The Blog Of The Securities Industry Professional Association

Regulatory Overhaul?

Wasting Away Again In Regulatorville…

Another day, another new Regulator or Czar appointed by the government.  The latest creation is the new and improved super regulator that will over see the SEC and FINRA as well as the institutions themselves.  Before we get into this latest and greatest Regulatory overhaul, I think is important to take a trip down memory lane. Let’s start with November 2006 when the folks at the NYSE and NASD Regulatory arms decided to merge into one Single super regulator known as FINRA.  We were told by the heads of SEC, NASD and NYSE that one single regulator would solve the world’s financial problems. The Chairman of the SEC at the time declared:

As Chairman of the Securities and Exchange Commission, I strongly support these efforts to fold the member regulation functions of both the NASD and the NYSE into one regulatory body. I’m firmly convinced that, done properly, this can make our self regulatory system more efficient and more robust from an investor protection standpoint,” said Christopher Cox, chairman of the SEC, who also spoke at the SIFMA meeting.

Who can forget the quote by the NASD CEO regarding this merger?

World markets and regulation are changing. Rather than stand by and let events overtake us, we have chosen to lead and help shape a better system of regulation that is good for investors and financial services firms of all sizes,” Schapiro said

And last but not least we had the head of NYSE at the time Rick Ketchum stating:

“Today, more than 70 years after the creation of the self- regulatory system for financial markets in the 1930s, we have come together to announce its first major reform. New York Stock Exchange Regulation and NASD have worked extremely hard to coordinate and harmonize our regulatory oversight of some 180 of our nation’s largest securities firms. Upon completion of this agreement, we will take the further step of eliminating overlapping regulation of those firms by creating a new, single self- regulatory organization. This streamlined approach will benefit the Public, the firms, and U.S. capital markets. It is an idea whose time has come.”

Reading these old quotes makes me want to reach for a bottle of tequila and some limes and go sit under a palm tree in the keys with my good buddy Jimmy Buffet and forget the massive mess these people created.  Even a drunk on Duval Street at midnight would scratch his head in bewilderment at the fact that our Government allowed consolidated regulation less then three years ago and now is turning around and creating another regulatory division.  Perhaps two set of regulatory eyes with NYSE and NASD regulation was better then one?    It’s also interesting to note that these same visionary leaders or our old regulatory system are now head of FINRA and the SEC respectively.   Today President Obama announced his new regulatory overhaul that would put the Federal Reserve and Treasury secretary as the anointed Czars of all Financial institutions.   Excuse me while I throw up but isn’t congress having hearings right now regarding threats ( real and implied) made by these two agencies against the CEO of Bank America?  According to testimony, CEO Ken Lewis was told he must take over the toxic assets of Merrill Lynch and if he didn’t he and his board would be removed!  Today the President is talking about ‘Transparency” in our markets and regulatory system yet the appointed Czar of all regulations ( Ben Bernanke) refused to turn over to congress requests for e-mails and other documents relating to the Bank America/Merrill Lynch threats.   The Fed knew that Merrill Lynch was under water yet did nothing about it, instead they found a public company and forced them to take on this toxic entity and destroy the shareholder value of Bank America, so forgive me if Im not doing cartwheels down Duval about this new regulatory czar.  Its my opinion that the Fed is the one who created the mortgage bubble by printing cash and keeping interest rates at historic lows.  Despite all the cries for transparency the Fed still hasn’t opened up its books and records even though a majority of Congress has now passed the Ron Paul Audit the Fed Bill HR-1207.  Think about this for a second and it will make you cringe.  A majority of Congress would like to audit the Fed and they cannot get it done, instead they have to hope the Senate and President sign off on this bill.  If ‘Transparency” were truly the key to Regulation, don’t you think that the Fed should voluntarily submit to the audit because a majority of Congress has asked for it?

The real problem that existed years ago continues today.  We HAVE sufficient regulations but we just don’t enforce them.  A small firm forgets to designate a principal for reviewing procedures and BOOM!..the regulators want a 25k fine or more and a suspension.  A large firm like Merrill or Lehman wants to take on 6 trillion in CDO’s in leveraged hedge funds and its look the other way.  A small firm doesn’t implement Anti-money laundering procedures because he doesn’t even accept money or securities and it doesn’t matter, BOOM 50k fine for that failure.  A large firm like Madoff runs a ponzi scheme for 12 years and steals 50 billion and the regulators point fingers at each other and hide their heads.  So now we have this new system but the same old question:  What is Ben Bernanke going to do if he discovers one of the largest firms on the street is committing fraud and neglect and other egregious crimes?  Is he going to shut tem down for 30 days or suspend them or even expose their fraud…or is he going to jump on a company yacht with some of these Wall Street elitist and take a quick drive down to Margaritaville in Key West and forget any of it actually happened?

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June 23rd, 2009



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