Almost all paths of incompetence in the current crisis run through the office of the Chairman of the SEC, Chris Cox. McCain’s solution to fire Cox isn’t tough enough. Exile is better. Fortunately for Cox this isn’t the Stalinist Soviet Union or his fate could be a lot worse.
Cox’s failures are too numerous to count. However, I’ll give it a try. Below are what I think are his top 5 failings.
Failure to enforce disclosure laws and regulations.
Disclosure rules and regulations protect investors by requiring companies to disclose everything that is needed for informed investment decisions. And, CEOs and CFOs are required to sign certifications that such disclosure is materially accurate, complete, and that their companies have adequate internal controls to ensure such accuracy and completeness.
Enforcement of disclosure rules and regulations has been a joke. CEOs lie to shareholders with impunity and without fear of SEC enforcement. It is impossible to conclude that SEC filings for Freddie, Fannie, AIG, Lehman, or Bear Stearns complied with SEC rules and regulations.
However, instead of enforcement by the SEC, there is silence. While not all management actions are criminal, why hasn’t the SEC used its civil enforcement authority, i.e., assessing fines and penalties? How about protecting future investors by banning failed executives and boards of directors from serving in executive management at other public companies?
Failure to enforce accounting standards.
When Cox states that the SEC doesn’t have regulatory authority over capital adequacy of financial services companies, he isn’t telling the truth. The SEC has regulatory authority over the financial statements of ALL publicly traded companies in the U.S. which of course includes the financials. If Cox had required greater reserves and transparency of financial services companies it would have happened.
Every quarter all publicly traded companies file reports with the SEC that are provided to shareholders and the SEC has review and comment authority. If the SEC deems financial disclosure inadequate, incomplete or opaque it has the authority to force the company to amend its filings. It also has authority to establish accounting standards for publicly traded companies which means it can have different requirements than GAAP.
So when AIG filed its last quarterly report and decided that it didn’t need to have loan loss reserves against defaulting mortgages and securities, the SEC had the ability to require additional loan loss reserves. When Freddie and Fannie decided to pretend that defaulted mortgage were good assets because they changed their accounting standards, the SEC could have just said “no”. When Lehman manufactured $2.4 billion of pre-tax income by pretending that it wasn’t going to repay its debts (one of the dumber aspects of mark to market accounting), the SEC should have protected investors with disclosure.
Failure to supervise the rating agencies.
Cox wants everyone to believe that despite being the rating agencies' only regulator, the SEC has no oversight or enforcement authority and cannot influence their performance. Once again, the SEC’s statements are false. Cox assumes that no one will take the time to read the Credit Rating Agency Reform Act of 2006 which states that the SEC has the right to suspend or revoke the license of any rating agency for a wide range of reasons. Rating agency regulation and reform is Cox’s responsibility.
Failure to investigate and prevent market manipulation, i.e., naked short selling.
Free markets are supposed to be honest markets. The naked short selling issue isn’t new and the SEC’s knee-jerk emergency response is an embarrassment. The ban on short selling of 799 stocks is very similar to Putin’s actions this week to manipulate the Russian stock market. I haven’t a clue whether or not the uptick rule works, but I know that enforcing rules on naked short selling shouldn’t have required destructive and ill-thought-out emergency orders. In the middle of the 1800’s the legendary financial scoundrel, Daniel Drew, understood naked short selling was bad (as he lost his fortune covering a short squeeze) when he said, “He who sells what isn’t his’n, Must buy it back or go to prison.” Too bad Cox never took economic history in school (or googled economic trivia).
Failure to protect small investors.
It is no coincidence that according to the FT, stock ownership by individual investors is at an all-time low. The average individual investor knows that his chances in the market aren’t good. And the SEC doesn’t seem to care if the average guy is disenfranchised from the economic future of America. In addition to the above failures, Cox forgot that it was his job to make sure that brokers shouldn’t engage in deceptive sales practices (like in the sale of auction rate securities and the sale of Freddie and Fannie common and preferred stock to small investors because they were “guaranteed” by the government). Cox refuses to support private litigation by individual investors who were ripped off in the stock and bond market. If the SEC doesn’t protect the little guy, who will?
