Time To Regulate

In a year of much debate and discussion around financial regulation, the past month has marked a high point in material action on the matter.

The SEC has been keeping especially busy. In its first annual report on credit rating agencies, which came out at the end of September, the Commission publicly criticized those agencies for their over-optimistic tendencies leading up to the subprime mortgage crisis.  

Early this month, the Commission charged former United Commercial Bank executives with misleading investors by covering up their losses during the financial crisis. This represents the first prosecutions of bank execs whoh received TARP money in TK. United received a $300 million bailout before it collapsed, and will cost the government another $2.5 billion in deposit insurance, according to Salon.com.

And last week, the agency settled a $285 million lawsuit against Citigroup for, again, misleading investors. This time the deception surrounded the infamous subprime CDOs, which Citigroup bet against even while selling. That move brought Citigroup $160 million in fees while losing money for their investors.

Finally, this week the SEC for the first time in its history waded into “dark pool” territory.  Dark pools are or privately operated platform to trade securities away from exchanges, and this one, Pipeline Trading Systems LLC was running a secrete affiliate that traded on advance knowledge of the front-door operation’s customer orders.

Meanwhile the FDIC has been getting into the action, too, announcing it will exile from the industry ten former officers of the United Commercial Bank.

But now, an deeper concern arises – who will regulate the regulators??  If the Obama agenda passes, Congress will, to the tune of ten times the regulations currently in place.

Some people don’t like that idea, because they think that regulating a trillion-dollar industy is a waste of money.  Plus, all those new rules would make tax lawyers’ jobs so much harder!

Better to leave the market alone, and let it work itself out.

About Eliza Ronalds-Hannon