September 24, 2008
Whose Fault is This? The SEC's First Take.
Posted by David Zaring

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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