Sen. Chuck Grassley (R-IA) has posted an unredacted version of a recent SEC Inspector General report severely criticizing the agency for lax oversight of Bear Stearns and, implicitly, other financial institutions that have recently either imploded or are tipping precariously over the abyss.
Even the redacted version of the IG's report was pretty scathing in its conclusion that:
...it is undisputable that the CSE [Consolidated Supervised Entities] program failed to carry out its mission in its oversight of Bear Stearns because under the Commission and the CSE program's watch, Bear Stearns suffered significant financial weaknesses and the [Federal Reserve Board of New York] needed to intervene during the week of March 10, 2008, to prevent significant harm to the broader financial system.
The IG further found that the SEC division responsible for overseeing the CSE program, the Division of Trading and Markets (TM), "became aware of numerous potential red flags prior to Bear Stearns' collapse...but did not take actions to limit these risk factors."
SEC Chairman Chris Cox was compelled to admit in a statement that:
The last six months have made it abundantly clear that voluntary regulation does not work....the CSE program was fundamentally flawed from the beginning, because investment banks could opt in or out of supervision voluntarily. The Inspector General of the SEC today released two reports on the CSE program and its supervision of Bear Stearns, and those reports validate and echo the concerns I have expressed to Congress. The reports' major findings are ultimately derivative of the lack of specific legal authority for the SEC or any other agency to act as the regulator of these large investment bank holding companies.
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