What is Chris Cox Trying to Hide?

Senator Charles Grassley asked the SEC Inspector General Kotz to give him a report on the collapse of Bear Stearns.

Before it was released to the public on Sept. 26, Kotz deleted 136 references, many detailing SEC memos, meetings or comments, at the request of the agency’s Division of Trading and Markets that oversees investment banks.

“People can judge for themselves, but it sure looks like the SEC didn’t want the public to know about the red flags it apparently ignored in allowing Bear Stearns and other investment banks to engage in excessively risky behavior,” Grassley said in an e-mailed statement.

Since the beginning of this most recent episode of the credit collapse I have written that the roots of the crisis lay in the SEC’s June 2004 decision to let the investment banks set their own capital ratios, a radical move away from the traditional leverage regulations. But Bloomberg’s reporting of the unredacted report shows that the SEC was clearly aware that Bear Stearns was in uncharted territory in terms of its debt to equity ratios.

Trading and Markets (SEC Division) had oversight of holding companies for the five biggest U.S. investment banks via the Consolidated Supervised Entity Program. The division failed to follow up on “red flags” raised by New York-based Bear Stearns’s increasingly “significant concentration of market risk” from mortgage securities, according to the full document.

All the other attempts to find a scapegoat, by Republicans (Barnie Frank pushing Fannie to finance poor people’s homes) and Democrats (Phil Gramm pushing through the termination of Glass-Steagel) alike, pale in comparison to the asleep at the switch role of the SEC. Never in the history of “Regulatory Capture” has an agency gone so in the bag for the business it was supposed to be regulating. There is no way the Republicans can escape responsibility for this one.

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0 Responses to What is Chris Cox Trying to Hide?

  1. Alex Bowles says:

    Congressional hearings on the role of the ratings agencies is slated for the 22nd. I suspect there will be more instances of egregious, GOP enabled regulatory capture there as well. This collapse may prove to be even stickier, (a) since the agencies had a direct profit motive and (b) they still hold sway over the rating of US debt.

    This also seems to be the other side of the SEC coin, as the pressure placed on the SEC to look the other way was coming from companies wanting – quite specifically – to get into the market for sub prime derivatives. Were it not for the apparently fraudulent AAA classifications being handed out, this market simply wouldn’t have existed in the first place – at least not for folks concerned with fiscal conservatism, and serious capitol reserve requirements.

    As much as I loathe Pelosi & Co., I have a hard time blaming them for much of what happened between 2000 and 2006, which is when all the real badness on Wall Street seems to have gotten underway.

    Yes, many of the antecedents were in place long before this – some going back to 1977’s CRA. But in terms of deliberately adding gasoline and matches to this pile of dry tinder (built, over time, by Frank, Gramm, et. al.), this is looking very much like the GOP’s final f*** you to America, and by extension of the global markets, to the rest of the world as well.

    I mean, these guys have simply looted the place. Dark markets indeed.

    As an aside, it’s fair to say that the Republican Revolution staged in 1994 had really run its course by 2000. It was a bizarre twist of fate that gave the GOP another four years in the White House, and a national tragedy that allowed them to extend their dominance beyond 2004 via the Iraq War.

    On the inside, it must have been clear that this period between 2000 and 2005 was a gift, and an unexpected bit of overtime that could be used to regain the losses suffered in the tech meltdown.

    With prospects for continued governance clearly o the wane, it’s no wonder that that the prevailing sentiment among the major donor class crystallized around two objects – (1) take the money, and (2) run.

  2. Alex Bowles says:

    ‘are’ slated.

  3. Hugo says:

    This agrieves. What a good man, fallen. He hid for months, only to emerge red-faced with nothing to show for it but an apology for his nonfeasance. At least he honored his alma mater that much.

    Perhaps he was too good a person for the job, and maybe every President should adhere to FDR’s Rule, expressly propounded upon the surprising appointment of old Joe Kennedy, that an SEC Chair must be a “thief set to catch a thief”. Chris Cox never fit that bill.

    Too bad.

  4. Dan says:

    Somehow, I’m sure, Democrats are to blame for this too.

  5. Alex Bowles says:

    Here, perhaps, is the precise answer to what Chris Cox was trying to hide. It comes from today’s hearings into the Meltdown, led by Rep. Henry Waxman.

    Six years ago, Congress pressed the SEC to assert more control over the credit rating agencies. In 2002, the Senate Governmental Affairs Committee investigated the rating agencies and found serious problems. The Committee concluded that “meaningful SEC oversight” was urgently needed. The next year, the SEC published its own report, which also found serious problems with credit rating agencies.

    Initially, it looked like the SEC might take action. In June 2003, the SEC issued a “concept release” seeking comments on possible new regulations. Two years later, in April 2005, SEC issued a proposed rule.

    Yet despite the Senate’s recommendation and SEC’s own study, the SEC failed to issue any final rules to oversee credit rating agencies. The SEC failed to act and left the credit rating agencies completely unregulated until Congress finally passed a law in 2006.

    At tomorrow’s hearing with federal regulators, members will have a chance to ask the SEC Chairman, Christopher Cox, about his agency’s record.

    The full text of Representative Waxman’s comments can be found here. A full list of the incriminating evidence can be found here.

    Damning stuff, all around. The (Republican led) congress comes across as being especially negligent, if only because the buck didn’t stop with them. The GOP – historic defenders of the free market – took control of the most successful economy known to man, and promptly reduced it third-world kleptocracy.

    Instead of adhering to the kind of open and transparent government essential to the preservation of a free market, they went out of their way to protect a group of individuals at the very center of the market by looking the other way as their companies knowingly issuing sham ratings that undermined the most fundamental layer of trust in the market. Moody’s, in particular, posted the highest profit margins of any firm on the S&P 500 for five years running. And they did so by turning their own ratings into trash.

    This is like Priests raping children. This is like Rabbis collaborating with the Nazis. This is like doctors murdering patients. This is like firemen engaging in arson for the fun of it. It’s like engineers designing bridges to fail, five star generals committing treason, and 747 pilots shooting tequila at 40,000 feet. It is the kind of betrayal for which Dante reserved the ninth circle of hell. It’s as bad as it gets. It’s George W. Bush’s real legacy, and it’s what Chris Cox has been trying to hide.

  6. Hugo says:

    Henry Waxman became some time ago overqualified to serve in the same glass House that was good enough for John Quincy Adams. Still, Waxman should know better than to hurl stones at his own personal Southern California antithesis, his sometime colleague Chris Cox.

    It happens with Henry every time: just when he gets a shot at real importance, he turns up a shit instead. That’s why he failed to become Speaker of the California Assembly, back when the Speakership still meant something other than Overspender-in-Pajamas.

  7. Hugo says:

    To Cousin Alex and Prof. Tap,

    Now, admittedly, this foregoing dash of mine was downright mean to old Henry, a good poyson. But then even Hon. H. Waxman would admit that it all is true.

    Still, the best was your prefatory phrase, Alex, the one that went “Here, perhaps…”

    “Perhaps”, indeed, Alex.

    Perhaps, indeed.

    Says it all, and Good For You.


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