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Thursday, May 31, 2007

Negative Reinforcement Out; Positive Reinforcement In: Spitzer’s Got a Committee of His Own

In the most unsurprising press release of the year, Eliot Spitzer announced that he too has commissioned a committee to “identify ways for New York to retain and enhance its status as a world financial capital.” Apparently the headlines Treasury Secretary Hank Paulson was receiving for his three – count ‘em – three committees were too much to pass up.

The creation of all these committees seems to ignore the powers of globalization. Of course New York has lost some of its market share because other financial centers are rapidly developing. Not the least of which is Beijing and if you think the regulatory environment in China is a good model then apparently you haven’t been reading Herb Greenberg’s blogs about the shady accounting procedures practiced at publicly traded Chinese firms. See here, here, and here. Further, more and more companies actually are choosing to list on the New York Stock Exchange. Even today, the U.K.’s largest hedge fund manager, Man Group, choose to publicly list several of its larger funds with the New York Stock Exchange.

But aside from the myth that New York isn’t a competitive financial hub, I do believe there are ways this commission can help investors and brokerages. An abbreviated list goes as follows:

     - Completely restructure securities arbitration. For specifics, you can read my previous blog here.
     - Affirm the right to use SEC Rule 10b-5 in private investor civil cases. Again, for specifics read here.
     - Encourage the NASD to adopt a “qualified” privilege rule covering information inserted into a departing brokerage employee’s Form U-5 and put an end to Wall Street scapegoating and defamation of employees. I won’t hold my breath since Spitzer in part created this problem to begin with. Need evidence? Click here.

Spitzer’s committee is to report its findings and recommendations on June 30, 2008. Hopefully after a year of spending taxpayer’s money, the committee will actually accomplish something for them and not reward Wall Street for its past misdeeds.


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