Subprime At Top Of SEC To-Do List For 2008
On February 14, 2008, Chairman Cox testified before the U.S. Senate Committee on Banking, Housing, and Urban affairs. His remarks leave no doubt that the SEC views the subprime fallout that began in 2007 to be a prudential concern to all investors and market participants. Citing "the resulting large losses for some market participants, the concern in the markets about the future performance of a range of complex structured finance instruments, and the more generalized concern about the effects on credit markets overall have led to a more risk-averse environment, and have contributed to a slowdown in the rate of the nation's economic growth," Chairman Cox noted the SEC has devoted resources from all of its divisions to tackling the problems at hand. But it is apparent the problems stemming from the subprime debacle will not be easily fixed.
The accounting treatment of special purpose trusts as off balance sheet items that sold securities comprised of residential mortgages bundled together is at the heart of the issue. But the SEC considers there to be a panoply of related issues - "the adequacy of capital and liquidity at the nation's major investment bank, and the strength of their risk management practices; the impact on money market funds from the devaluation of presumptively safe assets; the quality of issuer disclosure by public companies involved in structured finance; the role of the credit rating agencies, over which the SEC gained regulatory authority eight months ago; and the possibility of violations of the securities laws by subprime lenders, investment banks, broker-dealers, and other market participants."
Based on Chairman Cox's comments, an overnight fix is definitely not in the cards. But a flurry of investigations into the activities of those market participants involved seems imminent.
Stay tuned ...
The accounting treatment of special purpose trusts as off balance sheet items that sold securities comprised of residential mortgages bundled together is at the heart of the issue. But the SEC considers there to be a panoply of related issues - "the adequacy of capital and liquidity at the nation's major investment bank, and the strength of their risk management practices; the impact on money market funds from the devaluation of presumptively safe assets; the quality of issuer disclosure by public companies involved in structured finance; the role of the credit rating agencies, over which the SEC gained regulatory authority eight months ago; and the possibility of violations of the securities laws by subprime lenders, investment banks, broker-dealers, and other market participants."
Based on Chairman Cox's comments, an overnight fix is definitely not in the cards. But a flurry of investigations into the activities of those market participants involved seems imminent.
Stay tuned ...
