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VOL. 125 | NO. 146 | Thursday, July 29, 2010

Baker Donelson’s Brown Advises Senate Subcommittee on Financial System

By Andy Meek

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It’s often said that the best parts of movies are the ones left on the cutting room floor.

Baker, Donelson, Bearman, Caldwell & Berkowitz PC attorney Gary Brown feels the same way about the voluminous update of the nation’s financial industry rulebook President Barack Obama signed into law last week.

Brown should know. He helped senators fashion the sprawling, complex and historic legislation that’s a direct outgrowth of the 2008 recession.

He did so because the staff of the U.S. Senate’s permanent subcommittee on investigations essentially has Brown, an attorney in Memphis-based Baker Donelson’s Nashville office, on speed dial.

Democrats consider the financial reform bill one of Obama’s crowning domestic achievements this year, insisting it restores fairness and accountability to both high finance as well as lenders on Main Street. Republicans fret it will do more harm than good.

Because he’s as solidly Republican as they come, Brown’s impression of the financial reform bill is about what you’d expect – but not necessarily for the reasons you’d expect.

His front row seat to one of the most significant pieces of legislation affecting the financial industry in generations meant he watched with dismay as a politically charged atmosphere squelched what he believed was the chance for real and lasting reform.

A Wall Street Journal article earlier this month about Brown, which claims his intentions and ideas were overshadowed by the constant gamesmanship of Washington, was headlined “Financial Reform and the Bad Republican.”

Ideas Brown wanted to see implemented included the regulation of synthetic derivatives – among the risky and opaque investments that poured gasoline on the fire of the financial crisis – and giving investors the right to sue brokerages that aren’t above board in their marketing of securities.

None of that made it into the final bill, which Brown said “doesn’t address some of the fundamental causes of the financial crisis.”

If the bill doesn’t go far enough in plugging the financial system’s holes, does that mean there was an opportunity amid the current partisan wrangling to do more – to go farther?

Brown sighed before answering.

“I’d probably say no,” he replied. “These days, it’s about trying to score points. If you support something the other party proposes, well my goodness, you can’t do that because then they can claim it’s bipartisan. It’s all about who can amass the most power and get re-elected the most. And that tends, in my judgment, to be the focus as opposed to (realizing) we’re here to do the people’s work, and let’s put all this other trash aside to get it done.”

Among his recent duties with the Senate subcommittee – which he finished several weeks ago – was preparing senators for a hearing at which the heads of Goldman Sachs were put on the hot seat for their firm’s role in the crisis.

In an interesting twist, he was already zeroing in on the same complex Goldman Sachs investment to study with senators that the U.S. Securities and Exchange Commission focused on in its lawsuit of Goldman in April.

“It became clear, at least to me and others pretty quickly, that that deal set up the classic conflict of interest and related issues,” Brown said.

Goldman did not disclose to investors the involvement of a prominent hedge fund manager in the assembly of one of Goldman’s mortgage-backed instruments that cost investors $1 billion. That led to the SEC’s lawsuit.

Goldman recently agreed to a $550 million settlement with the SEC over the matter.

Brown’s phone, meanwhile, frequently rings in the wake of financial crises that lawmakers have begun trying to address.

In 2002, he served as special counsel to the Senate’s committee on governmental affairs, in addition to working with the permanent subcommittee on investigations, in a look into the cause of Enron’s collapse. He also advised the Senate during its debate of 2002’s Sarbanes-Oxley Act.

He expects the calls to keep coming.

“A lot has been made of this Consumer Protection Agency that’s going to come out of the financial reform bill,” he said. “But I’m sorry – credit cards and debit cards did not cause the financial crisis. There’s no additional supervision of Fannie Mae or Freddie Mac (in the legislation). And there’s your classic ‘too big to fail.’

“Why didn’t you address those? If anything helped to create the financial crisis, it was that.”

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