SEC Chief Defends His Restraint
Cox Rebuffs Criticism of Leadership During Crisis
Washington Post
December 24, 2008Christopher Cox, the embattled chairman of the Securities and Exchange Commission, is defending his restrained approach to the financial crisis, saying he has provided steady leadership as Wall Street’s main regulator at a time when other federal regulators have responded precipitously to upheaval in the markets. During his tenure, the SEC has watched as all the investment banks it oversaw collapsed, were swallowed up or got out of their traditional line of business. The agency, meanwhile, was on the sidelines while the Treasury Department and Federal Reserve worked to bail out the financial sector. And the SEC, by its own admission, failed to detect an alleged $50 billion fraud by Bernard L. Madoff that may be the largest Ponzi scheme in history.
But in his first interview since the Madoff scandal broke, Cox said he was not responsible for the agency’s failure to detect the alleged fraud and that he had responded properly to the broader financial crisis given the information he had. Confronted with a barrage of criticism from lawmakers, former officials and even some of his staff, Cox said he took pride in his measured response to the market turmoil.
"What we have done in this current turmoil is stay calm, which has been our greatest contribution — not being impulsive, not changing the rules willy-nilly, but going through a very professional and orderly process that takes into account unintended consequences and gives ample notice to market participants," Cox said. This caution, he added, "has really been a signal achievement for the SEC."
Taking a swipe at the shifting response of the Treasury and Fed in addressing the financial crisis, he said: "When these gale-force winds hit our markets, there were panicked cries to change any and every rule of the marketplace: ‘Let’s try this. Let’s try that.’ What was needed was a steady hand." Cox said the biggest mistake of his tenure was agreeing in September to an extraordinary three-week ban on short selling of financial company stocks. But in publicly acknowledging for the first time that this ban was not productive, Cox said he had been under intense pressure from Treasury Secretary Henry M. Paulson Jr. and Fed Chairman Ben S. Bernanke to take this action and did so reluctantly. They "were of the view that if we did not act and act at that instant, these financial institutions could fail as a result and there would be nothing left to save," Cox said.
Although Cox speaks of staying calm in the face of financial turmoil, lawmakers across the political spectrum counter that this is actually another way of saying that his agency remained passive during the worst global financial crisis in decades. And they say that Cox’s stewardship before this year — focusing on deregulation as the agency’s staff shrank — laid the groundwork for the meltdown.
"The commission in recent years has handcuffed the inspection and enforcement division," said Arthur Levitt, SEC chairman during the Clinton administration. "The environment was not conducive to proactive enforcement activity"…
SEC Moves to Bring Transparency To Market for Credit-Default Swaps
By Marcy Gordon
Associated Press
December 24, 2008The Securities and Exchange Commission took a step yesterday toward a new system of central clearinghouses for credit-default swaps, complex investments traded globally that have been partly blamed for the financial crisis. The SEC commissioners approved temporary exemptions from agency rules, a move that will allow British firm LCH.Clearnet to operate as a central clearinghouse for transactions involving credit-default swaps.
Traded in a $60 trillion market that is unregulated and secretive, credit-default swaps have come under scrutiny by Congress and federal regulators in the wake of the financial and credit crises that have plunged economies around the world into recession. The idea behind a system of central clearinghouses – promoted by a White House advisory group of regulators – is to bring transparency to the market, possibly reducing risks to the financial system.
The SEC move "is an important step in our efforts to add transparency and structure to the opaque and unregulated" market for credit default swaps, SEC Chairman Christopher Cox said in a statement. "These . . . exemptions will allow a central [clearinghouse] to be quickly up and running, while protecting investors through regulatory oversight." Credit-default swaps are contracts to insure against the default of financial instruments such as bonds and corporate debt. But they also are bought and sold as bets against bond defaults.
Swaps played a prominent role in the credit crisis and led the government to assemble a $150 billion rescue plan for American International Group. The huge volume of credit-default swaps sold, coupled with rising levels of defaults on mortgages and other debt, threatened the company’s existence. If AIG were to fail, the losses would spread to the companies and investors who bought swaps from it.
In announcing the exemptions for LCH.Clearnet, the SEC did not specify how long they would remain. They will allow firms such as LCH.Clearnet to quickly put in a centralized system for clearing swaps trades, while giving the SEC time to review their operations and assess whether permanent exemptions should be granted, the agency said in a statement…
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[1] His comments in the press conference [in the first article above] are absolutely absurd! Besides being the shepherd of deregulation, he and the rest of the S.E.C. have been asleep at the wheel! Like McClellan, Lincoln’s main General in the Civil War, he’s been sitting on his ass while Rome has been burning…
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[2] He’s regulating the Credit Default Swaps [the way people escape risk, the way they caused the housing and oil bubbles] by making exceptions!! by letting some English Company [in this mess up to their gubernaclum] be a clearing house!! Right now, rather than regulating the Credit Default Swaps, the right thing would be to ban them under penalty of a firing squad or hanging! Selling Debt hasn’t worked out so well…
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[3] He’s a Conservative Republican. That means that his focus is on protecting the Hedge Funds and Financial Institutions rather than regular Americans. If we shut down the derivative markets [as we must do], the bean counters that manage retirement accounts won’t be able to do their things; our retirement accounts won’t make so much money; a lot of them will be looking for work; and we might just save our economy…
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[4] If Christopher Cox suggested it, it’s probably the wrong thing to do. The best predictor of future behavior is past behavior…
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