The Security and Exchange Commission discovers that it was a bad idea to let big Wall Street investment houses regulate themselves, closing down a program it had adopted in 2004. Imagine that: it's not a good idea after all to let people who handle vast sums of money be responsible for their own oversight. Excerpt:
Also Friday, the S.E.C.'s inspector general released a report strongly criticizing the agency's performance in monitoring Bear Stearns before it collapsed in March. Christopher Cox, the commission chairman, said he agreed that the oversight program was "fundamentally flawed from the beginning.""The last six months have made it abundantly clear that voluntary regulation does not work," he said in a statement. The program "was fundamentally flawed from the beginning, because investment banks could opt in or out of supervision voluntarily. The fact that investment bank holding companies could withdraw from this voluntary supervision at their discretion diminished the perceived mandate" of the program, and "weakened its effectiveness," he added.
Mr. Cox and other regulators, including Ben S. Bernanke, the Federal Reserve chairman, and Henry M. Paulson Jr., the Treasury secretary, have acknowledged general regulatory failures over the last year. Mr. Cox's statement on Friday, however, went beyond that by blaming a specific program for the financial crisis -- and then ending it.
On one level, the commission's decision to end the regulatory program was somewhat academic, because the five biggest independent Wall Street firms have all disappeared.
There's black humor in this. More:
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. [Emphasis mine -- RD.] At the time, Mr. Paulson was the head of Goldman Sachs. He left two years later to become the Treasury secretary and has been the architect of the administration's bailout plan.
Next thing you know Mom will discover that it wasn't a good idea to let her diabetic children loose in a candy store without supervision.
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I don't see what you mean to infer from this article. The banks didn't want to blow up - their CEOs and upper management lost a lot of money. And do you really belive that SEC lawyers understand the risks of CDS and CDOs better than the elite Wall St traders and risk mangers? The people who work at the SEC are so dumb they barely understand the intended consequences of their regulations (let alone the actual, unintended ones).
I'm not grasping your point here... The article lays no grounds for blaming this "self regulation" for any of the outcomes of these firms. It simply says that an inspector's report says that voluntary compliance isn't effective, but fails to provide us any evidence that any wrongdoing covered by this self-regulation occurred, or that any rules were actually broken.
Maybe this is the fault of the writer? Maybe the point of the story isn't your point? Maybe you shouldn't just engage in "guilt by association"?
It is abundantly clear that the root of our credit issues is subprime lending at too low of rates, with too large of gaurantees by our government, and far too much dilution of good mortgages with bad mortgages occurred.
However, exactly who or how this relates to this article is completely not clear. Let's face it, whether voluntary compliance works or not, it's pointless when there's no rules against the problem.
I've read that Fannie and Freddie together have bundled and resold over a trillion dollars in subprimes and tossed them out on the market. And that, according to what Iv'e read, is a little over 3/4 of the peddled subprimes.
This is hardly a mystery, really. And CEO pay, inspectors talking about self-enforced compliance, etc, would seem to be irrelevancies when discussing the how, why, where, who - and what to do about them.
Further, the issue of default swaps, and the derivative mess appear to be, shall we say, symptoms, not the causes or problems themselves. They need attention, but we must address the underlying issue.
I'm beginning to think that we need to see a little "creative destruction" applied to the federal government - if it's good for markets, then it ought to be good for our system of government.
People from all points along the political spectrum are frustrated but I don't see the results of this election doing much to actually change things. If Obama wins, he's going to have to contend with a Democrat majority in both houses of Congress that is the most liberal ever. The Dem leadership is going to want to enact everything on the far-left wish-list (which means even more spending). Obama's choice will be to either go along with the congressional leadership (and he's certainly proven he's the consumate go-along to get-along politician) and favor even bigger government than we have now. Or he can try and buck Congress (which seems highly unlikely) and be more centrist, which means he'll probably be about as effective as Jimmy Carter. If Obama actually tries to give some substance to his wispy call for change, he may make the far-left happy, but he'll alienate middle America; if he stuns the world and tries to govern as a centrist, the congression Dems will have his head on a plate.
If McCain gets elected, he'll also have to deal with a liberal Congress that for political reasons will fight him every step of the way. Even so, Mr. Maverick will revert to form and "reach across the aisle" and give us "comprehensive immigration reform" (translation: amnesty) and other "bi-partisan" legislation (translation: liberal legislation), which means middle America will have his head on a plate.
And while this is going on, Chris Dodd, Barney Frank, Don Young, and the rest of the corrupt fools in Congress will continue to get re-elected and spend taxpayers' money like drunken sailors in a whorehouse. And let's not forget the iceberg known as social security is getting ready to slam into the ship of state (while neither one of the candidates talks about how to realistically deal with it). Change? I don't see happening any time soom, regardless of the outcome on November 4th.
Two Major causes: Commodity Futures Modernization Act (CFMA) and the Gramm-Leach-Bliley Act that repealed the Depression-era laws separating investment banking, commercial banks, and insurance companies. Congress has been warned since at least the Enron collapse in 2001. Congress held hearing after hearing, but took no action.
The major cause for the subprime foreclosure was unregulated credit default swaps (CDSs)— thanks to former Senator Gramm. Traders betting (futures) trading on the subprime loans, but no regulator could see what they were doing. Do a search on Phil Gramm and economy crisis or Gramm and subprime foreclosures.
Goldman Sachs made 4 billion dollars in 2007 by betting that people would foreclose on their loan, most others bet people would not foreclose. Paulson left Goldman Sachs with a net worth of about 700 million.
Where Credit Is Due: A Timeline of the Mortgage Crisis
A field guide to the loan sharks and politicos who got us into the predatory lending mess"
http://tinyurl.com/6bkeo7
"Lurking in the background of this weekend's collapse of two of Wall Street's biggest names, is a $62 trillion segment of the $450 trillion market for derivatives that grew huge thanks to John McCain's chief economic advisor, Phil "Americans are Whiners" Gramm. That's because in December 2000, Gramm, while a U.S. Senator, snuck in a 262-page amendment ("The Commodity Futures Modernization Act") to a government re-authorization bill (7,000 plus pages) that created what is now the $62 trillion market for credit default swaps (CDSs)."
http://tinyurl.com/56rkcb
It's not exactly like Gramm hid his handiwork—far from it. The balding and bespectacled Texan strode onto the Senate floor to hail the act's inclusion into the must-pass budget package. But only an expert, or a lobbyist, could have followed what Gramm was saying. The act, he declared, would ensure that neither the SEC nor the Commodity Futures Trading Commission (CFTC) got into the business of regulating newfangled financial products called swaps—and would thus "protect financial institutions from overregulation" and "position our financial services industries to be world leaders into the new century."
http://iraqwar.mirror-world.ru/article/175497
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