Regulatory Overhaul Won’t Stop Next Crisis, Say Levitt, Breeden

June 16 (Bloomberg) -- Congress’s proposed overhaul of
U.S. bank regulation wouldn’t have averted the 2008 financial
crisis and does too little to prevent a recurrence, two former
chairmen of the Securities and Exchange Commission said.
Legislation being refined by a House-Senate conference
after passage by both chambers relies too heavily on regulators
such as the Federal Reserve that previously failed, said Richard
Breeden, who led the SEC from 1989 to 1993. Congress failed to
address emerging threats, such as abuses in the municipal-bond
market, that might trigger the next meltdown, said Arthur
Levitt, who was SEC chairman from 1993 to 2001.
“There was massively too much leverage within the
financial system,” Breeden said at a Bloomberg Link Boards &
Risk Conference in Washington yesterday. “Regulators had the
authority to control that and eliminate it. We can keep passing
laws, but if the regulators don’t have the backbone to enforce
the rules and to be realistic, then that’s a different
problem.”
The House and Senate are finishing legislation designed to
address an economic collapse that led to the failure of Lehman
Brothers Holdings Inc. and pushed the U.S. banking industry to
the brink of collapse. The measures would create a mechanism for
winding down systemically risky financial firms, a regulatory
structure for the derivatives market and a new federal bureau
responsible for overseeing and regulating consumer financial
products such as mortgages and credit cards.
“I certainly don’t think it would prevent the turmoil
coming up, and I doubt very much it would have had much impact
on the turmoil we have just experienced,” Levitt said at the
Bloomberg conference. “You might surmise from that that I’m not
a fan.”
Smaller Banks
Regulators need to have the courage to make banks smaller,
and less profitable, Breeden said.
“We would all be safer,” he said.
Breeden, 60, and Levitt, 79, said they don’t believe that
the SEC filed an April 16 lawsuit against Goldman
Sachs Group
Inc. to help President Barack Obama
win passage of the
financial-regulation overhaul.
“I don’t believe that for a single second,” said Levitt,
who serves as an adviser to Goldman Sachs. “The SEC will not be
impacted by public pressure to bring an action.”
In its lawsuit, the SEC said Goldman Sachs sold a security
tied to mortgages without disclosing that the Paulson & Co., the
hedge fund run by John Paulson,
helped pick the underlying
assets. Paulson was betting the security would fail, the SEC
said. New York-based Goldman Sachs said the case has no merit.
Levitt said he doesn’t think Goldman Sachs will be required
to appoint an independent monitor to review the company’s
practices as part of any potential settlement with the SEC.
Levitt also serves as an adviser to the Carlyle Group and is a
board member of Bloomberg LP, the parent of Bloomberg News.

gaoyi0915 wrote:

June 16 (Bloomberg) -- Congress’s proposed overhaul of
U.S. bank regulation wouldn’t have averted the 2008 financial
crisis and does too little to prevent a recurrence, two former
chairmen of the Securities and Exchange Commission said.
Legislation being refined by a House-Senate conference
after passage by both chambers relies too heavily on regulators
such as the Federal Reserve that previously failed, said Richard
Breeden, who led the SEC from 1989 to 1993. Congress failed to
address emerging threats, such as abuses in the municipal-bond
market, that might trigger the next meltdown, said Arthur
Levitt, who was SEC chairman from 1993 to 2001.
“There was massively too much leverage within the
financial system,” Breeden said at a Bloomberg Link Boards &
Risk Conference in Washington yesterday. “Regulators had the
authority to control that and eliminate it. We can keep passing
laws, but if the regulators don’t have the backbone to enforce
the rules and to be realistic, then that’s a different
problem.”
The House and Senate are finishing legislation designed to
address an economic collapse that led to the failure of Lehman
Brothers Holdings Inc. and pushed the U.S. banking industry to
the brink of collapse. The measures would create a mechanism for
winding down systemically risky financial firms, a regulatory
structure for the derivatives market and a new federal bureau
responsible for overseeing and regulating consumer financial
products such as mortgages and credit cards.
“I certainly don’t think it would prevent the turmoil
coming up, and I doubt very much it would have had much impact
on the turmoil we have just experienced,” Levitt said at the
Bloomberg conference. “You might surmise from that that I’m not
a fan.”
Smaller Banks
Regulators need to have the courage to make banks smaller,
and less profitable, Breeden said.
“We would all be safer,” he said.
Breeden, 60, and Levitt, 79, said they don’t believe that
the SEC filed an April 16 lawsuit against Goldman
Sachs Group
Inc. to help President Barack Obama
win passage of the
financial-regulation overhaul.
“I don’t believe that for a single second,” said Levitt,
who serves as an adviser to Goldman Sachs. “The SEC will not be
impacted by public pressure to bring an action.”
In its lawsuit, the SEC said Goldman Sachs sold a security
tied to mortgages without disclosing that the Paulson & Co., the
hedge fund run by John Paulson,
helped pick the underlying
assets. Paulson was betting the security would fail, the SEC
said. New York-based Goldman Sachs said the case has no merit.
Levitt said he doesn’t think Goldman Sachs will be required
to appoint an independent monitor to review the company’s
practices as part of any potential settlement with the SEC.
Levitt also serves as an adviser to the Carlyle Group and is a
board member of Bloomberg LP, the parent of Bloomberg News.

people always want to think they can prevent history from repeating itself. Its funny, they just cause differences in the system that can be bypassed by human innovation. All these reforms and regulation will just be worked around with different vehicles.
All in all there is no easy right and wrong answer to regulation, most of the time i feel its just a bucha old heads on capital hill trying to get their arses re-elected wihtout looking deeping at the issues on hand.