Britannia Radio

The anti-American cabal in the EU should have some explaining to do 
for if this ‘stands up’ the whole cause of the global crisis can be 
traced to Brussels.

Who will pursue it though.   Nobody in Europe, that’s for sure!

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MAIL on SUNDAY   21.9.08
'EU pushed US to drop safety net for banks' says former SEC director
By SIMON FLUENDY

European Union pressure and aggressive bankers persuaded the US 
Securities and Exchange Commission to relax borrowing rules for five 
firms now at the centre of the financial crisis, according to a 
former SEC director.

Lee Pickard, now a Washington-based lawyer, said a rule was removed 
in 2004 that stopped broker-dealers from using derivatives as an 
asset that could be borrowed against. He helped draft the original 
system in the Seventies before he left the SEC in 1978.

'We used to make firms such as Goldman Sachs, Morgan Stanley, Bear 
Stearns, Merrill Lynch and Lehman Brothers hold liquid assets to back 
up borrowing,' he said. 'That meant they could not count toxic waste 
such as derivatives based on sub-prime borrowingas an asset to be 
borrowed against at all.
'In 2004, the EU said that it wanted regulators to manage the risk of 
both the broker-dealers and their holding companies.'

Broker-dealers carry out deals not just on behalf of clients but for 
their banks themselves.
'The bankers then convinced the SEC that old, objective methods of 
assessing risk were outdated and the big five were allowed to count 
all kinds of new products as assets,' said Pickard.
'Previously, firms borrowed about six times their assets. That soared 
to 30-to-1 for Lehmans and 40-to-1 for Merrill.'

Of the five institutions originally exempt only Goldman and Morgan 
Stanley survive and Morgan Stanley is being rescued by Chinese 
government money.

They were joined by JPMorgan in 2006 and Citibank in 2007. John 
Heine, a spokesman for the SEC, said the rule change in 2004 
'strengthened' regulation as investment banks' holding companies came 
under SEC supervision.

Pickard said: 'I do not allege bad faith by the SEC. This was a 
terrible miscalculation. Bankers convinced the SEC and themselves 
that they understood risk better than before, so the strict rules 
could be dumped’