SEC: Brokerage Collapse Was Our Fault
“The last six months have made it abundantly clear that voluntary regulation does not work."
-Christopher Cox, Chairman Securities and Exchange Commission
Excellent timing -- I have an editorial in this weekend's Barron's on exactly this sort of blind deregulation:
"The chairman of the Securities and Exchange Commission, a longtime proponent of deregulation, acknowledged on Friday that failures in a voluntary supervision program for Wall Street’s largest investment banks had contributed to the global financial crisis, and he abruptly shut the program down . . .
The program Mr. Cox abolished was unanimously approved in 2004 by the commission under his predecessor, William H. Donaldson. Known by the clumsy title of “consolidated supervised entities,” the program allowed the S.E.C. to monitor the parent companies of major Wall Street firms, even though technically the agency had authority over only the firms’ brokerage firm components.
The commission created the program after heavy lobbying for the plan from all five big investment banks. At the time, Mr. Paulson was the head of Goldman Sachs . . .
The announcement was the latest illustration of how the market turmoil was rapidly changing the regulatory landscape. In the coming months, Congress will consider overhauls to the regulatory structure, but the markets and the regulators are already transforming it in response to events . . .
The division’s “failure to carry out the purpose and goals of the broker-dealer risk assessment program hinders the commission’s ability to foresee or respond to weaknesses in the financial markets,” the report said."
Scathing stuff . . .
>
Source:
S.E.C. Concedes Oversight Flaws Fueled Collapse
STEPHEN LABATON
NYT, September 26, 2008
http://www.nytimes.com/2008/09/27/business/27sec.html
Saturday, September 27, 2008 | 03:43 AM | Permalink
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Cox could be a great EPA director. Then he could tell us that voluntary regulation of tobacco stores in junior school cafeterias has not reduced teenage smoking levels.
Cheers.
Posted by: Douglas Watts | Sep 27, 2008 4:13:40 AM
" The division’s “failure to carry out the purpose and goals of the broker-dealer risk assessment program hinders the commission’s ability to foresee or respond to weaknesses in the financial markets,” the report said. "
That sounds great, except everyone 'foresaw' the weakness, including them. It was a lack of will to respond, due to the amount of money involved. Same with the housing bubble. Same with the tech bubble. Cripes, there were even books about each of them long before they burst.
If clowns start throwing money out at a parade, everyone knows there is something deeply wrong -- but they are also pretty busy stuffing hundred dollar bills into their pockets. What are you going to do, stand on a float and say, "stop the madness"? No, you will be screaming "MONEY FALLING FROM HEAVEN! MONEY FALLING FROM HEAVEN!" while slapping yourself on the back for being such a genius. Its better than drugs I'm sure.
The long term thing to look at is not what causes these things, but what is it that prevents action on them. It is certainly not 'Why didn't we see this coming?', gimme a break.
Posted by: debreuil | Sep 27, 2008 4:23:43 AM
If the world was fair, there would be someone who could fire Cox and his ilk, take all their assets, cancel their pensions, give them $100, a pat of the back and say "see ya".
Unfortunately, the SEC puppets, politicians, lobbyists and corporate executives who lined their pockets will keep everything they gained by trashing the companies they worked for, shrug their shoulders, smirk and either retire or go looking for the next mark to take advantage of. This is how the world works.
Posted by: Jojo | Sep 27, 2008 5:10:53 AM
The issue is never regulate or not regulate - the issue is whether it is a wise decision to do or not do something. Again, the person who helped get us into this (Paulson) is the one who will get us out? (Or did he not know what Goldman Sacks was doing? Remind me - what did he know at Goldman???)
Posted by: fresno dan | Sep 27, 2008 5:14:52 AM
Do you guys think they will pass this Securities Transaction Tax? Like wtf??????
Posted by: jim | Sep 27, 2008 5:53:41 AM
"The commission created the program after heavy lobbying for the plan from all five big investment banks. At the time, Mr. Paulson was the head of Goldman Sachs ."
If it looks like a duck, quacks like a duck, then it's time for an FBI investigation. There are questions of corruption here that need to be settled.
It certainly appears that the financials are running the government instead of the government governing the financials.
Posted by: Rock | Sep 27, 2008 7:10:36 AM
Rock,
You are right. Actually the democrats should demand a special prosecutor, as part of the bailout package.
