SEC Chairman Christopher Cox Finally Realizes The Problem With Deregulation
SEC Chairman Christopher Cox Finally Realizes The Problem With Deregulation
Yesterday, the Senate Banking Committee held a hearing on the Bush administration’s proposed $700 billion bailout plan. During the hearing, Christopher Cox, Chairman of the Securities and Exchange Commission (SEC), testified that deregulation was a cause of the current financial crisis, including a “regulatory hole” in the credit swap market:
There is another similar regulatory hole that must be immediately addressed to avoid similar consequences. The $58 trillion national market in credit default swaps — double the amount outstanding in 2006 — is regulated by no one. Neither the SEC nor any regulator has authority over the CDS market, even to require minimal disclosure to the market.
It’s rather ironic that Cox is now calling for regulation of the credit swap market. After all, trading in the credit swap market was what sunk insurance giant AIG. Once AIG had “sold large quantities of credit-default swaps to financial institutions around the world,” it required an $85 billion federal bailout to keep its failure from affecting the wider financial system.
But its not just on credit swaps that Cox has come around. He also blamed the Gramm-Leach-Bliley Act – which was constructed by former Sen. Phil Gramm (R-TX) in 1999 and deregulated the banking industry – for contributing to the financial meltdown. He said that “the failure of the Gramm-Leach-Bliley Act to give regulatory authority over investment bank holding companies to any agency of government was, based on the experience of the last several months, a costly mistake.”
Just six months ago, however, the Bush administration found the credit crisis so manageable that it “unveiled a widely discussed blueprint for U.S. financial regulatory reform that called for less supervision of Wall Street by the Securities and Exchange Commission.” Cox has now realized that a lack of “regulatory authority” is a “mistake,” but only after seeing the result years of deregulation has had on the financial system.
7 Responses to “SEC Chairman Christopher Cox Finally Realizes The Problem With Deregulation”
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This is straight-up revenge. McCain’s campaign was perfectly willing to throw Cox under the bus. Now that Cox is persona non grata, he’s returning the favor by pointing out Gramm’s involvement in the current mess.
Can you feel the love tonight?
September 24th, 2008 at 3:13 pmIs this a come to Jesus moment for no-reg de-reg conservatives? I know, they’ll say it was just a few bad apples. Well duh.
Though only a few DINO’s are asking for relief for homeowner creative mortgages, no one is talking about the effect of usurious credit card interest rates on struggling family’s and the economy in general. I wonder why!
September 24th, 2008 at 3:29 pmWhile AIG’s credit default swap liability may be huge, Uncle Sam bailed them out, meaning those swaps are good.
The cratering still happened because of Lehman Brothers failure and Goldman Sachs/Morgan Stanley’s huge derivative holdings, which include CDS.
Lehman’s failure meant whoever guaranteed their debt had to deliver on their promises. Paulson and Bernake said in the testimony that Wall Street institutions weren’t prepared to deliver on their CDS promises. If you or I did sold something fake, we’d be charged with fraud.
Credit default swaps played a huge role in last weeks call for federal intervention. Goldman’s CDS soared to $900,000 on 9-18, a ninefold increase from last year’s junk status. That’s when they called their ex-CEO Hank Paulson for help.
Now, the Repugs are using a complete collapse of an unregulated market to call for tax cuts, the repeal of Sarbanes-Oxley and elimination of capital gains? Huh? Welcome to Bizarro world…
September 24th, 2008 at 6:53 pmGoldman held $2 trillion in derivatives as of their last annual report. Morgan Stanley had $7 trillion. While not all are credit derivatives, some are credit default swaps.
That’s part of the junk Uncle Sam plans to buy.
September 24th, 2008 at 6:56 pmThe problem is rich people no longer trust loaning their money to other rich people. Central banks flooded world economies with billions of paper, so the money is there, it just can’t move.
Credit default swaps are the “insurance” used to back up corporate credit. It became prohibitively expensive last week, shutting down the credit markets.
Pay day loan rates apply to the poor, not to Wall Streeters. Credit risk is still priced high despite the bailout talk.
CDS for Wall Street Investment house $10 million in credit:
July 2007 $100,000
September 18, 2008 $900,000
September 22, 2008 $498,000 for Morgan Stanley, $328,000 for Goldman Sachs
September 24th, 2008 at 7:22 pmThere’s money, the big boys won’t “insure” their credit for reasonable rates:
http://news.bbc.co.uk/1/hi/business/7632939.stm
The credit default distortion locked up credit markets last week.
September 24th, 2008 at 7:43 pmIn 2004, Christopher Cox and the SEC “… allowed five firms — the three that have collapsed plus Goldman Sachs and Morgan Stanley — to more than double the leverage they were allowed to keep on their balance sheets and remove discounts that had been applied to the assets they had been required to keep to protect them from defaults.”
“Ex-SEC official blames agency for blowup”
http://www.nysun.com/business/ex-sec-official-blames-agency-for-blow-up/86130/
“Cox Asleep at Switch”
September 25th, 2008 at 3:46 amhttp://www.bloomberg.com/apps/news?pid=20601109&sid=aoM0mju1ARQo&refer=home