Tuesday, June 26, 2007

The SEC Is Trying to Catch Up With The New Credit Market Infrastructure

Although many will blame the SEC for being late. Sometimes these things need to play out so you can see the effect as opposed to trying to anticipate an outcome, getting it wrong, and still seeing the effect. From the WSJ:

The Securities and Exchange Commission has opened about a dozen investigations involving complex bundled financial products, as well as the related near-collapse of two Bear Stearns hedge funds that invested in the subprime-mortgage market.

Responding to a question at a House committee hearing, SEC Chairman Christopher Cox said the agency's enforcement division has "about 12 investigations" involving collateralized debt obligations, or CDOs, and collateralized loan obligations, or CLOs.

People familiar with the matter said the SEC's enforcement division also has opened a preliminary investigation into the issues surrounding the Bear Stearns hedge funds . . .

Earlier this year, the SEC enforcement division formed a subprime working group, which is looking at a range of topics from the securitization process to troubled subprime issuers. One area of concern involves the lack of accurate pricing in the CDO market.

Pricing could also prove to be an issue in the now-pulled public offering of Everquest Financial Ltd., a company backed by Bear Stearns and its two hedge funds. The company in May filed with the SEC to go public, with Bear Stearns as underwriter. . . . In creating Everquest last fall, Bear transferred to Everquest equity in 10 CDOs, the riskiest slice offered by these vehicles. Observers have questioned Bear Stearns's ability to value those assets, given that it was essentially both buyer and seller.

Mr. Cox said the SEC's market-regulation division was monitoring the situation at Bear Stearns to ensure it didn't risk upsetting the financial system.

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