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A refreshing-if improbable-turn of events in the upcoming presidential campaign would be for candidates to weigh in on how they would actually strengthen the Securities and Exchange Commission and the Commodity Futures Trading Commission. Only by giving them more firepower that we will see justice for what the big banks did over the past few years-and hopefully head off a repeat performance like we just saw with MF Global (OTC:MFGLQ).

Fat chance. Talk about making government agencies stronger is not in vogue these days; indeed, it’s anathema to many on the right. The Republican field competes to one-up each other on how many agencies they would eliminate (even if they can’t always remember which ones they would put on the chopping block).

But if the two parties could only put aside their differences for a few moments and look at the damage done to investors since 2008, they would see the necessity of giving much sharper teeth to the government agencies that oversee the markets. Simply put, our regulators are not up to the job of investor protection. They’re like toothless watchdogs, all woof, snarl and howl, with little or no ability to bite.

Indeed, it’s the job of the President and Congress to give the regulators, namely the SEC and CFTC, the power, authority and resources-the snapping jaw-to meet their missions and keep market players honest.

As James Stewart noted in a column in the New York Times over the weekend, Wall Street’s giant firms-and their top executives-have so far dodged a day of legal reckoning from their roles in the collapse of the global economy.

Sure, everybody on the Street knew that creating crummy mortgage-backed securities for clients and then betting against them was immoral. Whether it was criminal is a different question and law enforcement has so far shied away from taking a hard line against the perps.

Goldman Sachs (NYSE:GS), in the person of ”Fabulous Fab” Tourré, last year had its day in the sun for putting together such a deal and then shorting it. The latest headline-grabbing case is the $1 billion package of mortgages that Citigroup (NYSE:C) sold to clients late in the boom. Citigroup traders then put a tidy $160 million profit in the company’s coffers by taking a short position on some of the mortgages, while clients lost $700 million.

After Citigroup and the SEC tried to settle fraud charges for $285 million, federal judge Jed Rakoff last week tossed out the agreement, saying the proposed settlement didn’t give him enough facts to evaluate the settlement and ordered the two sides to trial.

And here’s where the politicians can sharpen the teeth of our regulators. A huge stumbling block for regulators is the watery semantics contained in the offering documents on deals that collapsed during the mortgage crisis, as well as the murky rules that govern what can and cannot be done by big banks pitching their clients on exotic products and then trading those same products for the banks’ own accounts.

President Obama has said as much. “One of the biggest problems with the collapse of Lehman the subsequent financial crisis and the whole subprime lending fiasco is that a lot of that stuff wasn’t necessarily illegal, it was just immoral or inappropriate or reckless,” he said at a press conference in October. Last week, Mary Schapiro, the head of the SEC, formally asked Congress for stronger penalties to punish and deter securities law violations, to give the SEC sharper teeth. Sounds reasonable and entirely necessary. We hope the Presidential candidates agree.

Disclosure: Zamansky & Associates are securities attorneys representing investors in arbitration and state and federal litigation against large financial institutions including Goldman Sachs and Citigroup.

Source: Elections 2012: An Opportunity For Stronger Banking Regulation