Then you would probably get much closer to what is really needed.....as far as the package being debated..
Posted by: Bruce in Tennessee | Sep 27, 2008 8:24:16 AM
the 2004 SEC Act which allowed the brokers to leverage up to 40:1 , along with Clinton's 1995 legislation to enable FNM , FRE to leverage at 2.5% of their balance sheets to support the CRA of 1977 will go down as the great folly of the last 75 years
Senator Chris Dodd and Congressman Barney Frank were the great enablers of FNM and FRE , they should be censured at the least ( just like Dodd's father was 40 years ago)
Posted by: jj | Sep 27, 2008 8:29:25 AM
Rock, it's been that way for quite a while now. Corporate America bought out Congress and keeps its edge with their K-street marauders (lobbyists). Does the average citizen have lobbyists, even though there are many more of "us"? No. Is anyone going to bat for us? Well, Nader, but a vote for him puts McCain and more of the same in the WH. Our "watchdog" departments (like the EPA, OSHA, the FDA and many others) are now (and have been for decades) staffed by people from corporate America who make decisions based on their ("former") companies needs. That's how NAFTA and GATT got passed and why all our manufacturing jobs have vanished. It's the reason most people can't afford health care and why wages are stagnated and our earning power has deteriorated. All the wealth is designed to flow to the top 1%, while everyone else has to live on crumbs. The way it looks, we better get used to doing without, being hungry, and living MUCH more simply.
Posted by: tom | Sep 27, 2008 8:31:45 AM
The SEC was a feared agency when it had Stanley Sporkin as head of enforcement. He was a strong "cop on the beat" who let CEOs, directors and corp. attorneys khow he'd put them in jail if they failed to comply with SEC regs. It's obvious that the Fed gov't's deliberate decision to de-fang the regulators (SEC, FTC, etc.)opened the gates and let the moneymakers know anything goes. The laws and regs are on the books....the Fed needs to enforce them.
Posted by: Clay | Sep 27, 2008 8:39:04 AM
"You are right. Actually the democrats should demand a special prosecutor, as part of the bailout package."
I've about decided Ron Paul is right and that life is much simpler and makes much more sense if you regard all of Washington as one Party. Your statement becomes, "the Party should demand a special prosecutor to investigate the Party's role ..." which isn't likely.
Posted by: Jasper | Sep 27, 2008 8:44:36 AM
Another idea, B. Frank I see says that the plan may be ready tomorrow. Good idea would be to call Roubini to a special joint session of congress Monday to testify about his ideas...he after all has two strong points... 1. He is a professional economist and 2. He has been about as right on as one could be without a crystal ball.
Plan can wait a week if it is right at the inception.
Posted by: Bruce in Tennessee | Sep 27, 2008 8:54:31 AM
Hopefully this will signify the end of the supply side, free market ideology. It simply has failed. The BS has started already about how government is inept, the cause of the problems and therefore we don't need it. The strategy has been to hollow out government so it has no chance to succeed thus furthering the less government mantra. The trick will be to make people understand that government can work and must work. Get rid of all the lobbyists and we the people can take back the government.
Posted by: Fred S. | Sep 27, 2008 9:05:56 AM
It certainly appears that the financials are running the government instead of the government governing the financials.
Welcome to the USDA, the Department of Energy, the Bureau of Land Management, the FDA, OSHA, NHTSA . . .
... I'm sure I'll think of others after I get some coffee.
Posted by: Darkness | Sep 27, 2008 9:06:13 AM
"The [SEC] created the [voluntary regulation] program after heavy lobbying for the plan from all five big investment banks. At the time, Mr. Paulson was the head of Goldman Sachs ..."
Uh huh. And now, as head of the Treasury, Mr. Paulson isn't soliciting regulatory forbearance anymore; he's throwing it out like trinkets at a Mardi Gras parade. Want to become a bank holding company overnight, as GS and MS did? TA DA! DONE, with a midnight wave of the magic wand! We don't need no steenkin' 30-day waiting periods.
But that's small change, compared to backing up a fleet of Goldman Sachs trucks to the loading bays of the Treasury in broad daylight, and fudgepacking them with taxpayer cash. This is the largest looting operation since Genghis Khan sacked Samarkand. And it's so EASY. It is so jaw-dropping, brain-dead EASY.
