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McCain to Cox: You're Fired!


In a speech on financial regulation on Sept. 17th, Senator John McCain said he thought Securities & Exchange Commissioner Christopher Cox ought to be out of a job. Here?? what he told the crowd in Cedar Rapids:

There was no transparency into the books of Wall Street banks. Banks and brokers took on huge amounts of debt and they hid the riskiest investments. Mismanagement and greed became the operating standard while regulators were asleep at the switch.

The primary regulator of Wall Street, the Securities and Exchange Commission (SEC) kept in place trading rules that let speculators and hedge funds turn our markets into a casino. They allowed naked short selling ?which simply means that you can sell stock without ever owning it. They eliminated last year the uptick rule that has protected investors for 70 years. Speculators pounded the shares of even good companies into the ground.

The Chairman of the SEC serves at the appointment of the President and has betrayed the public’s trust. If I were President today, I would fire him.

I spoke soon thereafter with Doug Holtz-Eakin, the former head of the Congressional Budget Office and now McCain’s top economic advisor. He elaborated on why the Senator thinks Cox needs to go. This is what he had to say:

BW: Can you elaborate on why Senator McCain believes Chris Cox should be fired? How much blame does he carry for the current situation?

Holtz-Eakin: First, to be clear: he said he would fire Chris Cox if he were president. He’s not president. I think it’s a straightforward extension of the examples he gave (in the speech), the decisions on short sales, uptick rules and the overall failure in the financial markets that is directly under the portfolio of the SEC.

BW: What could he or should he have done differently?

Holtz-Eakin: (Senator McCain) certainly thinks the SEC has this portfolio (overseeing the broker-dealers), and we’ve got these enormous problems. It seems unlikely that adequate supervision has been taking place given what’s going on.

BW: Should he have insisted on greater transparency or disclosure in their financial reporting?

Holtz-Eakin: There are two things, one of which is changing the financial structure, the regulatory structure. Obviously the Senator will have lots more to say about that. But there is the basic issue of identifying institutions that are at risk, and the surveillance function of the SEC. And the surveillance would appear to be severely impaired because we’re having entities show up every day that are in desperate shape without any warning.

BW: Chris Cox has argued that they had regulatory oversight over the operation units of the broker-dealers, but not over the investment banks’ at the holding company level. In other words, that they didn’t have the broader regulatory powers needed to do what you are suggesting.

Holtz-Eakin: But did he ever ask for it?

BW: There is some devbate over how much authority the SEC had over the holding companies. Should Cox have been out asking Congress or pushing for more authority to extend their oversight abilities?

Holtz-Eakin: The flow-of-funds (numbers) suggest that we have become an incredibly levered nation in the eight years of the Bush Administration. Is there anything that suggests an adequate recognition of the increased leverage or rules to support it? I don’t believe it’s ever been mentioned.

BW: Should that have been done by the SEC? What about the Fed, or the Treasury or the FDIC?

Holtz-Eakin: It’s not as if we believe there’s only one problem with our financial regulatory structure. But the Senator chose to focus this example of the difficulties of having a system that’s asleep at the wheel.

BW: And as the primary regulator of the broker-dealers, that would be more the SEC’s responsibility than the other agencies?

Holtz-Eakin: Yes, that’s why he focused there first.

Cox could not be immediately reached for comment. The SEC had no immediate response to McCain's speech.

Below, the full text of Senator McCain's speech:

I'm happy to be introduced by Governor Palin, but I can't wait until I introduce her to Washington. Let me offer an advance warning to the big spending, greedy, do nothing, me first, country second crowd in Washington and on Wall Street: change is coming.

We need reform in Washington and on Wall Street. The financial markets are in crisis. Times are tough. Enormous strain is being put on working families and individuals in America. I know that the events unfolding can be difficult to understand for many Americans. The dominos that we have seen fall this week began with the corruption and manipulation of our home loan system. The reason this crisis started was the abuses that took place within our home loan agencies, Fannie Mae and Freddie Mac and within our home loan system.

