Remember SOX!

Phillip Carter — Sat, 29 Mar 2008 02:40:00 GMT

According to the New York Times, the Treasury Department is pushing a plan which broaden and deepen the reach of the federal government into America's financial markets:

According to a summary provided by the administration, the plan would consolidate an alphabet soup of banking and securities regulators into a powerful trio of overseers responsible for everything from banks and brokerage firms to hedge funds and private equity firms.

While the plan could expose Wall Street investment banks and hedge funds to greater scrutiny, it carefully avoids a call for tighter regulation.

The plan would not rein in practices that have been linked to the housing and mortgage crisis, like packaging risky subprime mortgages into securities carrying the highest ratings.

The plan would give the Fed some authority over Wall Street firms, but only when an investment bank’s practices threatened the entire financial system.

And the plan does not recommend tighter rules over the vast and largely unregulated markets for risk sharing and hedging, like credit default swaps, which are supposed to insure lenders against loss but became a speculative instrument themselves and gave many institutions a false sense of security.

Parts of the plan could reduce the power of the Securities and Exchange Commission, which is charged with maintaining orderly stock and bond markets and protecting investors. The plan would merge the S.E.C. with the Commodity Futures Trading Commission, which regulates exchange-traded futures for oil, grains, currencies and the like.

All of which may sound good now, in the heat of the moment. But so did Sarbanes-Oxley ("SOX") when it was first proposed -- and according to UCLA law professor Stephen Bainbridge, the results haven't been great: "The lesson is that when something MUST be done, the best thing to do may be nothing. Not, to be sure, the politically wise thing, but the right thing. Unfortunately, we’re in the same sort of environment that led to SOX."

Convictions : Sarbanes-Oxley

Remember SOX!