The fallout from our current economic malaise continues as Christopher Cox voluntarily steps down and out as Chairman of the Securities and Exchange Commission (SEC).  It had to be, of course, as he became one of the convenient snowflakes on which to blame the financial blizzard.  The opening salvo on Chairman Cox dates back to September 18, 2008, when then-presidential-nominee John McCain angrily announced: “If I were president today, I would fire him.” Actually, his scheduled term ends officially in June 2009, and the president possesses no authority to fire him—though such reality is usually ignored amidst campaign rhetoric.

It’s fair to assign some culpability to Mr. Cox, now completing a 3½-year tenure in the job.  The SEC is unquestionably a demoralized agency, having failed to foresee the collapse of Bear Stearns and Lehman Brothers or take action to prevent the Bernard Madoff fiasco.   However, might a more aggressive and diligent chairman have made a difference?  Consider for a moment the agency itself.  Established as part of President Franklin Roosevelt’s “New Deal” legislation of 1934 to administer the securities industry, it quickly became immersed in politics and favoritism under its first Chairman, Joseph P. Kennedy, father of President John Kennedy.  Today this ¾-century bureaucracy consists of 4 divisions, 18 offices and a staff of 3,800, scattered through 11 regional offices across the nation.  Its chairman is one of five commissioners who serve 5-year terms, with one commissioner’s term ending June 5 of each year.

I recognize what Chairman Cox faced during his tenure at the helm.  I found myself in a similar position when, as a 29-year-old Navy Civil Engineer Corps lieutenant, I became Public Works Officer of a naval facility in Washington, D.C.  As titular head of a 200-employee department of civil servants, my “subordinates” included many with over twenty years vested interest in their positions and all the rights, privileges, and security which civil service provides.  As an organism, this department functioned as it chose through the terms of a dozen prior Public Works Officers.  My arrival made no difference.  During my three years in charge, I developed a realization of the limitations imposed on the appointed head of any governmental organization.  I’m certain Mr. Cox is now equally aware of these constraints.

Christopher Cox is remarkably talented, graduating magna cum laude from the University of Southern California, recipient of an M.B.A. from Harvard Business School, and J.D. from Harvard Law School.  During 56 years, his record of accomplishment is nearly flawless.  If he can be accused of anything, it was indiscretion in vacating a safe congressional seat after 17 years to assume the mantle of a governmental organization over which he exercised no real authority.  Perhaps that’s justification enough to subject him to the pillory.

Is it possible that the idea of a flat rate income tax is really a good idea? Some persons claim that everyone paying at the same tax rate, with no deductions or exemptions, is far fairer than the present system where the wealthy can presumably avoid their obligations with clever accounting tricks. Over the years the idea has been promoted by such public figures as presidential aspirant Steve Forbes and one-time California Governor Jerry Brown.

Arguments against the flat tax come from representatives of all classes. Those who claim to speak for the poor maintain that the anticipated flat tax rate, generally estimated to be no more than 15-20%, will put money in the pockets of the rich by lowering the top brackets in which they currently reside. Members of the upper end of the income scale vehemently denounce the flat tax, contending that the loss of legitimate deductions and credits will penalize them, resulting in their bearing an even greater share of the nation’s tax load. And of course many in the great middle class are equally hostile to the idea, fearing that the loss of such benefits as family exemptions and mortgage interest deductions will work to their ultimate disadvantage. For every enthusiastic supporter of the flat tax you can find an equally vocal opponent.

It cannot be denied that the world of taxation is hostile, and the government’s appetite for the citizens’ dollars is insatiable. It’s likely that whatever flat tax compromise might ever be reached, the bureaucrats’ take will be at least what it currently is—and quite possibly larger. This is because there’s no way to tell what laws will eventually come to pass after the political infighting ends. The lobbying activities will be intense while the charges and countercharges hurled will exceed anything in recent memory. Without a doubt, one thing can be counted upon: Fairness will not be a major consideration in whatever legislation is finally enacted.Perhaps a final comment is in order. Most taxpayers resent having their money taken, so the politicians must regularly genuflect to the concept of tax relief, and an endless variety of proposals are periodically floated to convince the citizens that their best interests are uppermost in the minds of their leaders. The flat tax is but one such contrivance.

A concluding thought:
Although I entertain some preconceived biases on this matter, I recognize that there are valid arguments both pro and con. For those of you with strong opinions on this subject, I’d be pleased if you’d share them with us.

In the closing weeks of the election now thankfully concluded, attention focused on the failing economy and a need for the federal government to address the problems quickly and effectively. Amidst passage of the $700 billion bailout legislation, the Bush administration proposed purchase of “toxic mortgages” from major investors as a way to invigorate the economy. As expected, calls for government money emanated from those claiming to represent ordinary citizens, urging assistance for individual homeowners facing foreclosure. This dispute between Wall Street and Main Street remains heated as spokespersons from both sides press their demands.

The latest participant in this controversy is the National Association of Realtors (NAR), whose outgoing president, Dick Gaylord, criticized the U.S. Treasury Department, the overseeing authority, for “focusing too much attention and stimulus money on Wall Street and banks that are in turn using the money for mergers and acquisitions.” Not unexpectedly, the NAR prefers that the effort be aimed more toward direct government support for housing. This is but another salvo in what is currently a national contest by every imaginable group to wrest a share of the largesse. With hundreds of billions to be blown, largely by whim, and the $700 billion only a portion, there’s no limit to the variety of organizations that will haggle over the loot.

This gets us down to a fundamental question: What is the likelihood that upside down homeowners (those whose mortgage balances exceed the value of their homes) will be among the favored recipients? I believe they’ll be out of luck. With no powerful lobbying group truly representing their interests, they are odd man out. In addition, with an estimated 27% of American homeowners now in this predicament, whatever funds remain after allocation to the influential, few dollars remain for these luckless souls. Final result: Wall Street will trounce Main Street.