It is hard to think of how anyone could have done a worse job than Chris Cox (other than engaging in illegal conduct). But if anyone can think of things that I have missed, please feel free to tell everyone reading this by commenting. I doubt that my list is complete.
Fighting and passing bills for LESS Regulation.
Give me a break on the "It's the SEC's Chairman's Fault."
Who was in charge for the last 7.75 years?
What was McBush doing for more regulation over his TWO Terms with a Republican Congress?
Oh, and let's say it was Bill Clinton's fault, he's been out of office for 8 years and left us with a SURPLUS. How's that Surplus doing with the Republicans in charge?
How's your 401K doing?
Mine wants me to vote for Bill Clinton.
"…the events of the past year are not a mere accident, but are the results of a conscious and willful SEC decision to allow these firms to legally violate existing net capital rules that, in the past 30 years, had limited broker dealers debt-to-net capital ratio to 12-to-1.
Instead, the 2004 exemption -- given only to 5 firms -- allowed them to lever up 30 and even 40 to 1. "
www.thememoryhole.org/...
The SEC has allowed the illegal act of "Naked Short Selling" for many years. A pure violation of public trust !
This covert action was made possible by both the NASD (Finra) and DTCC (Depository Trust Corporation) The DTCC (DTC) is a private corporation whose board members are the elite of former members of both the SEC and Wall Street. DTC control 98% of all electronic clearing of all stocks in the U.S. and a good percentage worldwide. The buck stops here as DTC makes money off of every share transferred. Where a short exist, DTC creates new out of thin (electronic) air.
Finally, the money made by Hedge Firms by 'Naked Short Selling' is upward of hundreds of billions.
The American Public have be fleeced and our faithful leaders sit on their golden thumbs.
This kind of thinking is totally useless in a situation like this. One should distinguish between revenge and solutions. The writer, and supporters are defending a failed philosophy, so ingrained in the political and financial system that no small (and I mean small), retaliatory action will have any more affect than killing the mosquito that bit you.
Yes, the pervasive deregulation fervor of the Regan era continued and spread into many in the Democratic party. However it's a Neocon philosophy from start to finish, "markets will regulate themselves" has been the mantra for this entire administration. Those who pointed out that historically, the didn't, were laughed at.
Let's just admit that the idea itself was wrong, and, dare I say, Move On!
What happens next? Look at mid twenties, same over spent, living beyond your needs and means. Then the collapse of depression (is this the next step?) and then world war 2.... now what will happen? If we continue to live beyond our means and real needs, depression is on the sure path. And while we worry and squabble between us about money, another country secretly prepares for world war 3 to take over the west. No conspiracy theory. Just look at patterns what is next.
How to get out of the mess? Raise the interest rate. let those that lived beyond their means and needs join a marshal program and start real work, off the couch in front of TV! Go and build and make, not just manage service contracts that moved real jobs overseas.
Becoming just a service nation living in a dream of Hollywood may be the real issue. Stop trying to manage, get off the couch and work. Just look who is the most obese nation with the highest medical problems. Loose the sweet tooth, more exercise and sport in school.
We only have ourselves to blame for lack of discipline... and nobody will cry over America's loss. They all have their own issues to deal with and want to control us.
and on January 20th 2009, at exactly 12:00 noon, you will hear the following words......
" I Barack H. Obama, do solemnly swear as President of these United States, that I will support and defend the Constitution against all enemies, foreign and domestic; that I will bear true faith and allegiance to the same; that I take this obligation freely, without any mental reservation or purpose of evasion; and that I will well and faithfully discharge the duties of the office on which I am about to enter. So help me God."
To suggest that one political party or the other is responsible for that is a form of insanity. What we are experiencing is an economic train wreck. In a train wreck no one looks around and asks the person next to them if they are a Republican, a Democrat, or an independent.