Academic

SEC chair Chris Cox showed up at the Bush news conference last week, along with Ben Bernanke and Henry Paulson.  John McCain called for his resignation, too.  But other than issuing a much-criticized temporary ban/disclosure req't on shorting financial stocks (and a less criticized ban on naked shorts), what, exactly, have Cox and the SEC being doing to regulate markets and oversee the capital adequacy of the investment banks under their aegis?

Let's have a look at the SEC's own record last week:

• It reminded investors that broker accounts are insured by the SIPC.
• It celebrated Barclays' speedy acquisition of Lehman's bankrupt remains.
• It announced that it would be putting possible market manipulators under oath.
• And you tell me what this clarification on bank/money market fund reporting means.

I read this as a record of "me too!" in response to Treasury and Fed action, at least when it doesn't come to flogging shorts. 

The problem with the SEC is that, even though it is self-funded like the Fed, it isn't anything like a central bank for investment banks or brokers.  What we've been seeing in the past week is the SEC performing the enforcement-related functions it always performs, and enforcement functions aren't what is wanted.  The question has not been "Who killed Wall Street?"  It has been "Can we save Wall Street?  And should we?"

The SEC has had nothing to say about those second two questions, perhaps because of the way the agency is structured, perhaps because it tends to regulate by prosecution, rather than supervision. 

Perhaps, anyway.  But any pretence that the agency could make at performing banking-style supervision of the capitalization of investment banks just met its Waterloo.  The last two remaining independent investment banks have just left SEC supervision and become bank holding companies, regulated by the Fed, an agency with the funds to bail them out. Surprising stuff.  But these banks know who can help in a pinch, and who can go find someone else to investigate.  (HT: Steven Davidoff)

Maybe the SEC will find a new role to play in SOX II.