The subprime situation is one of those ongoing stories that journalistically call for an intensification in how they are described over time. To wit: at first it was broadly described as a mess, then as a crisis, then as a disaster, and now… what?
The next order of intensification would call for the word ‘catastrophe,’ and though naysayers will cluck at the use of that word, we may well yet see it justified.
One thing that has really been bothering me and which doesn’t seem to have been raised very often, if at all, by commentators in the press is simply this: Where were the regulators?
Where were the Securities and Exchange Commission, the Federal Reserve Board, and the rest of the phalanx of regulators that are supposed to be protecting the investing public?
The answer is that they were nowhere to be found as weird and weirder instruments made their way into the financial markets and thus into the accounts of investors. They were nowhere to be found as risky and riskier securitizations proliferated like rabbits in heat.
I find this scary because if the very agencies that are supposing to be protecting us are, in fact, asleep at the wheel, then for one thing, trust in the markets takes a big hit, and secondly, it gives credibility to the feeling that the game is rigged because at some point somebody made a ton of money on what is now worthless.
The truth is that if anyone at the SEC, FINRA or the Fed knew what was going on, they did a pretty good job of hiding it. But even more to the point, regulation should not be a retroactive activity. To truly be effective, it needs to keep pace with what is going on in the market.