Thursday, September 18, 2008

Regulate This, Pal

Wanna know why things are blowing up on Wall Street? Say no more. NYSun (09.18.08), via The Big Picture:
"The Securities and Exchange Commission can blame itself for the current crisis. That is the allegation being made by a former SEC official, Lee Pickard, who says a rule change in 2004 led to the failure of Lehman Brothers, Bear Stearns, and Merrill Lynch."

Ex-SEC Official Blames Agency for Blow-Up of Broker-Dealers

"The SEC allowed five firms — the three that have collapsed plus Goldman Sachs and Morgan Stanley — to more than double the leverage they were allowed to keep on their balance sheets and remove discounts that had been applied to the assets they had been required to keep to protect them from defaults."

Ahhhh yes. The good old net capital rule. Barry explains:

"(T)he events of the past year are not a mere accident, but are the results of a conscious and willful SEC decision to allow (Goldman Sachs, Merrill Lynch, Lehman Brothers, Bear Stearns [ed. - that'll be $2.00 a share, please], and Morgan Stanley) to legally violate existing net capital rules that, in the past 30 years, had limited broker dealers debt-to-net capital ratio to 12-to-1.

Instead, the 2004 exemption -- given only to 5 firms -- allowed them to lever up 30 and even 40 to 1."

How SEC Regulatory Exemptions Helped Lead to Collapse



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