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The SEC, Bear Stearns and the Failure of Regulatory Oversight: The Unredacted Version (Part 3)

By J. Robert Brown

The Report put out by the SEC's Office of the Inspector General on the supervision of Bear Stearns was heavily redacted.  Senator Grassley has, however, put out an unredacted version of the report.  It can be found here.  According to Bloomberg:

• Before it was released to the public on Sept. 26, Kotz deleted 136 references, many detailing SEC memos, meetings or comments, at the request of the agency's Division of Trading and Markets that oversees investment banks.

We haven't had time to digest the differences.  Bloomberg, however, has described some of the omissions and they appear to strengthen the case that the SEC inspection unit had warning of the problems inside the investment banking firm.

• An unedited version of the 137-page study posted to Grassley's Web Site Sept. 26 showed that Bear Stearns traders used pricing models for mortgage securities that ``rarely mentioned'' default risk.

• The firm lost one top modeler ``precisely when the subprime crisis was beginning to hit'' and writedowns were being taken, the full report said. ``As a result, mortgage modeling by risk managers floundered for many months,'' according to the unedited document, quoting internal SEC memos from April and December 2007. The comments were removed from the edited version publicly released by the SEC.
  

All and all a serious black eye for the agency.

Full post as published by The Race to the Bottom on October 08, 2008 (boomark / email).