Abolish the SEC
The Securities and Exchange Commission should be closed down, pronto. It should not exist.
This is not because Wall Street does not need regulation. Heaven knows it does. And this is not because the people working at the SEC are not good people, because I believe they are. Alas, they were given an impossible task that doomed the agency to failure. The US financial markets are way too complex to be effectively regulated by any government bureaucracy, no matter how competent. Moreover, the mere existence of the SEC gives investors false confidence, lulling them into reduced vigilance and making them think they are protected when they are not.
In the Madoff Ponzi scheme, the very rudimentary exam and some elementary questions would have raised grave suspicions. Virtually anyone could do that, and yet few did. Instead of watching their own affairs, investors delegated critical due diligence tasks to the SEC, abdicating their responsibility over their own investments.
I do not blame the SEC staff, nor do I blame its leadership. People simply expect too much from government in general, and have unrealistic expectations from the SEC in particular. The fraud carried out by Bernard Madoff was perpetrated on wealthy people and large professional money management organizations. These people have resources, they have access to the best lawyers and accountants, they can afford private investigators, they have well-paid, competent staff, and they are well connected and experienced, having investments with dozens of funds. They also were watching their OWN money. And even they were fooled. How can we expect government employees, who are not overseeing their own money and are not as well paid, and thus not as well incentivized as the principal owners, to uncover these frauds? The SEC was hopeless to begin with, in way over its head.
In fact a regulatory agency overseeing Wall Street, with its convoluted and complicated myriad of businesses, has only imagined power. Financial regulation almost never protects investors. It is not very different from what happened with Freddie Mac and Fannie Mae, where hundreds of federal employees came to work every day solely for the purpose of supervising just those two mortgage companies. Nevertheless, for decades both Fannie and Freddie ran an outrageous scheme that ended in their implosion, together with our housing market. The federal regulators, watching over other people's money, could not do the job. The law has its limits.
Instead of blaming the SEC employees or its commissioner, I hold Congress responsible for assigning them a mission they could not possibly fulfill. I also blame those investors that, incredibly, hoped a government agency would do for them what large private organizations could not. We all must uproot the habit of relying on the government to think for us, protect us from ourselves and bail us out of financial difficulties. Adults should not need a nanny in Washington DC. It is not only useless, but also misleading. Investors should perform their own due diligence. And anyone that feels unqualified to perform such due diligence should not be investing in these funds.
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The only way to regulate Wall St. is to treat it like any other large, well-funded criminal organization. Let's face it, they don't like following the rules, and they have the resources to hide from personal accountability. So I say make the SEC more like the FBI. Give em' wiretaps, let them infiltrate the investment houses with agents, and if someone is found breaking the law (or deliberately skirting it), put them in handcuffs and take them to jail. The only way to lessen Wall St. avarice is make them terrified of being too avaricious.
And replace it with a Peoples Collective, I assume?
Interesting thesis, but I don't agree with eliminating the SEC. We need the same basic protections of property rights, enforcement of contracts, and punishment of fraudulent advertising in all spheres of property and finance, from local black markets up to the most abstract, complex markets in existence.
I tend to disagree with the asserted social value of speculation altogether, so I guess I'm probably not your target audience, but I'm still going to outline my reasoning. Commodities markets, for example, have focused agriculture on high-demand and obviously widely needed crops such as corn, soybeans and rice. Clearly, these are efficient sources of Calories for many consumers, but commodities markets give rise to bizarre externalities and industry lobbying for harmful international tariffs, such as U.S. protectionism against Brasilian sugar cane ethanol fuel which has left our automobile industry behind theirs, and arguably behind even Iran's, in just the past eight years.
The point that "government-backed" or "SEC-regulated" should not be interpreted as a Gold Standard is well-taken, but I think the main problem with the SEC is that it has been lazy and negligent of late, and its customers, the U.S. taxpayers, have been too willing to accepted under-performance. In the sense that it's applicable, high expectations of SEC are nevertheless not the main or root problem.
There are 4, that's right, 4 Certified Public Accountants working out of the Dallas, Texas SEC office to oversee publicly traded companies in 4 states, Arkansas, Louisiana, Oklahoma, and Texas. There are probably 10 percent of the 11,000 publicly traded companies is this area. That would be would be about 250 per CPA. THIS IS STUPID. They need 40 CPA's. They designed the regulatory body to not be good at catching major stock frauds. The people that run this country like their stock frauds, that's how they increase their wealth! I'm a CPA and I couldn't believe this when someone from the Dallas SEC told me about this!
small govt appears to equal under funded and understaffed govt departments and agencies, and in the ideological heyday of "no regulation please" fostered by the RNC cronies, is it any wonder that the once viable SEC has been brought to its knees standing idly by while our markets ran rampant, they had no regulatory authority over the biggest problems of this crisis, see the bank regulated the fdic, but CDO collateralized debt, is still right now regulated by no one, this mess of a fall out ain't over yet people, at least two more shoe to drop, another rate adjustment and another scandalous scheme of cover up by the Bush Administration. The SEC like all parts of our government needs a thorough auditing ad a clean out of the cronies and the complicit persons who did nothing while our markets deteriorated into de regulated chaos,
don't abolish the SEC, as the dept has a viable role, but properly define that role and give them what they need to regulator this gigantic market of products and services. and re instate the net capital rule. dammit
The collapse of the financial system had nothing to do with Madoff, that was just the icing on the cake. People keep mentioning Madoff like financial crime resulted in this financial crisis and its just a distraction from the fact that its isn't. Its got so little to do with it.
