Exclusive Online Only ContentGoldschmid Calls for ‘Dramatic Rethinking’ of SEC
December 15, 2008
Harvey Goldschmid, a former Securities and Exchange Commission member who is frequently mentioned as a possible successor to chairman Christopher Cox, is calling for major changes at the agency, including regulation of hedge funds and a merger with the Commodity Futures Trading Commission (CFTC) that would preserve the SEC as the dominant securities regulator.
Goldschmid, a law professor at Columbia University and a recent addition to the board of the Financial Industry Regulatory Authority, made his comments at a Dec. 12 conference in New York on the future of financial services regulation. Asked what led to the current crisis, Goldschmid, a Democrat, noted that “private market self-interest” played a role, as did naiveté about the functioning of financial markets.
“There was a failure of government regulation that went with the deregulation mythology,” said Goldschmid. “In the last few years, the private-sector push for rollbacks has had a serious negative effect. There is an enormous morale problem [at the SEC] that has to be dealt with by the new administration.”
Since Goldschmid left in 2005, the commission has not seen “good years,” he added. “There has been so much criticism. … The SEC’s risk assessment [capability] got run down. The SEC ought to be rehabilitated, but the idea of getting rid of it is just wrong.”
To reform the agency, Goldschmid, who joined in 2002, said the U.S. needs “the most dramatic rethinking of the regulatory regime since the New Deal. Of critical importance is that the U.S. government develop a central institution for mitigating risk--a place that will look hard at risk development, and also look around the corner.”
The Treasury Department, in the regulatory reform plan it introduced in March, has also recommended a merger of the SEC and CFTC, but “the blueprint had it just wrong,” said Goldschmid. “The CFTC is smaller and weaker and ought not to swallow the SEC. Putting them together makes sense, but do it the way the SEC would do it.”
Goldschmid called for the SEC’s mandate to be strengthened to include regulatory scrutiny of hedge funds, “full authority” over credit rating agencies and oversight of complex financial instruments such as credit default swaps and collateralized debt obligations. He also criticized the relatively small budget and staff assigned to the commission. “There is a resource issue that is terribly important” he noted. “The SEC’s budget has been flat since 2005.”
At the conference, sponsored by law firm Labaton Sucharow, Goldschmid emphatically disagreed with recommendations that the SEC be broken up and its functions absorbed into other government agencies including the Federal Reserve Board. “Renew and revitalize, but don’t dismantle,” he said. “These markets need discipline. The SEC is about to hit its 75th birthday. On balance, it has been an extraordinary success.”
