Watch puppies?
At least five kinds of watch-dog organizations
that are supposed to protect us, failed to do
their job.
First, and most notably, the SEC allowed banks to vastly increase the amount they could lend against a dollar’s worth of assets. Not content with that lapse of judgment, the SEC let its investigations of stock fraud fall from 69 in 2000 to nine in 2007, an 87% drop.
Second, the big auditing firms charged with blowing the whistle on operations like Bernie Madoff’s somehow lost their breath. One of the Big Eight has paid out over $600 million in fines. Others are facing law suits.
Third, the
debt rating agencies, most notably Standard & Poor’s
and Moody’s. They’re supposed to rate bonds on
their financial solidity. Instead, they blithely
gave investment-grade ratings to companies like
AIG, Lehman Brothers, MBIA, FreddieMac, and FannieMae,
right up to within a few weeks or days of the
bitter end.
Fourth, the Office of Thrift Supervision allowed IndyMac to backdate a capital infusion, enabling the bank (now failed) to keep its “well capitalized” status and collect brokered deposits from other institutions.
Fifth, As Vanguard founder John
C. Bogle recently pointed out, mutual funds and
money management firms control most of the shares
in banks and mortgage companies. They had the
responsibility to see what these financial companies
were doing, and the power to influence their
behavior, but they just let it all go by.
Self-Defense: It’s time to ask our legislators in Washington to provide adult supervision of the financial markets.