Show's over folks. Financial regulation has passed and been signed by President Obama. Basel III has had its teeth removed and its testicles cut off by the usual lobbyist-armed suspects. The (seemingly stress-free) stress tests for European banks have been and gone, with anxiety over European sovereign debt on hold until the summer holidays are over. And Tony Hayward has been banished to Siberia just as BP's gusher in the Gulf is about to be sealed. Time to head for the lobby for a snack and to wait for previews of things to come.
Summer is the silly season in Europe, when the Brits, French, Germans and Italians head for the beaches. Those who stay in the nearly-deserted cities think up fun things to do like sailing regattas, horse racing or polo matches to keep them occupied. Little gets accomplished in the business world in August, and everyone accepts that normalcy will resume in September.
But wait - in America the wheels keep on spinning. I was shocked when I moved here to see that major conferences, press briefings and cocktail parties were scheduled in August. A good PR in London knows that there if there is no one around to attend you don't throw a party. I, of course, do not attend anything in August. My mindset is stuck in summer mode and it would seem sacrilege to do 'real work' in August.
But, because the wheels of American commerce do keep spinning I have to keep up with the news. So it was that I found, buried within thinly disguised political crap-stirring, an article from Fox Business News. It said that the SEC is now allowed to withhold information about its goofs - I mean investigations. This was a little clause hidden within the new financial regulation bill, apparently. According to the New York Post: "A provision buried in the week-old law allows the Securities and Exchange Commission to deny any public request for information under the Freedom of Information Act, a time-honored tool that's exposed scores of scandals from Washington to Wall Street for the past 44 years."
Looking into it further the clause is said to strengthen an existing rule that enables the SEC to keep any information it receives from brokers and banks away from public access. Otherwise the brokers and banks wouldn't want to give the SEC anything. This makes sense. If your bank turns over confidential client trades to the regulator, Fox News (or I) should not be able to requisition those documents for a story. But we could, under the FOIA, so I wonder how many brokers and banks refused to turn over their records in the past.
After the May 6th flash crash it was obvious that the SEC and the CFTC were struggling to get the information necessary to investigate the causes. Was this because the industry participants were afraid of what would happen to them if they did? Clearly if a broker's client fat fingered a trade and the broker didn't catch it because it provides naked access then the broker would appear culpable. No broker wants the reputation of having loosey-goosey risk management practices. If a bank was 'making bets' against its clients' trading positions and it got caught by the SEC, then that bank would be very unhappy if it hit the press.
And now, with the inevitable deployment of some version of the Volcker Rule, if a broker dealer was running a book bigger than its client business required, it would be considered proprietary trading. Again, not something it wants anyone to know about.
If the SEC were staffed with highly experienced ex-traders, trading managers, risk managers and securities business lawyers I might have faith that they could sensitively handle these issues. To date, that has not been the case. Which leads me to believe that journalists probably should have the right to requisition relevant documents. I hate to agree with Fox News or the New York Post, but....