Maybe because the Federal Reserve Bank took the day off from lowering interest rates an pumping liquidity into the market, Secretary Hank Paulson’s regulatory blueprint has gotten a ton of media attention today despite Paulson’s comments that a regulatory transformation wouldn’t begin until after the current market crisis are resolved. “Our first and most urgent priority is working through this capital market turmoil and housing downturn, and that will be our priority until this situation is resolved,” Paulson said. “With few exceptions, the recommendations in this Blueprint should not and will not be implemented until after the present market difficulties are past.”
Bill Brodsky, chairman and CEO of the Chicago Board Options Exchange, a longtime critic of the current regulatory regime, characterized Paulson’s blue print as the first comprehensive analysis of the U.S. market regulation since the Brady Report of 1988, and as an “intellectually honest framework that goes well beyond partisan politics and quick fixes.”
But he was less enthusiastic about the SEC/CFTC memorandum of understanding that was released on March 11. “I have been a participant in discussions on CFTC/SEC issues for many, many years. And although the memorandum of understanding has a nice ring to it, it’s just more of the same; issues come, they agree to work more closely together, things change, then we are back where we were. And so I am not wildly optimistic about this,” he says. And any substantive change is unlikely in the short term. “With eight months left in an eight year presidential cycle, it is very likely we will have two different chairmen at those agencies,” says.
While Wall Street writes off scores of billions of dollars of securities that have been made worthless by counterparty defaults, when was the last time that a futures counterparty had to write off anything? How about Soc Gen’s $7 billion losses – all futures counterparties were paid.
Bear? Enron? Refco? Same. Why would anyone want to change that?