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Uncle Sam’s Regulatory Double Standard

Posted by Larry Doyle on May 7, 2009 5:24 PM |

As I have referenced previously, Jonathan Weil of Bloomberg truly distinguishes himself as the finest commentator within the world of financial journalism. Weil takes on the financial regulatory authorities for their selective enforcements. Today he reports, Lehman Bosses Walk, While Small Fry Walk Plank. Why after 2 years haven’t senior executives from mortgage origination firms (Countrywide, Ameriquest, New Century, Long Beach), quasi-government agencies (Freddie and Fannie), commercial and investment banks, and credit rating agencies been more thoroughly investigated, if not arrested and prosecuted?

Is there any doubt these firms and executives effectively purchased their own protection? After writing “How Wall Street Bought Washington,” it became exceedingly clear that money from Wall Street bought protection for the business units and the individuals. It is not likely that Uncle Sam will target executives at firms holding government money. Additionally, if Uncle Sam targets execs at failed firms, those execs would be likely to finger others.

As Uncle Sam is now both investor and regulator in the markets, how do market participants compel him to be an honest broker on both fronts? As Weil writes, quoting former SEC head Chris Cox:

“From the standpoint of the SEC, the most obvious problem with breaking down the arm’s-length relationship between government, as the regulator, and business, as the regulated, is that it threatens to undermine our enforcement and regulatory regime,” Cox said in a Dec. 4 speech.

“When the government becomes both referee and player, the game changes rather dramatically for every other participant. Rules that might be rigorously applied to private-sector competitors will not necessarily be applied in the same way to the sovereign who makes the rules.”

Haven’t we already seen this play? Why is it that public confidence in the markets and those overseeing them is so low? When the security patrol in the casino also has LOTS of chips on the table, how do we know the dealer isn’t also in on the action? If so, is it any wonder why the unsavory activities of other “boys in the club” who have run out of chips aren’t being prosecuted?

I commend Weil for raising this topic. I can only hope other media outlets will pressure the regulators to level the playing field.


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