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Sense on Cents Asks Again, “Who Regulates the Regulators?”

Posted by Larry Doyle on September 13, 2009 11:25 AM |

On June 19th, in writing, Who Protects Investors from Regulators? I concluded,

Sad but true, as we enter the Brave New World of the Uncle Sam economy, investors need to remain diligent and should not assume that regulators are necessarily protecting them.

In my commentary that day, I specified shortcomings at the SEC and FINRA.

This morning, I am both heartened and dismayed by Gretchen Morgenson’s article in the Sunday New York Times Business section. Ms. Morgenson writes, But Who Is Watching Regulators?

I commend Ms. Morgenson for addressing a topic which receives little focus by the media at large. As such, I strongly recommend reading it. Ms. Morgenson pens:

Senior regulators who stood idly by for years as financial firms built their houses of cards have been rewarded with even bigger jobs or are jockeying for increased responsibilities. The Federal Reserve Board, for example, wants to become the financial system’s uber-regulator, even though its officials did nothing as banks made deadly decisions to lend recklessly and leverage themselves to the max.

Awarding increased power to those who failed in their oversight duties flies in the face of all notions of accountability.

Additionally she asserts:

Yet those in the public sector ask us to believe that regulators who snoozed during the credit bubble will be alert to emerging problems on their beats when the next mania begins.

That’s asking a lot, isn’t it?

Here’s a novel thought. Instead of creating more regulations to try to prevent this kind of mess from recurring, why not figure out how to hold regulators accountable when they perform as poorly as they did in recent years?

I am with Ms. Morgenson and pulling for her to ‘finish the job’ and call out specific regulators and specific regulatory bodies. I was so hopeful that this was the article that would call out Mary Schapiro (current head of the SEC), and Richard Ketchum (current head of FINRA) and take them to task for not providing real transparency at FINRA (Financial Industry Regulatory Authority), the Wall Street self-regulatory organization.

Ms. Morgenson moved the ball to the ‘two yard line’ but did not finish the job with this commentary. That said, in referencing the work of Edward A. Kane, professor of finance at Boston College, she echoes sentiments Ronnie Sue Ambrosino, head of the Madoff Victim’s Coalition for Investor Protection, has put forth. Ms. Morgenson highlights:

Edward J. Kane, a professor of finance at Boston College and an authority on the ethical and operational aspects of regulatory failure, has some ideas about how to do this and right our damaged system in the process. He outlined them in a recent paper titled “Unmet Duties in Managing Financial Safety Nets.”

This ugly financial episode we’ve all had to live through makes clear, Mr. Kane says, that taxpayers must protect themselves against two things: the corrupting influence of bureaucratic self-interest among regulators and the political clout wielded by the large institutions they are supposed to police.

What is the American public to do in the face of such pathetic regulatory oversight? Ms. Morgenson believes:

It’s tough, however, to assign responsibility to regulators who routinely fend off or stymie anyone attempting to scrutinize how the cops on the beat functioned in the years preceding the financial meltdown. So everyday Americans need to kick and scream if they want some light shed on this critical epoch in our financial history.

Sense on Cents is KICKING and SCREAMING!! I only wish that Ms. Morgenson courageously exposed the shortcomings at FINRA so that everyday Americans would not have to kick and scream quite so hard.

For those who would like a taste of the Sense on Cents kicking and screaming, along with a massive helping of regulatory malfeasance, type “FINRA” and/or “regulators” into the search window here at Sense on Cents.

LD

  • Moy

    I am afraid the US regulators are really not doing a great job even now, when a great deal of spotlight is on them. The banks are getting bigger and bigger. I can almost hear them screaming ” we are too big to fail”. Issues like risk management, executive pay packages is far from settled convincingly. All Summers and co. is doing is selling us placebos, and I don’t think they have too much of an idea how to clear the mess.






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