Was the short ban the SEC's biggest mistake?
Posted
Dec 30 2008, 02:20 PM
by
Kim Peterson
Rating:
In the pre-Christmas rush last week, I missed this interview with Christopher Cox, described as the "embattled" chairman of the Securities and Exchange Commission. (Embattled is the media code word for "messed up and now in big trouble.")
Not surprisingly, Cox defends himself even though the investment banks he was supposed to be watching imploded. And though he kinda missed that whole Bernard Madoff ponzi scheme.
In fact, Cox said his biggest mistake was agreeing to ban short-selling of stocks for three weeks in September. In a year of screwups, that's the one he picks out?
Cox lays the blame on Treasury Secretary Hank Paulson and the Fed's Ben Bernanke, saying they pushed him into the ban, even though it wasn't productive. 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 told the Washington Post.
There are much bigger issues, of course. Like how the SEC -- the watchdog of the financial world -- seemed to be out on a Starbucks run while everything collapsed. Even former SEC chair Arthur Levitt joined the criticism, saying the commission made an environment "not conducive to proactive enforcement activity."
Cox said his office did everything it could to show that "there's a strong market cop on the beat." Oh, really? Then explain how Wall Street got away with abusing mortgage-backed securities and derivatives to the point of financial meltdown? Explain Madoff, at least?
Madoff is "a big asterisk," he said. "The case is very troubling for that reason. It's what the SEC's good at. And it's inexplicable."
To be fair, the SEC did not cause the financial crisis. The blame for that reaches far and wide, even beyond our borders, and goes back years.
But one thing is clear. For decades, the SEC, Congress and others have been too deferential to Wall Street. They looked the other way too often. They let the sacred cows roam free.
Take Bear Stearns. SEC officials knew the firm was overly exposed to mortgages, according to an internal review, but didn't do anything about it. Strong action could have helped save it from collapse.
But politically speaking, what else can Cox do but defend his poor oversight and passive approach? He's leaving the job soon, and will likely be replaced by former commissioner Mary Schapiro. And though the SEC might have made some improvements while Cox was captain, his tenure will ultimately be viewed as a failure.
Related reading:
SEC isn't to blame for Madoff
SEC employees make trades, view porn on job?
Citigroup wants another short ban
SEC hits Mavs owner Mark Cuban for insider trading
