12,000 Words From SEC Chair Schapiro To The FCIC

Securities and Exchange Commission chair Mary L. Schapiro is speaking to the Financial Crisis Inquiry Commission today about the financial crisis. Her prepared remarks – more than 12,000 words long – begin by describing the causes of the crisis, including the rise of mortgage securitization, the “wide-spread” view that markets are almost always self-correcting, “an inadequate appreciation of the risks of deregulation that, in some areas, resulted in weaker standards and regulatory gaps,” the proliferation of complex financial products, including derivatives, with illiquidity and other risk characteristics that were not fully transparent or understood, “perverse incentives and asymmetric compensation arrangements that encouraged significant risk-taking,” and insufficient risk management and risk oversight by companies involved in marketing and purchasing complex financial products. 

Schapiro then discusses recent SEC enforcement actions, including those involving Auction Rate Securities. She notes that the “SEC also is reviewing the practices of investment banks and others that purchased and securitized pools of subprime mortgages” and is “looking at the resecuritized CDO market with a focus on products structured and marketed in late 2006 and early 2007 as the U.S. housing market was beginning to show signs of distress.”
 
Schapiro also discusses recent SEC internal changes, including the SEC’s recent creation of five new national specialized investigative groups. She concludes her remarks with a discussion of compensation incentives, corporate governance, and market regulation.