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Tuesday, April 01, 2008

Paulson Proposal Neglects Individual Investors

By any measure, Paulson’s plan shows a certain disregard for individual investors, who have suffered the brunt of Wall Street’s extensive wrongdoings of the past few years. The plan neglects the pressing need to bolster investor protections for individual investors and threatens to usurp the authority of state regulators, who have a very impressive record of pursuing Wall Street wrongdoing. The plan’s only beneficiary is Wall Street, which has long wanted more streamlined regulation because it would ease their regulatory burdens.

Another area that Paulson neglected to cover was investor arbitration, which many have argued favors brokerage firms. It would have been helpful for him to propose reforms that would level the playing field for investors who are required to arbitrate disputes with their brokers.

But there also needs to be in place a regulatory mechanism that protects investors from wrongdoing before it occurs. Though in theory I have no problem with the creation of a “supercop” role for the Fed, Congress should insist that the expanded agency have a very senior investor advocate with extensive powers and authority. This advocate should have bona fide credentials representing individual investors and not be someone with close ties to Wall Street firms.

Finally, state regulators should continue to be allowed to regulate Wall Street firms doing business within their borders. State regulators such as state attorney generals have an important role to counterbalance federal regulators.

Ironically, I’m in Washington today to attend the North American Securities Administers Association (NASAA) annual meeting, an organization comprised of state regulators. I know I don’t have to tell you the dominant topic of conversation. NASAA’s comments on Paulson’s plan can be seen here.

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