with this technology and the networks that were connecting it and that enthusiasm quickly led to an insane rush by anyone with a business plan to bring in millions of dollars. Once again we soon had merger mania only this time it was company stock that fueled the deals and promises of more stock and more deals made Wall Street ever so greedy with many resorting to criminal tactics to keep the money rolling.

Eventually the reality that this paper was essentially “junk” stock caused the house of cards to come crashing down again along with a variety of other factors you are surely aware of. In the end the schemes were not so complex and a couple Senators, instead of having to raise half a trillion dollars (that loss would be born by the investors in the worthless paper this time who happened not to be S&L’s), saw the need to ensure this kind of scam would not happen again. Their actions, not unlike the bail out of the financial industry in the late 80’s and early 90’s, were aimed to protect the American citizen and unsuspecting investors of fraud, by tightening the regulation of the companies and the people who make up their fabric. Thus the creation of the Sarbanes-Oxley Act.

Now there was a time in the early 20th century when a crash of unheard of proportions took place amongst a landscape of very concentrated corporate entities who wielded tremendous power and influence over the American landscape. The laws (Glass-Steagle Act, Securities Exchange Act) passed after the 1929 crash were despised by all of the corporate executives affected and they vowed to undo them. These vows were passed down to their successors and in recent years they have largely managed to undo the Glass-Steagle Act and during the last decade propagate a toothless inept SEC.

Sarbanes-Oxley is like a thorn in their side. Just when they had managed to water down all regulations against them, a new law forcing responsibility for their actions is thrust upon them. The point here is you, Mr. Paulson are nothing more than a mouthpiece of the elite banking industry you come from. You, of all people, being in the position you are, have taken it upon yourself to remove the “thorn” that was created to reign in your corporate buddies who were directly responsible for the worthless paper bubble of the late 1990’s so they may go about repeating themselves.

You have no right to hold your position.

Right now, as I write this letter, this decade’s paper trail is being laid. While you expend your efforts trying to undo a very important piece of legislation, your buddies are running away with more cash than did they in the 1980’s or the 1990’s. There are currently about half a dozen private equity companies on their way to creating $100 billion a year conglomerates. This will grow. There is somewhere near $1.5 trillion in real cash working in an completely unregulated investment industry that your buddy’s growth and success is increasingly dependent on. I made this point clear in a letter to our beloved new Fed Chairman when he suggested those same banks should be more diligent and responsible in their practices while the Government lays off. Now we are about to see the first for Way of this industry into the investment accounts of the average small investor with the public offering of the Hedge Fund Fortress Investment Group.

The way in which the private equity firms operate, the increasing syndication of their debt, the direct participation in these deals by your banking buddies, the way in which they leverage their prey to the hilt, pay off the people running the businesses and use the debt to enrich themselves is a disgrace. They are creating hollow shells of companies saddled with debt while they milk them for every ounce of hard cash they can. Sooner or later something is bound to implode. If easy money dries up Wall Street is sure to not be generous in putting these companies back on the block to investors with negative net worth as they have done recently. In addition to all this, there is the tremendous growth of a previously little known industry in trading Credit Derivative products that is making the distinction between the lender and investor murky and the balloon of these products has created a false sense that somehow $30 trillion of debt can somehow be “insured” against loss by these products.

And what are you doing? Spending time trying to pluck the “thorn” out of your buddies and do away with Sarbanes-Oxley.

Just a note, I was fortunate when the bubble burst in 2000 this time. Call me lucky or smart but in March 2000 I stepped into the office of a local bank branch where I had some money invested in bonds and bought as much Phillip Morris (Altria) as I had money in the bank. The stock tippled while the market tanked and although I lost allot of money when the tech bubble burst, I did not “loose”.

I am smart enough to know when your buddies have gone to far and they are getting close again. Your only value to your position is having a good Rolodex to make calls when time comes to put some serious cash on the table. Ask Mr. Greenspan about that.

As I have no influence on whether you keep your job or not, I implore you to find it within yourself to leave the Sarbanes-Oxley Act alone and DO YOUR JOB. The American Citizen depends on you more than ever.

Sincerely,