Wall Street Regulators Tout Progress Before Financial Crisis Panel

Jan. 14, 2010 -- Federal regulators today told a bipartisan commission investigating the financial crisis that they have ratcheted up their efforts to prevent another meltdown.

"The Justice Department is using every tool at our disposal, including new resources, advanced technologies and communications capabilities, and the very best talent that we have to prevent, to prosecute and to punish these crimes," Attorney General Eric Holder told the Financial Crisis Inquiry Commission.

"By taking dramatic action, our goal is not just to hold accountable those whose conduct may have contributed to the last meltdown but to deter such future conduct as well," he said, noting that the FBI is investigating more than 2,800 cases of mortgage fraud, an almost 400 percent jump from five years ago.

Mary Schapiro, head of the Securities & Exchange Commission, which came under fire for its failures to prevent Bernie Madoff's Ponzi scheme, told the 10-person panel that regulators must own up to their errors in the build-up to the crisis.

"No one should hesitate to admit mistakes, learn from them and make the changes needed to address and identify shortcomings and reduce the likelihood that such crises occur," said Schapiro, appointed to the agency by President Obama.

Among the factors that caused the crisis, she noted, was Wall Street pay practices that encouraged excessive risk-taking.

"There can be a direct relationship between compensation arrangements and corporate risk taking," she said. "In fact, many major financial institutions created asymmetric compensation packages that paid employees enormous sums for short-term success. We know that some of these same positions resulted in significant long-term losses or failure for shareholders and taxpayers."

But, as noted by Federal Deposit Insurance Corp. boss Sheila Bair, regulators encountered opposition from the industry and lawmakers alike when they attempted to clamp down on the financial sector in the boom time leading up to the breakdown.

"Somebody has to take away the punch bowl," Bair said, "and it can be very difficult to take away the punch bowl when, you know, people are making money at it now. But, I think going forward, this is a key lesson learned."