On the Way Out, the SEC Chief’s Non-Mea Culpa
He presided during the collapse of the investment banking system and the biggest Ponzi scheme in history, but according to head of the Securities and Exchange Commission, Christopher Cox, none of that was his fault.
In an interview with the Washington Post, Cox – Wall Street’s principal regulator – proffered a list of explanations for his actions and inaction.
On the failures of Lehmann Brothers and Bear Stearns, Cox told the Post the SEC’s job was not to prevent investment banks from collapsing, “but rather [to shelter] their securities trading units from problems in the broader corporation.”
Of course, when the entire bank sinks, the securities desk goes, too.
As to how his agency missed Bernard Madoff’s giant Ponzi scheme, despite numerous warnings and aborted investigations, Cox claimed that “concerns about Madoff’s activities were never presented to the commissioners,” according to the Post.
The Post details how Cox took a machete to the agency’s enforcement division – cutting staff, axing whole offices and hacking back at the fines imposed on Wall Streeters for violating SEC rules.
Yet Cox remains steadfast in his defense. Here’s how the Post put it:
When Cox was asked whether he should be blamed for a culture of lax enforcement that allowed multiple warnings about the fraud to go undetected, he said: “Absolutely not. In fact, it’s in the DNA here that people thrive on bringing big cases.”
The Post points out that Cox was mostly sidelined as Treasury Secretary Hank Paulson and Federal Reserve chief Ben Bernanke shaped the financial rescue. While they pushed for their version of the bailout, Cox was seen as a “nonplayer” sitting on the “sidelines,” according to the Post.
Cox concedes that he bent to “intense pressure” imposed by Paulson and Bernanke to ban short selling for three weeks in September. He tries to put a different gloss on his failure to act on the other big problems, or to act more forcefully during the financial implosion:
“What we have done in this current turmoil is stay calm, which has been our greatest contribution – not being impulsive, not changing the rules willy-nilly, but going through a very professional and orderly process that takes into account unintended consequences and gives ample notice to market participants.”
Cox calls that a “signal achievement for the SEC.”