Take this to the bank: Chris Cox, the Chairman of the Securities and Exchange Commission "and a longtime proponent of deregulation" just admitted that it is
"abundantly clear that voluntary regulation [of the financial industry] does not work."
I want to see this admission circulated widely about the blogosphere as folks discuss the current financial crisis. Because, as we all know, voluntary regulation in general "does not work." The SEC chair's statements should trigger an even more aggressive effort to bury, once and for all, the ideological obsession with deregulation that has ushered in a unprecedented era of acute environmental, infrastructural and socioeconomic dysfunction.
What seems to have prompted Cox's mea culpa was an SEC inspector general report issued Friday which sharply criticized the agency for its poor monitoring of industry giant Bear Stearns prior to its recent demise. That monitoring was supposed to have been carried out under a "voluntary supervision program for Wall Street's largest investment banks." Are we surprised that government oversight faltered under a "voluntary supervision" program???
The proof is in the pudding, of course, and while the SEC chair could not avoid the IG report or recent scrutiny of his job as a result of Sen. McCain's vow to fire him, it was surprising and gratifying to hear Cox acknowledge the obvious:
"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.
But the problem with the program wasn't just the fact that it was voluntary for the banks being supervised. You might be shocked, shocked to learn that the SEC failed to supervise even the banks who had agreed to be supervised!
The [IG] 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.
Now, here's another kicker. The big investment banks actually asked for the SEC to establish this voluntary supervision program, known as "consolidated supervised entities," for good reason. They wanted the relatively small, under-resourced SEC to regulate them precisely because "that let them avoid regulation of their fast-growing European operations by the European Union," known for its far more rigorous regulatory practices.
Well, the bank lobbyists got what their clients wanted, and here we are, saddled with the worst financial crisis since the Great Depression and whatnot.
It's hard to quibble with SEC chair Cox's assessment, as he stands amid the rubble that was the U.S. economy, that "voluntary regulation does not work." No shit! What Cox doesn't say, however, but which is equally borne out by the evidence, is that under a Republican administration, regulation does not work! Thus, even when banks volunteered to be supervised, the SEC failed or refused to regulate competently.
And that, of course, is the Bush administration M.O. -- to deregulate aggressively, then render inoperable the remaining regulatory infrastructure.
Cox's admission should prompt an aggressive effort on the part of progressives to recapture as "our" issue the broader question of government regulation in the public interest. This truly could be the death knell of deregulatory ideology and neo-liberalism in general.
Epilogue:
SEC chair Cox not only acknowledged the flawed bank supervision program, he terminated it. Kudos! But, as the New York Times noted, it really doesn't matter whether you have the program or not at this point:
On one level, the commission’s decision to end the regulatory program was somewhat academic, because the five biggest independent Wall Street firms have all disappeared.