SEC’s New York Head to Ditch Individual Investors and Move to "Protect" INstitutions

George Canellos, the head of the Securities and Exchange Commission’s Manhattan office, said he is pushing his staff to scrutinize products normally sold to institutional investors after the financial crisis showed that even sophisticated buyers need additional protection.

“The SEC is a little less willing to assume that if the product is sold to institutional investors we should be a little less concerned about it,” Canellos, 45, said in a May 11 interview airing today on Bloomberg Television

Naturally, he said he is expanding his staff while focusing on structured products, such as mortgage-backed securities, and on private exchanges including dark pools, which trade stocks without displaying quote information publicly.

“My highest goal has been to reorient both our examination program and enforcement program toward some areas that have not been the traditional focus,” he said. “Traditionally, the SEC has placed a great deal of emphasis on retail investors and sales practices directed at retail investors.”

The bizarre logic to Canellos thinking is that government somehow magically will understand these investment products better than a myriad of institutions. I remind you, this is the same SEC that missed Brenie Madoff after people begged that he be investigated. The same SEC that come's out of a government that via the Federal Reserve denied there even was a housing bubble.

Ultimately, what Canellos' new "examination program" will do is push all institution towards the same products, making the next crash even more systemic.

It will become known that the SEC is frowning on product X, so no one will produce this product. It will become known that the SEC looks kindly on product Y, everyone will produce these.

Instead of having institutions diversify over a variety of products looked at and examined in different ways, with, sometimes, diametric opposing views by different institutions, the SEC is now going to get in the act and halt this diversification and set up the institutional securities business so that it will look just like the real estate market before it crashed. Everyone will be piling into whatever government is allowing and promoting.

Canellos is a fool if he thinks he can regulate things better than the markets. My guess is that he is just another power freak looking to advance his personal career by placing more cahins on the economy.