safe banking

a blog on banking, corporate governance, and financial market reform.

June 13, 2016

The Madoff Loophole, Tire Shredders and More

On May 17th, was the witness invited by the Democrats to testify concerning three troublesome bills before a subcommittee of the House Financial Services Committee. Here’s a snippet of testimony and a link to the full remarks. A video is also available here.

“It’s odd. Just when private equity funds are in the sunlight thanks to Dodd-Frank and many have been exposed in SEC examinations as in violation of the law, you are now proposing that they be able to hide their tracks. . . [Also, this bill] would shockingly eliminate the annual independent audits of certain fund advisers to ensure they actually have the assets and securities they claim to hold. I call this the Madoff Loophole. . . Next, the SEC Regulatory Accountability Act would limit the agency’s ability to protect the investing public. Prior to issuing most regulations, the SEC would have to engage in a new cost-benefit process. Yet, the SEC already conducts economic analysis. And the securities laws already require the consideration of the promotion of efficiency, competition and capital formation. The SEC is also already subject to the Paperwork Reduction Act, the Regulatory Flexibility Act, and the Congressional Review Act. The existing requirements set out several speed bumps. The proposed requirements are tire shredders designed to bring progress to a crashing halt.”

 

 

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In the wake of the financial meltdown in 2008, there were many who claimed it had been inevitable, that “no one saw it coming,” and that subprime borrowers were to blame.