'I Think the SEC Was Distracted'

Outgoing Securities and Exchange Commissioner Paul Atkins talks about bailouts, hedge funds, and what he thinks the SEC should have been regulating.

The nickname “Dr. No” has been applied to more than former presidential candidate Ron Paul and a certain James Bond villain. In 2005 that’s what Business Week called Paul Atkins, then halfway through his six-year stint on the Securities and Exchange Commission (SEC). This “fierce libertarian,” the magazine warned in its headline, “is slowing some key reforms” of hedge funds.

Three years later hedge funds have imploded, toxic mortgage-backed securities have brought financial giants to their knees, the economy is officially in recession, and Washington is in the early stages of what is already the largest economic bailout in U.S. history. How does Atkins plead? Guilty—of focusing on market transparency via a clearinghouse to track over-the-counter trades, while previous SEC Chairman William Donaldson was busy joining forces with the board’s two Democrats to pursue such distractions as forcing hedge funds to register as investment advisers. The SEC missed several crucial opportunities before the crisis hit, Atkins says, and partly as a result the federal government is throwing unprecedented amounts of money into the financial system. The commission, meanwhile, is being condemned as hopelessly, dangerously out of touch.

A graduate of Vanderbilt Law School, Atkins shuttled back and forth between corporate law and the government for most of his career, including a stint at the SEC from 1990 to 1994, serving on the staffs of former chairmen Richard Breeden and Arthur Levitt. His time on the commission board lasted from July 2002, when he was appointed to fill out the final months of Levitt’s five-year term, to June 2008.

“I would describe myself as having faith in the free markets,” he says. “To compare a few people in government making decisions based on limited information to millions and millions of people making decisions every second with their own hard-earned money, there’s just no comparison there.” Nonetheless, Atkins has supported federal intervention in managing a sale of the investment bank Bear Stearns and forestalling bankruptcies across the financial industry, on the grounds that the interconnectedness of global capital markets, combined with the complexity of securitized over-the-counter instruments, has created conditions in which the liquidation of companies such as Lehman Brothers can cause widespread bank runs and do lasting damage to the financial system.

Editor in Chief Matt Welch and reason.tv Editor Nick Gillespie spoke with Atkins in early December about the ongoing economic crisis. A video from this conversation can be seen at here.

reason: Earlier this year, you were explaining why it was good for the government to get involved with the Bear Stearns renegotiation. Looking back right now, do you still agree with that assessment, and what do you think of the bailouts that have rolled out since then?

Paul Atkins: We’ve been through a lot, obviously, over the past year. As far as whether it’s good or not to have gotten involved in the Bear Stearns thing the way it happened, leave that for the history books. But as far as not allowing Bear Stearns to go into a completely unstructured bankruptcy, I think that was the right motivation, because we saw with Lehman Brothers what exactly happened to the—

reason: So should Lehman Brothers have been bailed out or had a kind of government-brokered deal?

Atkins: Well, first of all, I don’t think Bear Stearns was bailed out.

reason: Explain the distinction.

Atkins: Well, there the shareholders got pretty much wiped out.

Lehman Brothers basically just failed, went bankrupt, and, of course, that then triggered a lot of the things that a number of us had been afraid of. Which was the seizing up of the credit markets: A lot of hedge funds and other clients of Lehman Brothers suddenly found themselves frozen, mainly in U.K. courts, as far as trying to get access to their capital that was being held by Lehman Brothers.

reason: What is the simplest way of talking about the root of the economic crisis in the financial sector? And how bad is it?

Atkins: The nut of the crisis, I think, still is lack of confidence: lack of confidence in what financial institutions hold and what the value is of the assets that they hold. That then translated into other financing type of functions for normal corporations, the commercial paper market and things like that. So underlying all of this is investors wondering just what it is that people have. These instruments had gotten very complex. Once people started questioning those, then they started questioning other categories of financial assets, and so that’s what created the underlying crisis of confidence.

reason: You were a big skeptic of hedge fund regulation, in particular, for the duration of your term. There’s a critique saying that the SEC or someone should have mandated a clearinghouse, for example, for credit default swaps and mortgage-backed securities, just so we know what people hold. Do you think that’s true in retrospect?

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  • ||

    I realize H&R is the All-Stimulus-All-the-Time blog now, but we might pause the "Oh shit, Socialism!"-fest to notice that Hopey McChange's administration is asserting the same state secrets privilege Bush's did to fend off extraordinary rendition lawsuits.

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    Threadwinner.

  • ||

    Helping out Eric with threadjack, Panetta asserted during his confirmation hearing that the Obama approach to rendition would be to obtain assurances from the receiving government that the prisoner would not be tortured.

    Oddly, this is exactly what the Bush administration did.

  • ||

    Oops, clicked too soon.

    It would appear, then, that Obama represents no hope and change on issues like rendition, while fulfilling our direst predictions on taking the country hard left on issues of government control of the economy.

