More On Legal & Compliancefrom The Advisor's Professional Library
- The Need for Thorough and Effective Policies and Procedures Whethere an advisor is SEC or state-registered, RIAs must revise their policies and procedures to address significant compliance problems occurring during the year, changes in business arrangements, and regulatory developments.
- Client Communication and Miscommunication RIA policies and procedures must specify what type of communications should be retained. The safest course of action is for RIAs to retain all communicationsto clients, from clients, and about client accounts. To comply with fiduciary obligations, communications must be thorough and not mislead.
Former Sen. Christopher Dodd, D-Conn., in a passionate speech at the fi360 Conference in San Antonio on Thursday, spoke vividly about the early days of the financial crisis and how financial reform evolved from January 2007 until now.
Dodd (left) said that, initially, even after specific warnings that the wheels were coming off of the mortgage market, which he said was the genesis of the crisis, Wall Street executives, regulators and legislators repeatedly denied that financial markets were in trouble. In fact, he said, they were "largely uninterested, despite early signs of a market in trouble."
"In early 2007 there were calls from Wall Street for more deregulation," and the threat that "if you don't deregulate we will go to London," Dodd, a Senator for 30 years, said. There was even "a similar argument from those in London; if you don't deregulate we will decamp to go to New York."
"In calendar year 2007 we held almost 80 hearings, formal and informal meetings, almost daily, on the failing mortgage market," said Dodd, who took over as CEO of the Motion Picture Association of America in March. On-record statements "repeatedly downplayed and even ridiculed problems," until it took "in 2008 cascading events to make [the collapse] a priority."
He said that on Sunday, March 16, 2008, when it was announced that Bear Stearns had failed and would be bought by JPMorgan, for $2 a share, “We were within 10 minutes of declaring a U.S. bank holiday.”
'Most Extraordinary Night'
Dodd described the worst part of the crisis in September of 2008, the "night of a most extraordinary meeting, with Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke, and leaders of both parties in then-House Speaker Nancy Pelosi's meeting room. Bernanke, said: 'Unless you act in next few days the financial system in the U.S. and rest of world will melt down. The air left the room;' " he said. "There were ageless moments of quiet."
"Two days later they asked me to approve a two-page bill, at 1:30 am (it came in through email)," Dodd explained, saying he did approve it, and that is how the $700 billion bailout bill, TARP, came to be.
"Some colleagues in Congress lost their jobs 40 days later in the election of 2008 because they supported the bill," according to Dodd. But, he said, although the bill had been a lightening rod of sorts, "I believe the bill saved the country and economy. In September 2008, [financial services] in the U.S. were dangerously close to the edge of a precipice. The bill is still unpopular, but I believe it was the right decision and critically important. TARP was extremely successful, more than indicated early on."
"Investor confidence is a very critical" issue that has not been solved, Dodd said. Although he likes spirited partisan debate, the current atmosphere in Washington is disturbing because it is not the "respectful" candid debate that is the rule currently but disrespectful, making it difficult to get anything done and adding to "uncertainty."
"If investors lack confidence, then what happened in 2008 and 2009 will happen again," Dodd fears.
Even though, in the Dodd-Frank Act there are many "investor protections...transparency, and...too big to fail" provisions, Dodd worries that "memories are too short," and it will take a long time to implement many parts of the bill.
Dodd is also concerned about Congress starving agencies like the SEC of funds and said they should be "self-funded." He told AdvisorOne after the speech that he "tried to get that into the bill."
Read AdvisorOne's exclusive interview with Dodd on swaying politicians.