Chief investment officer of CalPERS, and chair of the Council of Institutional Investors, Joe Dear, has warned of a “reform facade” as memories of the crisis fade and resistance to reform instensifies, calling for a more comprehensive regulatory umbrella, and specifically for most over the counter derivatives to be traded on exchanges, in a speech at the National Press Club in Washington this week.
While Dear said he was pleased to see legislation advancing to regulate derivative transactions, hold credit ratings agencies accountable and to strengthen the SEC, “we’re finding that the headwinds of entrenched Wall Street interests still blowing briskly on the Hill”.
“Even big pension funds like CalPERS lack the lobbying clout of Wall Street… and there are few lobbyists for the individual investors,” he said. “Wall Street sometimes pleads passionately on behalf of America’s investors. Somehow, I keep hearing sharks pleading on behalf of the swimmers.”
He said revitalising the SEC and other federal agencies begins with making sure that they have the necessary staffing and budget resources to fulfull their mission. He also said as part of wider reform credit agencies should be held accountable for their assessments and a Consumer Financial Protection Agency needed to be created.
In his speech titled, Averting Financial Crisis: Regulatory Reform & Corporate Governance, he said one of the main causes of the crisis was the total failure of the financial services regulatory system.
“I am worried that as memories of the crash fade and the resistance to reform intensifies, that all we’ll be left with is the facade of reform, not the real thing,” he said.
“Our economy, the financial and housing sectors in particular, is propped up by government spending and credit guarantees. Could we be staring in to the abyss again anytime soon?”
Legislation due to be voted this week in the US House Financial Services Committee reaffirms the statutory authority of the Securities and Exchange Commission to give shareowners access to the proxy ballots that companies use for board elections.
“This proxy access proposal is one piece of a major fix for our regulatory system and corporate practices so there won’t be another financial crisis,” he said.
More comprehensively, he said the report by the Investors Working Group, sponsored by the CII and the CFA Institute Centre for Financial Market Integrity, outlined what should be on the market reform agenda.
The group’s roadmap for reform focuses on strengthening and reinvigorating existing federal regulatory agencies; closing cirtical gaps in regulation; and improving the corproate governance of US public companies.
The Investors’ Working Group is urging adoption of strong corporate governance practices among public companies at the board level.
This includes advocating the separation of the chief executive and chair; have directors stand for annual election; the right to say on pay by shareowners; and the right for shareowners to place their nominees for board directly on the proxty ballots in annual elections.
“Behind the total failure of the regulatory system to protect individual and institutional investors was the belief that markets are self regulating and that the least government action is always the preferred option. In the annals of mistaken beliefs, this has to be one of the most expensive and consequential ones. Yet as I listen to the debates on the legislation now moving through Congress, I hear echoes of this pernicious idea. Can our memories really be that short?”
“We are all too familiar with events predicted by risk models to be exceedingly rare happening several times a week. Who thinks that we should head into the future with a superficially better regulatory system that can once again enable the reckless risk taking whose consequences we will be dealing with – and pay for – in the years ahead?”
For the full speech click here