MORAL HAZARDS STILL A PROBLEM

Over 4 years ago, Gretchen Morgenson of the NY Times reported that professional money managers were very skeptical that the Wall Street reforms would be effective:

Professional money managers remain deeply skeptical, according to a survey conducted and released last week. Managers also voiced strong support for state regulators' moves against securities law violators and said the regulators' authority should not be curbed.

More than two-thirds of the 112 respondents in the survey, conducted by Broadgate Consultants, a public relations firm in New York, said the recent governance changes would not be enough to prevent future accounting scandals. Just 23 percent of those responding said recent antifraud measures from regulators had been effective, and 60 percent said they doubted that the recent Wall Street settlement would improve the quality of brokerage-firm research.

The corruption is almost everywhere. Simon Targett wrote in the Financial Times in 2003 that most pension fund managers thought market timing abuses were a normal part of the industry:

A majority of executives running pension schemes in the US think that the market timing abuses uncovered by regulators are "systemic", according to a report by Greenwich Associates. In a survey of 131 funds, some 60 per cent said that improper trading - which is the subject of a major investigation by Eliot Spitzer, New York state attorney general - was systemic to the US mutual fund industry. But for those funds with money managed by firms under investigation - 76 were surveyed - some 71 per cent considered the problem to be widespread across the industry.

Even the head of enforcement of Fredo's SEC pointed out that Wall Street needs to clean up or face greater regulation (Gary Silverman, Financial Times, 2003):

Stephen Cutler, head of enforcement at the Securities and Exchange Commission, yesterday called on financial companies to review their operations for conflicts of interest, or risk having the government do it for them.

Speaking to a securities industry conference in Charleston, South Carolina, Mr Cutler said a "conflicts crisis" existed on Wall Street that threatened the interests of small investors.

Mr Cutler said companies should take the lead in resolving conflicts, if only to preserve their customer relationships.

A new conflict today is between the ratings agencies and the buyers of the Big ShitPile.