When you can broadcast on teevee for a whole week that you're going to openly steal $700 billion, and the victims only go "m-o-o-o-o-oo" and "ba-a-a-a-a-ah" -- my advice would be, "Double down and take 'em for all they've got! There's no intelligent life on this planet, Benny!"
Posted by: Jim Haygood | Sep 27, 2008 9:12:45 AM
Rules and regulations are there to keep the honest people honest. The crooks and fraud artists (Skilling, Fastnow, Keating, etc.) will be around forever, but when honest people see $100 bills laying around for the taking, eventually they will succumb to the temptation. This is not rocket science. Every compasny has a strict expense account policy, Most restaurants have computer programs to control the cash/credit leakage. Voluntary regulation is a concept that disappeared after the first crook and any politician that believes in no regulation should be sent packing.
Posted by: larster | Sep 27, 2008 9:40:10 AM
40,000 comments to Diane Feinstein's office overwhemingly negative...
http://www.latimes.com/business/la-fi-voxpop26-2008sep26,0,3246836.story
Public isn't buying Bailout Plan....LA Times..
Election is only 5-6 weeks off, these people want to be returned too...maybe there is a chance we don't waste this money..
If we need a plan, we need more open door discussion...I know all of you have seen the videos of Paulson reassuring us things would be fine in March.
If he thought that he has no vision.
If he didn't, he should have realized he would look idiotic when things started to really go bad.
Either way, it shows pretty poor leadership...
Posted by: Bruce in Tennessee | Sep 27, 2008 9:57:00 AM
Quote:
40,000 comments to Diane Feinstein's office overwhemingly negative...
http://www.latimes.com/business/la-fi-voxpop26-2008sep26,0,3246836.story
Public isn't buying Bailout Plan....LA Times..
End Quote.
To believe that any of this will matter or that any material changes will occur is to misunderstand how America and American governance has been changed since WWII.
The U.S. is no longer a representative republic but is instead led by a Emporer-President who, advised by his "wise men", makes the decision as to course of action, while a single-party-of-incumbents Congress then postures and positions itself for re-election, regardless of the benefits or deficits of the proposed Presidential legislation.
The only hope of change is de facto term limits by voting out every incumbent at every election - meaning, of course, regardless of posturing, nothing will change.
Posted by: Winston Munn | Sep 27, 2008 10:25:07 AM
Is there a way to find out who were the biggest proponents of the Bill to Deregulate - Names of Congressmen,What the overall vote was, Where did the lobbying money go by most to least.....
Some will say - let's solve the problem - it's too late for the blame - I say, lets bring the advocates (of this bill) to the forefront - with history and pictures of all - and let the taxpayer make a decision - what to do with the information
Posted by: la grande poussée | Sep 27, 2008 10:46:12 AM
“abundantly clear that voluntary regulation does not work”
This guy is a freeking genius. He has discovered that people will do whatever they can get away with, to make more money. Considering what else they have given Nobel prices in economics for, Mr. Cox is a clear front-runner for next years price. You may think that you have known for a long time that the neo-cons are greedy or idiots, but did you say it as eloquently and in an official “statement”?
Posted by: DeDude | Sep 27, 2008 1:25:18 PM
Curious trivia:
William H. Donaldson is the same Donaldson of the former investment bank, Donaldson, Lufkin & Jenrette which inspired two of its associates to write a book called Monkey Business. :)
Posted by: Alan | Sep 27, 2008 2:11:13 PM
"voluntary regulation”
Isn't that an oxymoron in the first place?
Posted by: Al Czervic | Sep 27, 2008 2:11:54 PM
That Paulson, he be the fox of all foxes. He knows how to guard that hen house.
Posted by: Scott Williams | Sep 27, 2008 3:04:39 PM
It really is analogous to removing traffic lights at intersections to see what happens in "unregulated" libertarian intersections.
But i personally don't believe it was some ethereal exercise in free market practices.....It was simply an attempt to legitimize and otherwise enable CRIME.
Posted by: brion | Sep 27, 2008 3:29:07 PM
Interesting parody in the Onion: "Wealthy Teen Nearly Experiences Consequence"
http://www.theonion.com/content/news/wealthy_teen_nearly_experiences?utm_source=yahoowidget_rss_1
Posted by: Bill Anderson | Sep 27, 2008 7:45:44 PM
