Under fire for regulatory missteps, top U.S. securities regulator Christopher Cox defended his agency’s record but acknowledged some regrets over how he handled the worst financial crisis in decades.
The Securities and Exchange Commission has been lambasted by lawmakers and others for not doing enough to prevent the 2008 collapse of Bear Stearns and Lehman Brothers, interfering with markets and failing to detect the alleged $50 billion fraud at Wall Street financier Bernard Madoff’s firm.
Cox, a Republican and former California congressman, said the SEC’s focus has been customer protection and broker dealer regulation and that the agency “performed that traditional role superbly.”
However, Cox said he had some regrets over a drastic action the agency took as markets were hurtling downward in September. For a few weeks, the SEC stopped investors from making bearish bets on financial stocks like Morgan Stanley and Citigroup.
The SEC’s office of economic analysis is still evaluating data from the temporary ban on short-selling. Preliminary findings point to several unintended market consequences and side effects caused by the ban, he said.
“While the actual effects of this temporary action will not be fully understood for many more months, if not years, knowing what we know now, I believe on balance the commission would not do it again,” Cox told Reuters in a telephone interview from the SEC’s Los Angeles office late on Tuesday. “The costs appear to outweigh the benefits.”
The SEC imposed the temporary ban under intense pressure from the Federal Reserve and Treasury Department which insisted it was crucial to the short-term survival of these institutions, Cox said.
A few weeks after the temporary ban was lifted, global markets were again dropping precipitously, U.S. banks were begging the SEC to reinstate its short-sale ban and there was talk of shutting the markets down.
Cox said the chief executive of one major U.S. investment bank even urged suspension of normal trading rules across the entire U.S. market, likening the situation to how Abraham Lincoln suspended habeas corpus during the Civil War and Franklin Roosevelt sent Japanese-Americans to internment camps during World War Two.
The chief executive said, “that is how America made it through such crises, and we couldn’t be too focused on maintaining the rule of law,” Cox said. “That was advice we rejected.”
Wonderful. Comparing his their actions to that of outright tyrants. In one respect I agree. What was done was but a difference of degrees and not kind. But the level of degrees is so great it’s a bit of an insult to those who suffered as a result of Lincoln’s and FDR’s actions.
This was completely predicted by anyone with half an economic brain. The ban was obviously pushed for by John Mack of Morgan Stanley, Lloyd Blankfein of Goldman Sachs along with other major bank players. No net good can occur due to government interference. Only relative to the bad they caused prior.