A Tag-Team to Save Investors’ Bacon

Fed, SEC Team Up On Bank Oversight
Deal Formalized to Coordinate on Wall St.

By Neil Irwin
Washington Post Staff Writer
Tuesday, July 8, 2008; D01
Two top regulators reached a formal agreement to coordinate their oversight of Wall Street yesterday, as the government attempts to build a new system to guard against a meltdown of the financial system.
Leaders of the Federal Reserve and the Securities and Exchange Commission signed a memorandum of understanding that explicitly allows for the two agencies to share information about the inner workings of investment banks. The move formalizes what has been a reality since the rescue of Bear Stearns in March and marks an end to an era in which the two agencies held information close to their vests.

“It requires consultation between the SEC and the Fed in areas that the SEC had thought previously were its exclusive business. But the world has changed,” said David Becker, a partner at law firm Cleary, Gottlieb, Steen & Hamilton and former general counsel at the SEC. “This mostly ratifies facts on the ground.”
Mostly ratifies facts on the ground.” Interesting. The facts “on the ground” are that the Fed has, for the first time ever, reached in to save an investment bank. Not because of a ‘liquidity problem,’ the banks were awash in liquidity–they were just too stunned and afraid to make it available.
Years of profits in the tens (and occasionally multiples of tens) of billions, suddenly were deemed unavailable, at the same time the march of executive reward continued unabated. Years of profits–conveniently taxed at a 15% rate–were perfectly OK, even expected to continue forever, or as far into forever as an investment banker looks.
But loss? Omigod, we have to be sheltered from loss. We don’t know what to do about loss. Loss was never in the lesson-plan at Harvard. And so we have protected profit by a one-half tax rate and made loss subject to public bailout.
Those are the “facts on the ground” the “regulators” hope to hand off to an unsophisticated and under-informed public.
The Ben Bernanke–Christopher Cox bait and switch, with Henry Paulson out in front of the tent, pandering to passers-by.

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