SEC Chair Christopher Cox is fascinated by the increasingly international aspects of his job (so am I). But it's the international institutions that are getting the blame for the failure of the SEC to adequately supervise investment banks (remember that the remaining two i-banks, Morgan Stanley and Goldman Sachs, just agreed to become bank holding companies supervised by the Fed) in yesterday's congressional testimony:
the market-wide failure to appreciate and measure the risk of mortgage-related assets, including structured credit products, has shown that neither the Basel I nor Basel II standards as then in force were adequate. Each had serious need of improvement.
Basel being the secretive committee of central bankers (the Fed is a member, the SEC isn't) that sets capital adequacy standards - standards that Bear and Lehman purportedly met at the time of their bankruptcy.
There's a bit more "it's not our fault" in his testimony; others have noted Cox's call for regulation of credit-default swaps. I'll also point you to his plea that Congress legislate a precise role for SEC supervision of the brokerage arms of the investment banks ("With each of the remaining major investment banks now constituted within a bank holding company, it remains for the Congress to codify or amend as you see fit the Memorandum of Understanding between the SEC and the Federal Reserve, so that functional regulation can work."). The agency must be wondering what its role, exactly, on the new Wall Street will be.
Also of note, around the web, at, Bainbridge and Ribstein have evince bailout skepticism, Concurring Opinions has a novel bailout plan, and Goldman shows that it always finishes on top - $5 billion Buffett dollars should be stock price magic, not least because of the me too investors and Buffett mimicking hedge funds.
UPDATE: More from John Carney, at his new digs.
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1. Posted by fedgovernor on September 24, 2008 @ 8:49 | Permalink
The question of who is at fault can be answered this way:
Is it smart to lend money to people without even verifying who they are, where they work, how much money they make, or the real value of the home they want to buy?
Banks were required to do that by the law (Community Re-investment Act).
They attempted to minimize the risk inherent in such lending by doing a lot of things (packaging securities to spread the risk of each individual loan, for example) but ultimately, all of those activities were to mitigate the risk that banks were required to take on by our government.
Democrats championed the Community Reinvestment Act which required banks to make this risky type of lending.
Now, the chickens are coming home to roost.
2. Posted by Morgenstern on September 24, 2008 @ 13:46 | Permalink
In calling for "regulation" of CDS, I wonder if Cox commented on his own vote on the CFMA of 2000, which forbade just that.
3. Posted by TimEssling on September 24, 2008 @ 15:45 | Permalink
John McCain says that the fundamentals of the U.S. economy are sound; Barack Obama ridicules his viewpoint.
Who is standing up for America, and who is taking the opportunity for personal benefit from the current state of affairs?
Barack Obama is advertising a fire sale of American assets, and undermining the value of the dollar. Are we really going to give his wife another day to be proud?
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