Saturday, September 27, 2008

"Fundamentally Flawed from the Beginning"

A few months ago, I attended a conference at which junior commissioners of the Bush administration's FTC, FDA, and FCC made presentations. There were two phrases that all three of them used over and over and over again:

1. "Self-regulation", and
2. "Market-based solutions"

The chairman of the Securities and Exchange Commission, a longtime proponent of deregulation, acknowledged on Friday that failures in a voluntary supervision program for Wall Street’s largest investment banks had contributed to the global financial crisis, and he abruptly shut the program down.
About fucking time.
“The last six months have made it abundantly clear that voluntary regulation does not work,” he said in a statement. The program “was fundamentally flawed from the beginning, because investment banks could opt in or out of supervision voluntarily. The fact that investment bank holding companies could withdraw from this voluntary supervision at their discretion diminished the perceived mandate” of the program, and “weakened its effectiveness,” he added.
No shit, Sherlock.

You don't have to be a Wall Street genius to understand why "voluntary supervision" and "self-regulation" work only in an infinitesimal amount of instances. Anyone who's ever tried to lose weight knows that "self-regulation" is hard and that the most basic human impulses -- whether with regard to food, booze, sex, money, or any other number of treats -- is "more! More! MORE!" Fighting that impulse -- self-regulation -- takes a heroic amount of attention and self-restraint, not to mention knowledge of how and ability to soothe oneself in another less destructive fashion. (That's why I don't want to hear any more hectoring bullshit from the likes of beauty queen newsreader Erin Burnett about how this crisis is the fault of individual borrowers. One of the primary reasons humans submit to government, you simpleminded money-grubbing bimbo, is to put an external check on those impulses. But I digress...)
The commission created the program after heavy lobbying for the plan from all five big investment banks. At the time, Mr. Paulson was the head of Goldman Sachs. He left two years later to become the Treasury secretary and has been the architect of the administration’s bailout plan.

The investment banks favored the S.E.C. as their umbrella regulator because that let them avoid regulation of their fast-growing European operations by the European Union.
Tell me again why anyone should trust Paulson? And can't we really refer to this bailout as Hank Paulson's "Salvage My Legacy" plan?
In 2004, at the urging of the investment banks, the [S.E.C.] dopted a voluntary program. In exchange for the relaxation of capital requirements by the commission, the banks agreed to submit to supervision of their holding companies by the agency.
Isn't that special? "Let me (recklessly) borrow more money and I'll let you watch me." Except that the S.E.C. didn't watch them.
The report found that the S.E.C. division that oversees trading and markets had failed to update the rules of the program and was “not fulfilling its obligations.” It said that nearly one-third of the firms under supervision had failed to file the required documents. And it found that the division had not adequately reviewed many of the filings made by other firms.

The division’s “failure to carry out the purpose and goals of the broker-dealer risk assessment program hinders the commission’s ability to foresee or respond to weaknesses in the financial markets,” the report said.
Kind of like putting someone on a diet, but never weighing them.

And now here we are.

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