Former regulators want independent SEC

Two former federal regulators appointed by Democrats told a Senate panel Thursday that a politically independent Securities and Exchange Commission is necessary, and they blamed deregulation policies for the economic crisis. 

Former SEC Chairman Arthur Levitt — the agency’s longest-serving chairman — and former U.S. Comptroller of the Currency Eugene Ludwig told the Senate Banking Committee that making the SEC independent, among other steps, is the only way to avoid a continuing crisis or another in the future.

{mosads}“At critical moments and on critical issues, the SEC has been reactive at best or has shown no real willingness to stand up for investors,” said Levitt. “It’s these moments that weaken the power of the agency and investors’ faith in the markets.”

Levitt, a President Clinton appointee who led the agency from 1993 to 2001, also said the SEC is grossly understaffed and insufficiently funded, although he said that simply adding more resources alone would not solve the fiscal crisis. Instead, he called for a new regulatory philosophy — “a dramatic rethinking of our financial regulatory architecture – the biggest since the New Deal.”

Ludwig, also a Clinton appointee, oversaw the nation’s banking system from 1993 to 1998. Like Levitt, he blamed the economic crisis on lax regulation by the SEC, especially of the nation’s mortgage markets.

“Like anything new and dangerous, we should have handled this financial technological fire with great care, with appropriately cautious regulation,” he said. “But instead of more cautions regulations in this new, more dangerous era, we took the regulatory lid off.”

The SEC already has built-in provisions intended to ensure non-partisanship, but all five SEC commissioners are presidential appointees and the president also designates the chairman. No more than three commissioners can be members of any one political party.

Banking Committee Chairman Chris Dodd (D-Conn.) said legislation is being considered that could more fully remove politics from the agency in the future.

“Different committees are wrestling with this,” he said. “This is obviously something that needs some attention.”