But Cox Should be Fired

McCain, today called for the firing of SEC chairman Christopher Cox. Immediately he was attacked by Chuck Schumer (D-NY) and Harry Reid (D-NV).

From Senator Schumer:

“Instead of firing Cox, McCain should explain how his policies differ from President Bush on this issue,"

Senators Reid and Schumer are right in saying that it's the Bush administration ultimately at fault for SEC issues, but that doesn't mean the SEC chairman doesn't need to go.

McCain and Schumer are wrong about the short selling issues, and McCain is wrong about the reasons for firing Cox. Short selling is not hurting our economy.

From Time:

Last year the SEC let the longstanding uptick rule expire, which stipulated that traders could short a stock only after it had moved up. Cox called the rule useless, because an uptick can be just a penny in the decimalized market. His view is supported by academics such as MIT's Paul Asquith, who has done extensive research on short sales. Asquith reviewed two years of data during which short trades were tracked by the SEC, and found that 30% of all trades are short sales. All the short sellers are going to do is make the market react faster, he says. "The question is, Can the short seller take a firm down? The answer is no. Not by themselves. If there is nothing fundamentally wrong, all you need is a couple of smart people on the other side to show that they're wrong," says Asquith.

Short selling is a scapegoat. And the Dems are attacking McCain for making Cox a scapegoat. But Cox has played a role, but not doing his job.

It is curious however how McCain decries "naked short selling" when like Cox and Bush, he's been anti-regulation for some time.

From The Boston Globe:

throughout his two-decade Senate career, McCain has cast himself as an outspoken critic of government intervention in the markets, saying that he is "fundamentally a deregulator."

"After all the years of tearing down the regulations that govern financial institutions, it rings hollow to claim that he will build them back up," said Elizabeth Warren, professor of bankruptcy law at Harvard Law School. "This economy is the direct consequence of the deregulation that John McCain fought for day after day, year after year, since the mid-1980s."

Christopher Cox is to this financial crisis and the SEC as Brownie was to Katrina and FEMA.

Leadership isn't going to come from the administration on this and you're not going to see any from the SEC either. There's been little real leadership on anything thus far.

What are some measures the SEC should have taken?

• Enforce quality accounting standards that would have led to greater transparency and market confidence.
• Instead the SEC has completely avoided this issue allowing companies to keep tens of billions of bad investments off balance sheets. Which has allowed for...
• Prosecute the lies and misrepresentations made by corporate executives to their shareholders.
  
• Because the books are unclear poor accounting standards, comments from CEO's and other corporate executives have been used to influence the investment community. Unfortunately there have been enough lies, rumors, and deliberate misrepresentations (which are illegal and should have been investigated and prosecuted by the SEC) that investors have been hurt and have lost faith the quality of information that is on the market.
• Enforce existing rules.
  

Firms are collapsing because rules have been relaxed by the SEC.

From the Big Picture:

the events of the past year are not a mere accident, but are the results of a conscious and willful SEC decision to allow these firms to legally violate existing net capital rules that, in the past 30 years, had limited broker dealers debt-to-net capital ratio to 12-to-1.

And I would maintain capital is pulling out because accountability standards have been eliminated and there's no way to know what you're buying short of being an insider.

The SEC is the police for the market, Cox is the guy in charge. The SEC is non existent.
Cox(ie) has got to go.

[The Crypt]

Where's Chairman Cox and the SEC?

Listening to the story of the SEC and Chairman Cox in this weeks “This American Life” brought up striking reminders of Michael Brown, FEMA and the disaster of disaster management that accompanied Hurricane Katrina in 2005. Michael Brown and Christopher Cox are evidence of and extreme neoliberal ideology that pervades the Bush administration.

The current financials crisis that is melting down Wall Street is worse now because regulators like Chairman Cox’s SEC and the FDIC haven’t been doing their jobs. Instead his lack of action is reminiscent of the the neoliberal idea that government should have little or no input in markets, an extreme position that believes that regulation leads to inefficient markets and bloated government.

How concerned is Christopher Cox with doing his job?

One Friday in March, with investment bank Bear Stearns Co. teetering toward collapse, the chieftains of U.S. financial regulation dialed into a 5 a.m. conference call to craft a bailout plan. When they were done, the Treasury secretary informed the president. The head of the Federal Reserve Bank of New York called Bear Stearns.

Christopher Cox, chairman of the Securities and Exchange Commission, didn't call anyone. Though the SEC was Bear Stearns's regulator, he didn't take part in the meeting.

In an interview, Mr. Cox said the time of the call changed overnight and no one told him. SEC staff members were on the early call and Mr. Cox says he was involved in calls later that day and throughout the weekend with his peers.

Big crises put Washington's regulators to the test. At pivotal times during the current financial turmoil, Mr. Cox has appeared peripheral. The next night, as Fed and Treasury bosses negotiated a bailout, Mr. Cox was at a birthday party. He was missing from a Sunday conference call announcing the sale of Bear Stearns and the Fed's plan to lend funds to investment banks. The following weekend, he left town for a family vacation.

From the Wall Street Journal June 23, 2008

In Cox’s own words “markets should be efficient, competitive, transparent, and free of fraud.” Citing potential problems with government own investments Cox says: “If government-owned investments lack transparency, they could contribute to market volatility stemming from uncertainty about the allocation of their assets.” Isn’t this also true with private investments? Since the start of the break down a year ago rumors, and blatant manipulations have been floated around wall street with impunity. Illegal statements made by corporate executives in an attempt to stave of disaster and help insiders have been made time and time again with no SEC enforcement actions to be heard of. In Enronesque fasion companies throught the markets have illegally misreported their financial situation in order to manipulate their stock price.

Where’s the transparency Mr. Cox? In a large part the lack of transparency is what’s destroying our markets. With full disclosure and a better understanding of each companies financial situation capital would have a place to go. But as it is, uncertainty is eating away at the entire market.

The ironic result of all this is that we’ve now come full circle, and are as far away from the neoliberal ideal as possible. With government take-overs of companies that are supposedly “too big to let fail” we are setting ourselves up for an even greater disaster when the money runs out or the debt reaches too high. We are now headed toward more of a Corporatic welfare state or the ultimate in corporate socialism where the government is inherently tied to propping up and maintaining the welfare of corporate interests at the cost to the people.

Coxie, You're doing a heck of a job.