The massive subprime losses at Citigroup, UBS, Bank of America, Wachovia, Washington Mutual, and other banks astounded the financial world. Equally shocking were the failures of Lehman Brothers, Merrill Lynch, and Bear Stearns. The conversion of Goldman Sachs and Morgan Stanley into bank holding companies left no large independent investment banks standing. If all that was not enough, Bernard Madoff's incredible $50 billion Ponzi scheme was a new milestone in the nation's financial history. Those failures and Madoff's fraud were unforeseen and undetected by the regulator, the Securities and Exchange Commission (SEC), which was responsible for overseeing the broker-dealers that failed and monitoring the investment advisers such as Madoff. That once-proud agency seemed helpless and hapless in the face of the subprime crisis, during which the investment banks it regulated lost hundreds of billions of dollars, threatening the entire economy. Although those debacles touched the very core of the SEC's regulatory role, it appeared clueless of the risks that the country's largest and most venerable investment banks undertook in subprime-related transactions. The SEC was completely surprised by the failures of Bear Stearns and Lehman Brothers. It was equally surprised by the Madoff fraud, despite several warnings that Madoff's reported profits were unrealistic. The derivatives counterpart to the SEC, the Commodity Futures Trading Commission (CFTC), was also under fire from the press and Congress in 2008 for its inability to control volatile commodity prices. Those price fluctuations were widely believed, without proof, to be caused by speculators acting with impunity in the commodity markets. Prices exploded to $147.27 a barrel in 2008, pushing gasoline prices to over $4 a gallon in July 2008, before dropping back to about $37 in February 2009. Widespread concerns were also raised about the transparency of the over-the-counter derivatives (OTC derivatives) markets that had been largely deregulated by the Commodity Futures Modernization Act of 2000. Some of the criticism of the SEC and CFTC is not justified. These two agencies were not responsible for the spike in commodity prices or the residential housing bubble. But the public has lost confidence in their ability to regulate markets because they have proved unable to deter or detect fraud. As the subprime crisis exploded, exposing the shortcomings of these agencies, the Treasury Department was considering its "Blueprint" for regulatory reform. Among the Blueprint's wide-ranging proposals was a recommendation for combining the CFTC and SEC into a single financial services regulator. This Article addresses that proposal.
Jerry W. Markham, Merging the SEC and CFTC - A Clash of Cultures, 78 U. Cin. L. Rev. 537, 612 (2009).