The Missing Link in Obama's Regulatory Scheme

I've monitored the media coverage carefully over the past couple of days, to see if anyone in the media spotted the obvious, glaring missing link in the Obama administration's financial regulation overhaul scheme (pdf).

Here are some hints as to what Obama left out:

1. It's a major reason for the financial crisis.

2. It's corrupt, hypocritical, and just downright stupid.

3. It continues to have a central role in the regulation of the markets, and few people (including myself) have figured out a way to deal with it---except to point out that it is a missing link, and that it needs to be addressed.

Give up? The missing link in the regulatory overhaul plan is Congress.

It was Congress that cut funding to the SEC and has failed to adequately supervise the agency. It is Congress that sliced to shreds the consumer protections that gave rise to the subprime and mortgage boiler-room fiasco. It was Congress that is financed, in large measure, by campaign contributions from the securities industry.

Sorry for stating the obvious, but you can't do a thing about financial securities regulation without fixing Congress--changing the campaign finance system, kicking out members who are beholden to Wall Street and Corporate America.

A good example of Congress's cluelessness is the grandstanding at the Senate Banking Committee yesterday, when Tim Geithner appeared to defend the Obama plan. The stunning hypocrisy on display yesterday was galling:

Banking Chairman Christopher Dodd (D., Conn.) used the hearing to warn financial firms not to oppose the creation of a financial-product safety agency aimed at protecting consumers. "The very people who created the damn mess are the ones now arguing that consumers ought not be protected," Mr. Dodd said.

Congress is behaving as if it was not a major participant in the regulatory mess that caused the financial crisis, and the media is letting 'em getting away with it.

© 2009 Gary Weiss. All rights reserved.

Elephant on the Panel

The Senate Banking Committee's hearing today on hedge funds proved to be a dull pro forma exercise, with the three government witnesses amiably dodging both the good and the dumb questions. Makes you wonder why they even bothered to webcast the thing. A rerun of Flipper might have been more informative.

In contrast to the hysterical tone that dominated a previous hearing, this panel spent mercifully little time making a fool of itself. There was only one "baloney moment," and it slipped by quickly. That was when Chuck Hagel probed the imminent threat of research firms joining with hedgies in targeting fine companies like Overstock.com and Biovail. Overstock shares promptly rejoiced by hitting a 52-week low.

The elephant on the panel was the whistleblower Gary Aguirre, who was fired after trying to question Morgan Stanely's John Mack in a trading probe. Unless I missed it, as I may have dozed during the fascinating repartee, not one question about Aguirre emanated from the lips of the senators.

It's important, by the way, to distinguish between Aguirre's allegations and the effort to suppress him. As veteran financial journalist Don Bauder noted in a good wrapup on the subject, Aguirre's widely publicized allegations have been attacked as "flimsy."

Whether Aguirre is credible or not, this whole Mack business is troubling and should be investigated -- by actual investigators, not the U.S. Senate.

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was published by Penguin USA on April 6.
Click here for its Amazon.com listing and here for more information on the book, from my web site.

More Hedge Fund Scrutiny... or something

I see that the Senate Banking Committee holds a hearing on Tuesday to discuss regulation of hedge funds. Lately the debate has been hijacked by naked shorting conspiracy nuts, so hopefully the Senate will put the discussion back on track. Don't count on it.

I'm a little wary of SEC regulation of hedge funds, since the SEC is serially inept, captured by Wall Street, and generally mucks up everything it tries to regulate. The SEC rule mandating registration of hedge funds was a joke -- a meaningless requirement with massive loopholes. But it made the SEC look good, and I guess even better when a court tossed it out.

Certainly more scrutiny of hedge funds' use of leverage would be sensible. So -- at the risk of ending two paragraphs the same way-- I repeat. Don't count on it.

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was published by Penguin USA on April 6.
Click here for its Amazon.com listing and here for more information on the book, from my web site.