In these rules, the SEC did two things:
- Reduced the amount of capital that firms had to have backing their investments (e.g. less money in the piggy bank).
- Let the firms themselves value their assets, allowing them to fudge how much was in the already reduced piggy bank.
The S.E.C. told me that all of its actions were helpful to investors and that no one could have prevented the Bear Stearns collapse because it was caused by liquidity issues, not capital issues. My respectful response is that if Bear were thoroughly well capitalized, why would liquidity issues come up at all?Voodoo economics, anyone?