The head of the U.S. Securities and Exchange Commission today blasted Congress for failing to give any federal regulatory agency the authority to regulate investment bank holding companies such as American International Group Inc.

SEC Chairman Christopher Cox also said, at a Senate Banking Committee hearing, that the SEC is investigating the roles that insurers, rating agencies and other entities played in securitizing subprime loans.

Cox said the SEC also has “over 50 pending law enforcement investigations in the subprime area.”

Cox said the subprime securitization enforcement action targets fall primarily into three broad categories:

- Subprime lenders.

- Investment banks, credit rating agencies, insurers and others involved in the securitization process.

- Banks and broker-dealers that sold mortgage-backed investments to the public.

“The reason for this aggressive enforcement investigation is the significant opportunities that exist for manipulation in the $58 trillion [credit default swap[ market, which is completely lacking in transparency and completely unregulated,” Cox said.

When Congress decided against giving any agency regulatory authority over investment banks in the Gramm-Leach Bliley Financial Services Modernization Act of 1999, that was a “costly mistake,” Cox said.

Lack of federal oversight over the CDS market is “another regulatory hole,” and Congress must close this hole to prevent future cases of the sorts of problems that brought down AIG, New York, and Lehman Brothers Holdings Inc., New York, Cox said.

The CDS market has a $58 trillion notional value, and that $58 trillion market “is regulated by no one,” Cox said.

“Neither the SEC nor any regulator has authority over the CDS market, even to require minimal disclosure to the market,” Cox said.

A credit default swap is a financial arrangement that gives one entity the ability to transfer the risk that a note or bond will default to another entity.

Money managers and others have been using CDS arrangements in an effort to protect portfolios against defaults.

Other entities have been using the arrangements to sell a form of default protection to bond holders, or simply to speculate on fluctuations in default risk.

Today, under the current rules, the markets give speculators “outsized incentives” to attack the financial institutions involved in the CDS market, Cox said.

Speculation tied to CDS problems caused AIG’s stock price to plunge, and that fall in AIG’s stock price kept AIG from turning to private investors for the capital it needed to cope with customers’ hunger for cash.

Cox was one of several government officials who testified at the Banking Committee hearing.

Committee members are negotiating with Treasury over the creation of a $700 billion Troubled Asset Relief Program, which would buy troubled assets from insurers and other financial institutions.