Wednesday, August 5, 2009

Is the SEC Capable of Regulating the Rating Agencies?

Michael Barr, Assistant Secretary for Financial Institutions, will testify today before the Senate Banking Committee about the Obama Administration's financial regulatory reform scheme. Barr's prepared remarks indicate that the testimony will proceed along the following outline:
  1. Remind everyone just how bad an economy was inherited by President Obama
  2. Recommend that a few regulatory agencies be shuffled and/or consolidated (none eliminated though).
  3. Recommend the creation of a Super Agency; because studies have shown that the bigger an agency is, the more effective it will ultimately be. Right?
  4. Fire some shots at the rating agencies, and end the whole speech with a paragraph euphemistically headed "Strengthen and Build on SEC Supervision"
Why does the Government continue to come up with these ridiculously illogical solutions to problems? The last time I checked, the SEC was incapable of catching a fraud even when the name of the perpetrator (Madoff), a description of the fraud, and empirical evidence that the suspects actions amounted to a Ponzi scheme were repeatedly delivered to it. Setting aside any determination of S&P,Moody's, or Fitch's culpability insofar as inaccurate/misleading ratings are concerned; what sort of value could the SEC possibly add to the whole process?

Of course, this is Congress that Mr. Barr is testifying before; the same people that responded to a crisis borne out of the mispricing of risk by demanding that credit card interest rates be reduced, and who think that subsidizing a "Clunker" party will be beneficial for auto sales and the economy in the long run. Sphere: Related Content

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