WASHINGTON, D.C.—Legal Director and Securities Specialist Stephen Hall issued the following statement on the filing of Better Markets’ Comment Letter to the Securities and Exchange Commission (SEC) in response to the agency’s proposed rule to prohibit conflicts of interest in certain securitizations as required by Section 621 of the Dodd-Frank Wall Street Reform and Consumer Protection Act:
“More than a dozen years have passed since Congress enacted comprehensive financial reforms in response to the Financial Crisis of 2008. This long overdue proposal, if finalized, would carry out Section 621 of the Dodd-Frank Act and prohibit conflicts of interest in asset-backed securitizations. It would help eliminate the incentive for firms to design and sell these complex investments with an eye towards later wagering against them and against a firm’s own investors.
“Some of the most egregious behavior that led to the Financial Crisis included Wall Street investment banks assembling securitizations comprised of low-grade mortgages, selling them to unsuspecting investors, and then betting against or enabling others to bet against those investments in the derivatives markets. Not only did this reckless and illegal conduct victimize investors who lost hundreds of millions of dollars purchasing these nearly worthless securities, but even more importantly, it contributed to the build-up of systemic risk within our financial system that helped trigger and fuel the worst financial crisis in nearly a century.
“Our comment letter recalls some of the most appalling abuses in these markets and highlights the beneficial changes the Commission has incorporated into the rule since it was first proposed in 2011, as Better Markets urged in its earlier comment letter. This proposal broadens the scope of the rule, tightens down the exceptions, and even includes a general anti-evasion clause that will help prevent the use of financial engineering to circumvent the core prohibition against conflicts of interest. We also flag some necessary improvements and urge the Commission to resist industry’s call for provisions that would significantly weaken the rule.
“As we approach the fifteenth anniversary of the Financial Crisis of 2008, we are reminded of the need to finish the work mandated by Congress. This proposal is an important aspect of that work and critically important to holding Wall Street accountable.”
Read our full comment letter here or click the button below.
Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies—including many in finance—to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.org.