FT.com / SEC looks to subprime lessons

“The regulatory lessons here extend far beyond the SEC,” said Christopher Cox, the SEC chairman, in an interview with the Financial Times. “Subprime only leached into the securities markets after it was already a horrible problem. There was complete breakdown in lending standards, a complete breakdown, one can infer from that fact, in supervisory standards for lending or at least the application of those standards. “We’ve also found other regulatory gaps, not just statutory regulatory gaps for investment banks, but also for mortgage brokers, and we have discovered a host of perverse incentives in the securitisation process, only a small portion of which are the responsibility of securities regulators.”

Mr Cox’s comments come ahead of a meeting of the International Organisation of Securities Commissions, the umbrella group for global securities regulators, in Paris at the weekend. Rating agencies, the subprime crisis and international financial reporting standards will feature high on the agenda, he said. FT.com / Companies / Financial services – SEC looks to subprime lessons

JMc’s Comments:

So where was this “horrible problem” lurking before it “leached into the securities markets”?

Good to know that only a “small portion … are the responsibility of securities regulators” – it gives you a strong comfort level that those talks in Paris will be productive – at least in finding reasons to blame someone else.

But don’t worry, the free market will address the problem – just needs a few trillion in losses to prod it.