Govt. Not Prepared for Next Inevitable Financial Crisis, Says Ex-SEC Chair

According to ex-Securities and Exchange Commission chairman Harvey Pitt, another financial crisis could happen before the end of the year and still the government isn’t more ready to deal with it than the last one. He shared his views at a US Chamber of Commerce-organized panel on July 25.

Pitt said that rather than the regulations in the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, “three things” are required to keep future crises from happening.

1) A “steady flow” of pertinent information about anyone who takes funds from investors and may be able affect capital markets.

2) A duty by the government to examine the data it possesses and use this information to help the markets. (He spoke about how at the SEC, “the roach motel theory of disclosure” is practiced in that the data is there but no one is examining it.)

3) A duty by the government to watch market trends and events so it can create appropriate solutions when problems arise.

Pitt said that if the 2002 Sarbanes-Oxley Act regulations was more effective, the Dodd-Frank Act wouldn’t have been necessary. He did, however, consider “SOX” far superior as a legislative effort than the newer act, which he believes created more bureaucracy and made independent agencies, such as the Commodity Futures Trading Commission, the Federal Reserve Board, and the SEC “subordinate” to the Treasury Department via the Financial Stability Oversight Council. He believes that this will cost Americans.

Another panelist who expressed dissatisfaction with Dodd-Frank was SunTrust Bank Inc. executive Mark Oesterle, who served as the Senate Banking Committee’s Republican chief counsel from 2001 until last year. He believes that Congress needed to execute more forensic analysis when enacting the 2010 legislation. Oesterle played a role in drafting Dodd-Frank.

Meantime, while former over-the-counter derivative products wholesaler GFI Group EVP J. Christopher Giancarlo complimented the legislation’s swap provisions, he noted that to this day they have not been put into effect. Giancarlo said that for swaps trading activity to be revived, following the effects of domestic regulatory uncertainty and the European debt crisis, the provisions need to be implemented. Rather than react to each crisis, he said that business community wants a “regulatory apparatus” operating with a “simple set of rules” so that capital markets can play a part in rebuilding the economy.

All this criticism against Dodd-Frank comes around its 2-year anniversary, with some people expressing uncapping that the 2300-page legislation has not done what President Barack Obama predicted it would do, which was to “lift our economy” and provide “certainty,” among other expectations (see WSJ article below for source of these quotes).

In his opinion piece, which was published in the Wall Street Journal, Representative Jeb Hensarling, who is a Republican from Texas and was one the committee members for Dodd-Frank who had opposed the legislation, believes that the act’s authors wrote 400 regulations that either create economy “uncertainty” or “harm.” He gives the 300-page Volcker rule, which regulators still haven’t finalized, as one example among many. Hensarling also writes that to “comply with Dodd-Frank” and just its 224 rules that have already been written, job creators in the private sector will need to more than 24 million hours each year.

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2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (PDF)

The Sarbanes Oxley Act 2002

Jeb Hensarling: Dodd-Frank’s Unhappy Anniversary, The Wall Street Journal, July 25, 2012

More Blog Posts:
Dodd-Frank Whistleblower Protection Amendment Must Be Applied Retroactively, Said District Court, Stockbroker Fraud Blog, July 21, 2012

Dire Predictions For Wall Street Reforms: Not Complete Until 2013, Even Longer to Implement, Half May Not Survive, Stockbroker Fraud Blog, May 12, 2012