Securities and Exchange Commission was created during The Depression to restore a sense of trust to Wall Street and to instill investor confidence. That confidence has been dashed once again. The S.E.C. was like an aging third string quarterback trying to sit on the sidelines the rest of his career without getting dirty, all the while this crisis brewed and history repeats itself once again.
We used to have a regulation call "the net Capital Rule," and what this did was to require investment banks to have a responsible cash reserve on hand for the companies to weather downturns in the market and to prevent excessive debt loads.
Back in 2004 when the Republicans were in all their glory all the major Wall Street players led by Henry Paulson--then the Goldman Sachs CEO and now the current Treasury Secretary--put the squeeze on their buddies at the Securities and Exchange Commission aka S.E.C. to grant an exemption of this rule so they could take advantage of the sub prime mortgage market, with all their unregulated mortgage backed securities that promised to make everyone rich. Then with the unanimous vote of all five S.E.C. members granted this exemption of the rule to the investment banks of Wall Street. Unleash the pit bulls Igor, there ain't no lipstick here.
Do I hear a WTF???
So what did they do with their safety net? They went to a crap shoot and laid it down on the subprime mortgage-backed securities market, putting their shareholders and the entire stability of the market at great risk. The commissioners ignored the lessons of the Savings & Loan disaster of the 80's, when deregulating that industry led to enormous abuses. The point is boys (Foghorn Leghorn said so eloquently), pay attention when I'm talking to ya, you can't allow the foxes to guard the hen house.
Then the Coup de grâce came when Bush appointed Christopher Cox as the S.E.C. chairman in 2005 and the first thing he did was to gut the effectiveness of the seven-member oversight committee established to watch out for abuses of the securities market. Now Wall Street could do as they wished without any meaningful review.
Back in March 2008 Cox said "we have a good deal of comfort about the capital cushions at these firms at the moment" even though some in the S.E.C. warned about excessive debt and dangerous practices within the investment banks. Then a few days later Bear Stearns crashed and burned and was gobbled up by JP Morgan Chase, using taxpayer money to the tune of 29 million dollars.
Then the dominoes started to tumble because of the immense bad debt the S.E.C. exemption allowed the investor banks to accumulate. Chairman Cox, running with his tail between his legs, has said sheepishly "the last six months have made it abundantly clear that voluntary regulation does not work."
Duh..!!!
Peace and Liberty through intelligence, strength, and integrity.
