This Bloomberg article is simply astonishing:

The U.S. Securities and Exchange Commission, criticized by lawmakers for failing to stop practices that fueled the financial crisis, raised concerns as early as 2006 about the risks of Wall Street’s appetite for packaging mortgages into bonds.

Officials in the SEC’s division of trading and markets wrote that collateralized debt obligations tied to home loans exposed banks to writedowns if the assets weren’t immediately sold, according to documents released yesterday by a federal panel investigating the crisis.

“This risk is difficult to measure and hence to manage,” said the memo dated Feb. 1, 2006.”

This is the end result of an ideology that believes all regulation is unwanted, corporations  should be unfettered, and that the SEC should be starved of funding and personnel. It is not an accident, but it reflects a goal achieved, desired results.

Mission accomplished.

>

Previously:
SEC: Defective by Design? (March 18th, 2010)
http://www.ritholtz.com/blog/2010/03/sec-defective-by-design/

SEC: Regulatory Capture Hard at Work (March 18th, 2010)
http://www.ritholtz.com/blog/2010/03/sec-regulatory-capture-hard-at-work/

Source:
SEC Didn’t Act After Spotting Wall Street Risks, Documents Show
Jesse Westbrook
Bloomberg, May 6 2010
http://www.bloomberg.com/apps/news?pid=20601087&sid=aePB9cb.K2nU&

Category: Regulation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

15 Responses to “SEC Saw, Ignored Wall Street Risks”

  1. willid3 says:

    a minor suggestion to fix wall street?
    http://money.cnn.com/2010/05/05/news/economy/wall_street_fixes.fortune/index.htm

    but i suspect its correct that we have those who really want to help the lazy in business, and they do that by reducing any requirement that they actually do some thing for their…loot

  2. catman says:

    Saw (Great Job) Brownie on the boob with a nodding Neil Cavuto criticizing the current attempts to contain our little environmental problem in the Gulf of Mexico. What a plate of chutzpah. Same batshit ideology same batshit amnesia.

  3. The Curmudgeon says:

    Which is also why belief in the efficacy of regulation is a farce. Regulatory capture defines the SEC, the Fed Res, the CFTC, the FDA, etc., ad nauseum. Why do we think regulation would work now?

  4. solanic says:

    Mission accompished. I hate to disagree with you on that statement, but it won’t be accomplished until either catastrophic failures happen every where there was an ignorant lack of regulations or common sense regulations and the rule of law is put back into place.

    So far we have catastrophic failure in:
    1. Wall Street
    2. Mining
    3. Oil

  5. alpa_chino says:

    “In The Warning, veteran FRONTLINE producer Michael Kirk unearths the hidden history of the nation’s worst financial crisis since the Great Depression. At the center of it all he finds Brooksley Born, who speaks for the first time on television about her failed campaign to regulate the secretive, multitrillion-dollar derivatives market whose crash helped trigger the financial collapse in the fall of 2008.”

    “I didn’t know Brooksley Born,” says former SEC Chairman Arthur Levitt, a member of President Clinton’s powerful Working Group on Financial Markets. “I was told that she was irascible, difficult, stubborn, unreasonable.” Levitt explains how the other principals of the Working Group — former Fed Chairman Alan Greenspan and former Treasury Secretary Robert Rubin — convinced him that Born’s attempt to regulate the risky derivatives market could lead to financial turmoil, a conclusion he now believes was “clearly a mistake.”

    “It’ll happen again if we don’t take the appropriate steps,” Born warns. “There will be significant financial downturns and disasters attributed to this regulatory gap over and over until we learn from experience.”

    See: http://www.pbs.org/wgbh/pages/frontline/warning/view/

  6. jz says:

    I think that Brownie analogy is apt. You put a guy who was judging horse contest or something like that in charge of FEMA, and it was a disaster. With the SEC, they were gutted by making lawyers do mundane tasks like go to Kinko’s and copy records.

    The SEC is supposed to be on the lookout for the investor. Bear Stearns management was clearly doing something that benefited itself at the expense of shareholders. The SEC responded to this by “raising concerns” with management.

    After reading this, I am perplexed. What the hell is the SEC supposed to do again?

  7. solanic says:

    @ jz

    is that a trick question?

    they were supposed to allow people “in the loop” to do what they want without our knowledge.

  8. odds says:

    I honestly think that the folks at the helm of the SEC thought that the ratings agencies had all this taken care of. The SEC outsourced their regulatory job to the conflicted ratings agencies.

    Maybe there were some at the SEC that thought the risk was difficult to measure and manage. But the AAA stamp said otherwise.

  9. NotQuiteSo says:

    Your conclusion that the SEC was starved of funding isn’t true. As I pointed out in March, you came to that conclusion by reviewing 10 to 20 year old data. Data from the last 10 years shows that SEC funding has nearly tripled. By 2006, the year of the memo you quote in this post, the SEC’s budget had more than doubled from 2001. (See http://www.sec.gov/foia/docs/budgetact.htm.) There are many reasons for the SEC’s spectacular failures in the last 10 years, but to my eye it’s difficult to make the case it was starved of resources. Captured, over-lawyered, innumerate (as you recently discussed), complacent, whatever, it had plenty of money.

  10. willid3 says:

    i saw a story where some one proposed that a board assigned the raters jobs instead of today the seller of the ‘securities’ …assets….doing so. and that the agencies continue to get assignments based on results. sounds a better plan than todays version. of course given time, wall street will capture the board. maybe

  11. Tarkus says:

    The 2nd Bush term was an opportunity for corporation – esp financial ones – to do a “Smash and Grab”. Until then, they had been more circumspect in their approach, but the 2nd term was an all-out free-for all. It does prove that government is the problem – at least the kind of government as was run by the GOP at the time. Maybe Abramoff will be out of jail in time for the next GOP resurgence. (BTW, I’m not a big fan of Obama’s spending either).

  12. jjay says:

    Pretty hard to prepare your indictment for securities fraud while you are watching porn on your government computer! Government at all levels is corrupt beyond redemption.
    Cap and Trade, Amnesty for illegal aliens, etc. All either just a money or power grab.
    The average American has had no representation in DC for sometime now.
    I don’t see how it can be changed.

  13. troubled times says:

    Read “Selling America Short : The SEC and Market Contrarians in the Age of Absurity” by Richard Sauer…He was a SEC lawyer for 12 years….It just came out

  14. toddie.g says:

    “Now, watch this drive.”

  15. toddie.g says:

    And, for those who are not getting my snarky retort:

    http://www.youtube.com/watch?v=Z3p9y_OEAdc