Former SEC chair Arthur Levitt says the SEC blew its chance to fix the money fund problem. He refused to sign a letter prohibiting another regulatory body (namely, the Financial Stability Oversight Council or FSOC) from doing the job for the commission.
He says the funds were at the heart of the 2008 crisis. When the Reserve Primary Fund broke with the $1 per share NAV, it caused a run on the funds that the Treasury had to put a plug in at the cost of hundreds of billions of taxpayer dollars.
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An investment thought to be stable and highly liquid turned out to be unreliable and subject to market volatility.
When former chair Mary Schapiro made money fund reform her primary focus, fund companies essentially roadblocked any new rules. They even blocked Schapiro’s effort to garner non-binding public comment.
But at every point in the sequence, Levitt says the SEC could have defied industry opposition.
The FSOC makes this point quite clearly in its review.
The letter designed to keep the FSOC from interfering has the wrong focus. The FSOC is only taking action because the SEC did not.
Levitt says it is natural for former regulators to defend the independence of the agencies in which they were formerly involved.
But the need to protect the public rises above the need to preserve agency independence. Levitt states that if the SEC does not fulfill that mandate
, then the FSOC should.