SEC Chief: Staying calm a "signal achievement"; Madoff a "big asterisk"

The head of the Securities and Exchange Commission has denied any responsibility for the U.S.'s current economic woes. From a December 24th article in the Washington Post (as are all quotes in what follows except where noted):

Christopher Cox, the embattled chairman of the Securities and Exchange Commission, is defending his restrained approach to the financial crisis, saying he has provided steady leadership as Wall Street's main regulator at a time when other federal regulators have responded precipitously to upheaval in the markets.

During his tenure, the SEC has watched as all the investment banks it oversaw collapsed, were swallowed up or got out of their traditional line of business. The agency, meanwhile, was on the sidelines while the Treasury Department and Federal Reserve worked to bail out the financial sector....

I don't know about anybody else, but I'm certainly not pleased that my investments in financial institutions have tanked, due in large part, as I understand it, to widespread deception and misinformation about the true value of assets on these institutions' books as well as the risks involved. How can this possibly not be the SEC's job? I'm supposed to evaluate these things myself?

... Cox said... that he had responded properly to the broader financial crisis given the information he had. Confronted with a barrage of criticism from lawmakers, former officials and even some of his staff, Cox said he took pride in his measured response to the market turmoil.

"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 said. This caution, he added, "has really been a signal achievement for the SEC...."

Although Cox speaks of staying calm in the face of financial turmoil, lawmakers across the political spectrum counter that this is actually another way of saying that his agency remained passive during the worst global financial crisis in decades. And they say that Cox's stewardship before this year—focusing on deregulation as the agency's staff shrank—laid the groundwork for the meltdown.

"The commission in recent years has handcuffed the inspection and enforcement division," said Arthur Levitt, SEC chairman during the Clinton administration. "The environment was not conducive to proactive enforcement activity...."

In a 90-minute conversation in his 10th-floor corner office last week, Cox said the SEC's emphasis on enforcement is as strong as ever. "We've done everything we can during the last several years in the agency to make sure that people understand there's a strong market cop on the beat," he said.

He also said that "the SEC is not a safety and soundness regulator" despite the fact that the very first sentence in the SEC's statement on what it does says, "The mission of the U.S. Securities and Exchange Commission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation."

Further evidence that the SEC has not been doing its job appears in a New York Times article from yesterday titled "Federal Cases of Stock Fraud Drop Sharply," which notes that there have been only 133 prosecutions for securities fraud in the first 11 months of this year, versus 437 in 2000 and a high of 513 in 2002 while the number of investigations leading to such prosecutions has dropped from 69 in 2000 to just 9 in 2007.

Furthermore he implied that failure to do anything about the biggest Ponzi scheme in history was no more than a footnote to an otherwise highly successful tenure.

[T]he SEC, by its own admission, failed to detect an alleged $50 billion fraud by Bernard L. Madoff that may be the largest Ponzi scheme in history.

But in his first interview since the Madoff scandal broke, Cox said he was not responsible for the agency's failure to detect the alleged fraud...

"That's why Madoff is such a big asterisk," he added. "The case is very troubling for that reason. It's what the SEC's good at. And it's inexplicable."