In what I can only type with a combination of disgust and astonishment, SEC Chairman Christopher Cox blames the current crisis on the “boom-and-bust cycles” of markets.
“Financial markets, of course, are not perfect. In particular, they are susceptible to boom-and-bust cycles. Cycles of this sort have been a hardy perennial over the past 400 years of experience with organized markets. Addressing the results of these cycles is why we have protective mechanisms such as the Federal Reserve System and federal deposit insurance.
But clearly these mechanisms proved inadequate to prevent the current crisis. As the Congress and the new administration consider what improvements are necessary, they should take exceptional care to preserve the premise of well-ordered markets that underlies our enforcement and regulatory regime. Maintaining the arm’s length relationship between government, as the regulator, and business, as the regulated, is essential. Otherwise, when the government becomes both referee and player, the game changes dramatically for every other participant.
Rules that might be rigorously applied to private-sector competitors will not necessarily be applied in the same way to the sovereign who makes the rules. On several occasions during the past year the Treasury and the Fed took on the unusual role of negotiators and principals in merger and acquisition transactions that normally would have been arranged by private parties. Even in these extraordinary cases, however, it remained the role of the SEC to regulate these transactions for the protection of investors. We took pains to stay at arms length in these cases, but our close collaboration with these same government agencies has made this truly terra incognita.”
Talk about an imperfect messenger: You will note that nowhere in his entire Op-Ed is there any mention of the role of the SEC in the entire credit or financial mess — most notably, the SEC’s nonfeasance. They utterly failed to discharge their legal responsibility to regulate the Rating Agencies (Moody’s, S&P, Fitch). Note that these same agencies are the ones that slapped triple AAA rating ont he mortgage backed paper at the root of the current crisis.
Nor does he address the role of the SEC in allowing the 5 biggest investment banks — now wards of the state — to waive net cap rules and lever up to 40-to-1.
Cox takes zero personal responsibility for the current crisis for the acts of his own agency, or even himself.
You may dismiss the entire Op-Ed written by the Chairman as a steaming pile of cluelessness and evasive subject changers.
Whether you read it or not is up to you, but my advice: Don’t step in it.
We Need a Bailout Exit Strategy
Let’s not forget that free markets made America strong.
WSJ, DECEMBER 10, 2008, 11:24 P.M. ET