Friday, May 23, 2008

Cox Blames Other Regulators For Sub Prime Mess

The SEC has been taking a bit of heat for the subprime disaster. That heat is a bit unfair, since the SEC has nothing to do with the oversight of banks and mortgage lenders, and very little to do with the credit markets.

Certainly the SEC takes part of the blame, at least so far as the valuation of those assets fell into the capital computations of brokerage firms, but even then, they are not the regulator that fell down on the job.

Well, Chairman Cox has finally come out and defended his organization. He points out that other regulators were involved, and asleep, well before this mess reached the broker dealers and the SEC's jurisdiction.

From Financial Times:
The regulatory lessons here extend far beyond the SEC,” said Christopher Cox, the SEC chairman, in an interview with the Financial Times. “Subprime only leached into the securities markets after it was already a horrible problem. There was complete breakdown in lending standards, a complete breakdown, one can infer from that fact, in supervisory standards for lending or at least the application of those standards.

“We’ve also found other regulatory gaps, not just statutory regulatory gaps for investment banks, but also for mortgage brokers, and we have discovered a host of perverse incentives in the securitisation process, only a small portion of which are the responsibility of securities regulators.

Politicians who are looking to create more regulations to address a problem that was caused by lack of enforcement of existing regulations should take heed.
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