Cox: Panel Turf War Contributed To Crisis

The top federal securities regulator says the structure of congressional committees may be one factor that led to the current chaos in the credit default swaps market.

U.S. Securities and Exchange Commissioner Christopher Cox was one of the officials who testified today before the U.S. House Oversight and Government Reform Committee on the role of federal regulatory agencies in failing to keep the markets for mortgage-backed securities and credit default swaps from imploding.

One lesson is that the government should not let originators pass on all risk of a transaction through securitization, Cox said.

“If you don’t have skin in the game, you’re inclined to take more risk,” Cox said.

Another lesson is that the government should declare “all out war on complexity,” and a third lesson is that the government needs to find ways to bring regulators together, Cox said.

Cox argued that, even in Congress, balkanization contributed to the legislative gap that left credit default swaps unregulated.

In Congress, Cox said, financial services committees oversee banking, securities and insurance, but agriculture committees oversee the CDS market and other derivatives markets, Cox said.

Congress needs to set up select committees to overcome conflicts over jurisdiction, Cox said.

“Other witnesses and lawmakers also talked about the balkanization of federal financial services regulation and the need to modernize the system.