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 . . .

 

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Source:

S.E.C. Concedes Oversight Flaws Fueled Collapse
STEPHEN LABATON
NYT, September 26, 2008

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