ENFORCEMENT AGENCIES

By Dámaso A. García G.     July 1, 2011

The current democratic system, perfected by Montesquieu, is based on the separation and mutual control between the public authorities of the, Executive, Legislative and Judicial powers.

Also other control agencies exist and are created as: Auditor General of the Republic, Federal Reserve Bank, Agencies, ministries, etc. etc...

One of the major problems is: Who controls the Agencies or Administrations? For example, the Federal Reserve Bank, the Security Exchange Commission, The Pension Funds Administrators, The Food and Drug Administration, etc., or those responsible for setting utility rates, etc. etc. ... ..

It is assumed that public authorities, are controlled by the people through periodic elections, and a similar system can be set to control the Departments, Agencies, secretaries in charge of controlling public faith, etc.etc., and those in charge to protect the rights of consumers against monopolies.

Experience in Chile, my country, shows that the public authorities control over their peers, work very little. Despite the discredit public and generalized of the politicians, the Judicial System and some rulers, very few have been removed or dismissed in the history of it, I think that presidents none, because coups are no democratic mechanisms; Senators, I just remember the case of Maria de la Cruz, in the last half century, and judges of the Supreme Court, only the Minister Cereceda in all our Republican history, and with rumors that the Supreme Court have not fully complied with the Senate’s resolution, because they continued paying a pension to this corrupt judge.

With regard to the Federal Reserve Bank, the Security Exchange Commission, etc., there were large frauds in the markets and in the Banks in the past, and both showed been totally inept to detect or eliminate them, before that by its own growth, bursting by themselves.

In the case of fixing prices to monopolies, we have seen, as they raise prices almost continuously, with the almost unanimous consent of the controllers.

Now with regard: to the Federal Reserve Bank and the Security Exchange Commission. Who must fulfill the role of protect the savings and the pockets of millions of Americans. Although there is an almost certainty, that there have been abuses and mismanagement with the money of the savers, we have not known of sanctions, or about any important fraud discovered by the watchdogs. Moreover, we have seen how they have taken trillions of taxpayers’ Dollars to cover the consequences of their own actions and inactions.

Given the above, and with the knowledge of human nature, which makes it very difficult, to officials, usually with salaries lower than their expectations or their levels of spending, and without the ability, time or authority to control economic monsters, that with a tiny percentage of their profits can bought them with years or decades of theirs salaries or with a simple phone call can make them lose their jobs.

I SUGGEST: that in the case of the Federal Reserve Bank and the Security Exchange Commission. its work of controlling the Banks and the Markets, be modified, because in my opinion, only they see and control formalities, for that in the future its work should only be to put at the disposal of any Citizen with a College degree of 4 years of study, or any accountant or auditor, all the information they requests, so they can freely review the actions and proceedings of the Supervised, and also, at the disposal of any other person, than 100  Clients (or depositors), or 100 shareholders  authorized to represent them as AUDITOR-CONTROLLER, in this way, we multiply by thousands the controllers, which make almost impossible for the Banks, Corporations, etc.: to buy them, to push them, to entice them or to make them lose their jobs.

A similar system can be set to control the prices of the Monopolies; i.e., that is, anyone, with the signing of 100 consumers, can audit them and review the methods that were used for fixing their rates and their way of implementation.

The urgent need to MODIFY THE SUPERVISION SYSTEMS, becomes evident, when we can witness publicly, that when the Funds or Banks are authorized to invest the money, they manage on behalf of others, in shares of Corporations or other assets; the prices go up violently, and unfortunately, in the future, when the savers or the Funds need to sell these shares or assets to have money for their retirements, it is likely that its value will come down violently.

As an example in Chile, the state sold shares in ENDESA, the biggest producer of electricity, to the interested: future pensioners, public officials, members of the Armed Forces etc., At a price of $ 12.50 per share, and in some cases the interested could pay  them using their severance pay for years of service and also had the possibility to buy more shares, with payment facilities.

As we said, the State sold these shares at $ 12.50 each, the vast majority of those who received and / or acquired them, sold them at prices between $ 12.50 and $ 25.00 the action, as it can be verified through shareholders records, but curiously, those who bought them, in many cases sold them, indirectly, to the same future pensioners, public officials, members of the Armed Forces etc., through the private Pension Funds., at prices between $ 50.00 and $ 340.00 each action. USA has the chance that the levels of corruption are a lot lower than in Latin America.

Another variable that is very important to take into account it is that in the case of shares of Corporations, it is very easy to create fictitious profits, raising artificially the price of the shares. Because the systems of valorization commonly in use, establish that the total number of shares that are owned, are valued in the books, at the last market price of the day or at the average price of the last month, etc.....

Moreover, the pension fund saving system, by its own characteristics, is a positive flow of funds over long years, then a neutral flow and eventually, theoretically, a negative flow.

This allows that in the positive flow phase of funding, which is the current, and as we said will last many years, you can create a permanent demand for shares, rising its prices, creating huge fictitious profits, which will be only discovered, when it comes the MOMENT OF TRUTH, that is, many years later, when the cash flow becomes negative, and it is therefore necessary to create a permanent offer of shares, to generate resources, to meet the commitments made earlier.

I think the above is a topic, that make urgent and necessary,  to meditate and to investigate, and shows the urgent need to implement, as soon as possible, reforms to the existing systems of control.