Speech by SEC Commissioner Luis A. Aguilar

April 16, 2010 - Good afternoon. It is my pleasure to be here at the Spring Meeting of the ABA's Section of International Law. It is also a privilege to participate with such distinguished panelists. The topic and timing of this panel on financial reform and systemic risk could not be more timely. Even as we speak, negotiations regarding financial reform legislation continue in Washington. Let me say at the outset, the views I express today are my own, and they do not necessarily reflect the views of the Commission, other Commissioners, or the staff.

As those in this room know, the essential role of the financial services sector is to facilitate the allocation of capital to economically productive uses. There has been a clear failure in this regard, with widespread mispricing of assets, trillions in losses, and, perhaps most disheartening, painful levels of unemployment and underemployment - together with an unprecedented concentration of wealth at the top. Moreover, putting aside acknowledged gaps in legislation, regulators facilitated this failure by choosing not to use authority within their power and mistakenly believing that private parties could police themselves far better than any regulator could.

Today, we live in a world where a significant amount of the profits and financial market activity arises from leverage-financed bets on stock prices and credit derivatives, with insufficient concern for the fundamentals of the underlying companies. This contrast between Wall Street and Main Street- between the financial sector and the real economy-has ushered in an era of casino capitalism with severe ramifications that continue to reverberate through our capital markets. It is a situation in dire need of reform. Martin Wolf, the chief economics commentator for the Financial Times, stated that this casino capitalism "represents the triumph of the trader in assets over the long-term producer."

As we discuss the way forward, I am going to concentrate my remarks on the following:

• The definition of systemic risk;
• The relationship between primary regulators and any systemic regulator; and
• The danger of regulatory discretion becoming a substitute for regulatory reform.