Two years ago I warned this Administration and Congress that regulations for our home loan agencies, Fannie Mae and Freddie Mac, needed to be fixed.

But nothing was done.

Senator Obama talks a tough game on the financial markets but the facts tell a different story. He took more money from Fannie and Freddie than any Senator but the Democratic chairman of the committee that regulates them. He put Fannie Mae's CEO who helped create this disaster in charge of finding his Vice President. Fannie's former General Counsel is a senior advisor to his campaign. Whose side do you think he is on? When I pushed legislation to reform Fannie Mae and Freddie Mac, Senator Obama was silent. He didn't lift a hand to avert this crisis. While the leaders of Fannie and Freddie were lining the pockets of his campaign, they were sowing the seeds of the financial crisis we see today and enriching themselves with millions of dollars in payments. That's not change, that's what's broken in Washington.

There was no transparency into the books of Wall Street banks. Banks and brokers took on huge amounts of debt and they hid the riskiest investments. Mismanagement and greed became the operating standard while regulators were asleep at the switch.

The primary regulator of Wall Street, the Securities and Exchange Commission (SEC) kept in place trading rules that let speculators and hedge funds turn our markets into a casino. They allowed naked short selling -- which simply means that you can sell stock without ever owning it. They eliminated last year the uptick rule that has protected investors for 70 years. Speculators pounded the shares of even good companies into the ground.

The Chairman of the SEC serves at the appointment of the President and has betrayed the public's trust. If I were President today, I would fire him.

We cannot wait any longer for more failures in our financial system. Structures like the resolution trust corporation that dealt with the failed savings and loan industry were designed to clean up the system and worked. Today we need a plan that doesn't wait until the system fails. I am calling for the creation of the mortgage and financial institutions trust -- the MFI. The priorities of this trust will be to work with the private sector and regulators to identify institutions that are weak and take remedies to strengthen them before they become insolvent. For troubled institutions this will provide an orderly process through which to identify bad loans and eventually sell them.

This will get the treasury and other financial regulatory authorities in a proactive position instead of reacting in a crisis mode to one situation after the other. The MFI will enhance investor and market confidence, benefit sound financial institutions, assist troubled institutions and protect our financial system, while minimizing taxpayer exposure. Tomorrow I will be talking in greater detail about the crisis facing our markets and what I will do as President to fix this crisis and get our economy moving again.

Senator Obama has never made the kind tough reform we need today. His idea of reform is what his party leaders in Congress order him to do. We tried for bipartisan ethics reform and he walked away from it because his bosses didn't want real change. I know how to make the change that Senator Obama and this Congress is afraid of. I've fought both parties to shake up up Washington and I'm going to do it as President.

Those same Congressional leaders who give Senator Obama his marching orders are now saying that this mess isn't their fault and they aren't going to take any action on this crisis until after the election. Senator Obama's own advisers are saying that crisis will benefit him politically. My friends, that is the kind of me-first, country-second politics that are broken in Washington. My opponent sees an economic crisis as a political opportunity instead of a time to lead. Senator Obama isn't change, he's part of the problem with Washington.

When AIG was bailed out, I didn't like it, but I understood it needed to be done to protect hard working Americans with insurance policies and annuities. Senator Obama didn't take a position. On the biggest issue of the day, he didn't know what to think. He may not realize it, but you don't get to vote present as President of the United States.

While Senator Obama and Congressional leaders don't know what to think about the current crisis, we know what their plans are for the economy. Today Senator Obama's running mate said that raising taxes is patriotic. Raising taxes in a tough economy isn't patriotic. It's not a badge of honor. It's just dumb policy. The billions in tax increases that Senator Obama is proposing would kill even more jobs during tough economic times. I'm not going to let that happen.

I have seen tough times before. I know how to shake-up Wall Street and Washington. I will get this economy moving. I will lead us through this crisis by fighting for you, and when I am President we will be stronger than ever before.


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