You're right, SEC has been outnumbered from the get go but this is because there are experienced fund managers, traders, mathematicians, economists that work for investment banks for huge amounts of money that a government sector cannot afford to pay so in terms of competence, SEC is not evenly matched.
The fast pace of the investment banking world and the time it takes it takes to implement an accounting standard do not align so even if SEC try to address a new accounting problem, its ability to be responsive is limited and to be honest, this is a problem all accounting boards face not just SEC.
The biggest fundamental problem in the American banking system is the over reliance on a private run system that basis itself on following the letter of the law and never the spirit of it. Most of these banks ticked the boxes on their due diligence checks but did they apply the spirit of those checks?
The problem lies with substance over form and until American bankers and accountants start following the spirit of the laws instead of black and white practice, this crisis will happen again.
I have to disagree with you, Mr. Shram. The main reason for the SEC is to regulate the stock market and prevent corporate abuses relating to the offering and sale of securities and corporate reporting. Since 1934 this has worked and is still working (that would be amost 75 years). Let us be mindful that it was the housing bubble bursting that caused this current global crisis that we are in now. This is related to the lending institutions which are regulated by other state and federal agencies. When the housing bubble did burst, the SEC immediately halted shorting and speculative trading among other actions listed here: http://www.sec.gov/news/press/sec-actions.htm. We shouldn't abolish the SEC. If that were to happen we would be in worse shape than we are now. What we need to do is hold our state and federal regulating agencies (like the FDIC, FannyMae, FreddyMac, and the state banking department or divisions of banking) more accountable to regulating financial institutions.
Why not abolish the federal government while you are at it Schram? It makes perfect sense in your scenarios.
Brilliant! Lets get rid of police, fire departments, FDA, NIH... Hell, by your reasoning we should just get rid of government. If an agency fails don't hold them accountable, try to improve it, make it work -- Noooo, Let's just chuck it and every man can fend for himself.
And there isn't an "investor" on Wall Street. No one is investing in a business to share in the profits. No one is investing in a business to earn interest on their principle. They're "investing" in hopes of buying low and selling high. They're speculating, gambling, not investing. Wall Street IS a ponzi scheme.
If you want to abandon a system that doesn't work get rid of stock markets. How many times does the economy have to crash due to fraud and greed on Wall Street before you condemn THEM? Your arguments aren't big on logic but they're strong on hypocrisy.
I agree. Abolish the SEC. But on the way out, try and prosecute for Fraud and Anti-trust.....laws on the books we've long ago ignored. And while we're at it, try and prosectute Bernanke, Greenspan, Paulson and Cash-n-Carry for treason.
um Glass Stegall of 1933-anti trust legislation from the depression era.
was repealed by
Gramm Leach Bailey Act of 1999
Let's not forget
Senate Bill 3283
The Commodities Futures Modernization ACt
this bill officially de regulated the market for energy (Yes Enron Loophole)
even worse, this bill also de regulated many financial intruments, including collateralized debt obligations, which ar eat the center of todays mortgage crisis.
The SEC can't keep up because you guys keep inventing imaginary ways to make money from money. Wall Street has become the single biggest con game in the world. They just make up ways to invest money in other money in ways that no sane person would EVER believe is possible.
The SEC would be fine if you con artists would just get back to basics and do honest money making and stop inventing BS ways of making money off of money without ever producing anything of value to this world.
Mind explaining hedge funds and derivatives just for STARTERS?
The SEC folk understand it just perfectly. They were put in place to have a total hands off approach. Let the market decide, and it has decided now. They are doing what they were told.
Wow, why are we not hearing that on the MSM that we should not be investing???? We have been told for years to maximize our 401k returns and that we could participate in the stock market....
I also tell you that if the SEC had run as tight a ship as MEDICARE (responsible for over 700 billion dollars each and every year), this would not have happened......
I guess the SEC was needed as window dressing for all the 401k participants... they needed to tell us that our investments were solid, (like the Treasury Bills) and they were not...
BIG TIME RACKETEERING,, I would fill up RIKERS with these guys and let out the minor drug offenders... After all, we all need something to see us thru this mess, we had prohibition removed during the depression....
Government works when competent people are in charge. When Bush came to office he deregulated, defunded, and otherwise rendered oversight agencies toothless. Eight years of a free-for-all ensued. Now we, the tax payers are left with the bill with little to no money to pay for it.
Madoff''s fraud did not go unnoticed. "Separate from the SEC and FBI investigations, SEC chair Chris Cox announced last week that he has has asked the commission's inspector general to probe how the SEC failed to uncover catch Madoff after receiving several complaints going back to 1999."
Until we find out why this was allowed to happen, why the warnings were ignored and who is responsible it is too early to assign blame or suggest abolishing the SEC. With our economy teetering on the edge that is the last thing we would want to do. Putting more responsibility (power) in the hands of private businesses is not the answer either.
With proper pragmatic regulations in place combined with knowledgeable people who take oversight seriously and keep politics out of it we can avoid many of the pitfalls that led us into this crisis in the first place.
Leaving the market and investors to their own devices is a bad idea.
We've been down this road and are suffering because of it, but not by our choosing; It was forced on us.
With the right leadership, government works.
Exactly.
And it might be worth mentioning that the author of this blog has his own hedge fund according to his huffpo bio.
I'm glad the left is starting to figure out that government is not our protector. Kudos to the Huff Po for running this article.
Oh, we on the left have always known that Republican government is not our protector, because the whole goal of Republican government is to govern poorly.
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