Thursday, 30 April 2009

Underwhelming commitment to police risky financial products

The Securities and Exchange Commission (SEC) issued a press release today (April 30) announcing that it is looking to hire "seasoned professionals" to "identify and assess risks in Financial Markets"

Here is an excerpt from the press release
Washington, D.C., April 30, 2009 — The Securities and Exchange Commission today announced a new effort to identify and assess risks in the financial markets by attracting seasoned industry professionals to the agency's Office of Risk Assessment.

The new Industry and Markets Fellows Program will help the agency expand its ability to oversee complex industry practices and products in today's markets.

"It's a great way to bring in highly-seasoned financial experts who can help us keep pace with the practices of Wall Street and protect investors," said Chairman Mary Schapiro. "Modeled on other successful fellows programs at the SEC, this program will help us strengthen oversight of the securities markets as they evolve, and provide industry veterans the unique opportunity to help us restore confidence in the markets."
Further on in the press release it talks about the kinds of skills and background that the commission is looking for

The SEC is seeking individuals with extensive experience in financial markets and in-depth applied knowledge of current industry practices. Relevant experience can be a result of work in a variety of industry segments, including but not limited to experience in trading in equity and fixed income securities, structured products, complex derivatives, financial analysis and valuation, fund management, investment banking and financial services operations. The Program is open to different types of professionals, which may include attorneys, economists, accountants, risk professionals and other experts in the securities industry.
The release also states that the immediate requirement is for three fellows and as the SEC says "Salary is commensurate with experience. In 2009, salaries for Industry and Markets Fellows range from $108,286 to $227,300."

It is worth putting this announcement into some context.

1. The estimated losses from structured products and other "complex instruments" where the risks were miscalculated, underestimated, misunderstood or all of the above, run into trillions of dollars.

2. The salaries of many of the "quants" that devised these products and the front office guys that sold them would be best measured in terms of millions of dollars.

3. Under this current SEC hiring plan the US government is making a whopping investment of perhaps little more than one half a million dollars to engage three "seasoned professionals" to help police this vitally important and hazard prone area of the financial economy.

4. Even though a lot of experienced professionals will recently have come onto the job market the salary seems unlikely to attract the brightest and most wily minds.

5. The best way to think about this is in terms of a very one-sided Intellectual Arms Race between Wall Street firms and hedge funds, hiring the most talented individuals capable of engineering the most exotic and opaque products possible, versus a public sector agency that will find it hard to entice the most driven and aspirational recruits with the remuneration being offered.

To put it politely the announcement is underwhelming.

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