  • ||

    [Engages in primal yell, similar to Kirk's expression of displeasure towards Khan.]

  • Fade to Gray||

    "Oddly, this is exactly what the Bush administration did."

    True, but Bush did it with a malicious heart. Obama does it with love.

  • ||

    There's not a backbone left in DC, is there? It's going to be just like the last Democratic administration--bitch about the preceding GOP presidency, then do the same stuff or worse to avoid appearing "weak." Obama won't make radical changes in the WoT because he's afraid that he'll be toast if any terror attacks happen even arguably due to any such changes. I don't see why he bothers--he's already broadcasting "One Termer" on all frequencies--why not make the most of the situation? Oh, right, the only important thing is to ensure passage of this stupid non-stimulus bill.

  • Spoonman||

    Helping out Eric with threadjack, Panetta asserted during his confirmation hearing that the Obama approach to rendition would be to obtain assurances from the receiving government that the prisoner would not be tortured.

    Surprise, cockfags!

  • robc||

    Three years later hedge funds have imploded

    I thought hedge funds had exploded. At least the ones that hedged housing/banks/the market as a whole/etc.

  • ||

    "Implosion" is the new "explosion," rob. Didn't you get the memo?

  • VM||

    ProGlib @ 12:32

    +11

    between that and "OBAAAAAAAAAAAAAAAAAAAMAAAAA", he summed it up perfectly...

  • Alan Vanneman||

    Um, wasn't this post supposed to be about Paul Akins? I wanted to note that it's funny that this "fierce libertarian's" main complaint about the Bush folks is that they didn't bail out Lehman Brothers. Moral hazard, anyone? Funny that libertarians on Wall Street sound so much like, well, Paul Krugman with a shave.

    As for Obama and state secrecy, I wasn't expecting much, so I thought, but I was expecting a lot more than this. Does the CIA have video of him giving Bill Clinton a Lewinsky? And I gave money to the guy! Stone me now! (But not too hard. McCain, after all, would have been worse. But not by much.)

  • Reason sucks||

    Fuck reason, and fuck its evil anti-liberty benefactors. You motherfuckers are on the List.

  • ||

    It would appear, then, that Obama represents no hope and change on issues like rendition, while fulfilling our direst predictions on taking the country hard left on issues of government control of the economy.



    I hope you didn't chafe anything while posting that, Dean.

    The likes of Bush and McCain have already taken us "hard left".

  • ||

    Thank you, VM. My anger is righteous and not founded in disappointment, for I expected little from Obama. Or from McCain, for that matter.

    I will say this. I feel for the libertarians who risked all to believe in the Obama miracle. It's okay, after Bush such delusions are forgivable. Please, a table is open near the window, where indignation and rejection of the major parties is not only permitted, but encouraged. Welcome back to the limited government fold.

  • ||

    The likes of Bush and McCain have already taken us "hard left".

    Naw, I would say they were more in the "drifting left" category on economic/regulatory state issues. Obama appears to be in the process of cranking the steering wheel over and mashing the gas pedal.

  • ||

    Who can doubt that phase II (probably next year, or just after the 2010 midterms) will be a sudden, critical, must-hold-off-a-catastrophe need for higher taxes to carry all this new debt and radically increased baseline spending.

    It'll be the old "fiscal responsibility" racket, conveniently forgotten for spending bills, but resurrected for taxing bills.

  • ||

    I feel for the libertarians who risked all to believe in the Obama miracle.

    Me, too. Mostly what I feel for them is contempt, though.

  • ||

    Naw, I would say they were more in the "drifting left" category on economic/regulatory state issues.



    Yes, you would give that line. That's how folks know you're not actually a libertarian.

  • ||

    That's how folks know you're not actually a libertarian.

    (1) Och, mate, I think you min to seh "nawt a TREW libertarian."

    (2) DRINK! (like you needed an excuse today).

  • ||

    you min to seh "nawt a TREW libertarian.



    Get your mouth off from around the GOP's collective dick, and it'll be easier to talk.

  • ||

    Nice, Eric.

    Do us a favor, and find the last post I wrote that said nice things about the Republicans.

    Although I will admit that I have a really hard time capturing a Scottish accent in pixels.

  • ||

    Bite me, Dean. You've been around here for a long time, and you're no more a libertarian than Glenn Reynolds and Eric Dondero are. You're also beneath my future notice.

  • ||

    With all due respect, Mr. Atkins is wrong about the SEC's attempt to regulate hedge funds. First they should have been regulated because their leverage posed a systemic risk as well a san investor risk, as demonstrated back in 1998 by th efailuire of Long Term Capital Management. Second,the court of appeals decision striking down the SEC rule was based on the fallacy that general partners of llimited partnerships do not owe fiducitary duties to llimited partners. The court cited no authority for that proposition and it is contrary to state likmited partnership statutes . The SEC should have appealed the ruling to the Suprme Court but did not do so. It was a clear case for reversal . t the decisionj not to appeal was political and ideological, and has proved to have been most unwise.

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