Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

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Tuesday, April 29, 2008

Two Views on SEC Reform

The New York Times today has two pieces relevant to the question of market reform.  First, an Op-Ed piece, "Muzzling the Watchdog," by three former SEC Chairs, Arthur Levitt, William Donaldson, and David Ruder, warns against a regulatory approach that would turn the SEC, in its words, "from a market referee into an industry coach -- a regulator that is heavy on forgiveness and light on punishment."  It calls for a thorough study of the causes of the current market crisis.  Perhaps predictably, the piece concludes by saying that the problem with the SEC today is lack of adequate funding to allow the agency to perform its job as law enforcement agency and investors' advocate.

Andrew Ross Sorkin's column, Junk Bonds, Mortgages and Milken, is a response to recent assertions that Michael Milken, and specifically the creation of junk bonds, is to blame for the recent credit crisis.  While I agree that blaming Milken is classic passing-the-buck, what caught my attention are the following two sentences:

Toward the end of every bubble, people misuse the financial tools at their disposal, and then a witch hunt begins for the villain. Then, of course, the regulators jump in and try to fix things — and often go a bit overboard. (emphasis added)

Huh?  In fact, the response to this crisis, to date, has been quite the opposite.  Treasury Secretary Paulson's Blueprint, as the former SEC Chairs point out, is more deregulatory than otherwise, and even if anyone in this current administration thought beefing up the SEC's budget was a good idea, it's hard to see where the money would come from.  Moreover, despite the inspirational words from the former SEC Chairs, the current SEC seems, to this outside observer, to lack the energy and the will to be a true Investors' Advocate.

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