SEC chair Chris Cox showed up at the Bush news conference last week, along with Ben Bernanke and Henry Paulson. John McCain called for his resignation, too. But other than issuing a much-criticized temporary ban/disclosure req't on shorting financial stocks (and a less criticized ban on naked shorts), what, exactly, have Cox and the SEC being doing to regulate markets and oversee the capital adequacy of the investment banks under their aegis?
Let's have a look at the SEC's own record last week:
- It reminded investors that broker accounts are insured by the SIPC.
- It celebrated Barclays' speedy acquisition of Lehman's bankrupt remains.
- It announced that it would be putting possible market manipulators under oath.
- And you tell me what this clarification on bank/money market fund reporting means.
I read this as a record of "me too!" in response to Treasury and Fed action, at least when it doesn't come to flogging shorts.
The problem with the SEC is that, even though it is self-funded like the Fed, it isn't anything like a central bank for investment banks or brokers. What we've been seeing in the past week is the SEC performing the enforcement-related functions it always performs, and enforcement functions aren't what is wanted. The question has not been "Who killed Wall Street?" It has been "Can we save Wall Street? And should we?"
The SEC has had nothing to say about those second two questions, perhaps because of the way the agency is structured, perhaps because it tends to regulate by prosecution, rather than supervision.
Perhaps, anyway. But any pretence that the agency could make at performing banking-style supervision of the capitalization of investment banks just met its Waterloo. The last two remaining independent investment banks have just left SEC supervision and become bank holding companies, regulated by the Fed, an agency with the funds to bail them out. Surprising stuff. But these banks know who can help in a pinch, and who can go find someone else to investigate. (HT: Steven Davidoff)
Maybe the SEC will find a new role to play in SOX II.
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1. Posted by MDF on September 21, 2008 @ 23:06 | Permalink
The SEC isn't exactly self-funded. It's budget is set by Congress and funds drawn from the Treasury. It's just that the budget is supposed to self-funding through the SEC's fees on industry. But, unlike the Fed, these fees don't go to the agency but to the Treasury. Consequently, the SEC is never going to have the budget that the Fed enjoys (the Fed justifies its budget to Congress, but the budget is not set by Congress).
2. Posted by David Zaring on September 22, 2008 @ 5:35 | Permalink
Nice clarification. I assume the non-Fed banking regulators, by the way, are funded similarly (OCC, OTS, etc, though not FDIC). About whom we could probably have similar conversations as per the SEC.
3. Posted by fedgovernor on September 22, 2008 @ 7:52 | Permalink
David,
Not for nothing, but it was the Fed that decided it was good business for banks to loan money to illegal aliens (and others) with zero down and no income verification.
These are the loans which were packaged into the securities the sale of which is regulated by the SEC.
It is the banks that dug this hole. Their regulator is their holding company ... the Federal Reserve.
Unfortunately, John McCain can't announce that he'd fire Ben Bernanke. He needs Ben to be on his side for at least 40 more days.
4. Posted by on September 22, 2008 @ 12:49 | Permalink
Well, you're right that the SEC is ill-positioned to issue bailout cash, but it seems to me that the more interesting issue is not where the SEC was last week, but where it's been for the last few years.
My understanding is that the SEC assumed some kind of consolidated supervisory responsibility for the major investment banks and that there is a good argument that it failed to discharge that responsibility.
If so, that may reflect the temporary grip of a free-market, anti-regulatory ideology on the agency rather than institutional infirmities.
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