Each of us led the S.E.C. during challenging times — the stock market crash of 1987, the price-fixing scandal at Nasdaq in the 1990s, and the accounting and governance failures and mutual fund scandals of this decade. We are in agreement with Secretary Paulson that the world of finance is changing rapidly, having eclipsed in many areas the regulatory structure put in place, piece by piece, over the past century. Yet we fear that the current conversation about the future of the S.E.C. is getting ahead of itself. Secretary Paulson’s proposals to change the structure and function of the S.E.C., if adopted, risk inflicting serious damage to investors and our capital markets.
Skeptical eyebrow raised. Mack was talking recently about changing the basis for SEC enforcement, wonder what he could tell us about this OpEd?
The current housing and credit troubles do not present a sufficient basis for reforming the entire financial regulatory system. Instead of moving hastily, policymakers need to examine what went wrong, why it went wrong and what the best approaches are for re-establishing the unequaled reputation and performance of the American capital markets.
There is precedent for such an exercise. In 1987, a presidential task force was established to investigate the Black Monday crash. Today, we need a similar exhaustive, bipartisan and impartial examination to explore a series of possible business and regulatory failures.
One thing I'm fairly sure of, and that is that the 1987 presidential task force probably gave us data that we could use today. Like, for instance, the testimony I quoted below.
Ok, two things I'm fairly certain about:
The problem with the S.E.C. today is that it lacks the money, manpower and tools it needs to do its job. The commission’s 2009 enforcement budget does not keep pace with inflation, although it does provide significant increases in the risk-assessment function.
When even Ben Stein is arguing for regulation and enforcement, you know it's gotten pretty bad.
1 comment:
Currently, the U.S. has a patchwork of regulatory agencies overseeing the financial markets. In certain cases it is for good reason as it provides checks and balances to the system, but mostly it is legacy from a 100 years of legislation. Secretary Paulson is correct that we need a major overhaul, but the reality is that it will result in disabilitating turf war. Underlying Paulson's proposal is the idea of moving from a "rules-based" regulatory paradigm which the SEC operates under (and my great cousin instigated in the 1933 Act) to a "principals-based" regulatory paradigm which the CFTC operates under. I am very much in favor of a shift to the "principals-based" paradigm... but first we need to close the "Enron loophole" and allow the CFTC to regulate all derivatives traded within U.S. jurisdiction. Unfortunately, the SEC is the bigger dog in this fight and I'm afraid that despite good intentions, the result will be similar to Homeland Security (no explanation necessary). The U.S. financial services industry is in dire need of a regulatory overhaul so that it can remain both competitive and fair to the interests it serves (capital markets, investors and general economy). I therefore suggest a go-slow approach by slowly integrating agencies as appropriate. But first, we need to close the "Enron loophole!"
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