I watched with disgust the ravages of Hurricane Katrina. A city and region were devastated first by a storm and then victimized by a lack of preparation and response. Those in charge of the emergency response seemed little more than political hacks and friends of friends in high places. Clearly, the Gulf Coast region would learn some lessons.
Now, amidst the BP oil leak -- a calamity of epic proportion -- the most charitable characterization of the so-called emergency response is that it is a deer caught in the headlights. You would think that there were some contingency plans on some shelf for this event. You know, maybe someone contemplated that another hurricane could topple an oil rig? Instead, in many ways, we are seeing a redux of the failed response to Katrina. In a time of crisis , those who should have drawn up earlier contingency plans are only now first setting up shop. You just get that sinking feeling in the pit of your stomach that everything is ad hoc.
Of course, what has been thought out and thought through is how to best spin the bad news. Oh, no doubt about it -- private enterprise and government always seem to have that knack for self-preservation. If I see one more self-serving television ad from BP, if I see one more politician in socks and shoes walking on the beach with his shirtsleeves rolled up, I'm going to throw my television remote through my screen. Don't these idiots get it? Disasters are not wonderful opportunities for a photo-op! Having set in motion the causes of this ecological disaster, BP wants me to thank them for giving folks shovels to clean the beaches? Having failed to timely respond to the leak with an effective containment plan, government officials want me to applaud their televised hearings?
I am not a fan of the time-wastin' speechifyin', masturbatory roundtablin', and high-fallutin' blue-ribbon panels that enervate our government. Sadly, we are saddled with legislators and regulators who belatedly cobble together ineffective solutions for yesterday's problems, or opt for abject inaction that paves the way for tomorrow's crises. In the end, we get neither an ounce of prevention nor a pound of cure. E Pluribus Unum has been replaced with Too Little, Too Late.
Among the worst examples of institutionalized procrastination is the United States Securities and Exchange Commission (SEC). More often than not, my commentaries about the SEC are filled with pointed barbs -- sharpened from frustration with the federal regulator's inability to do its job. Consider my May 2010 blog: LOST: One Securities and Exchange Commission Regulatory Priority.
We live in a world of limited resources and we are creatures with a limited time on this planet. We cannot do all things within in our limited lifespans -- hence we need to have a sense of both history and a concern for the future. Professional regulators must always be aware of that ticking clock. Among the most difficult challenges facing them is knowing their priorities and allocating the most effective use of their dollars and staff towards preventing fraud and promulgating prophylactic rules. In this day and age, no one should be nominated to the SEC or any regulatory organization if that man or woman doesn't have their priorities in mind and in order -- and each candidate should be vetted on that point. Similarly, for the SEC to announce that it's unsure of its priorities and needs to form some committee to figure out what's important and what should be first, smacks of a gross lack of leadership and vision. Sadly, the legacy of the SEC is that too many Madoff-like schemes have flourished while the various commissioners seemed distracted by choosing china patterns. A harsh condemnation, but one that I believe is deserved.
Effective leadership sets goals and makes choices. Too often, the SEC delves into the world of metaphysics and foolishly diverts its resources from meaningful prevention and enforcement towards efforts that seem solely calculated to pander to the public. A recent example of such silliness was the sideshow concerning global warming. Not only would the SEC not acknowledge that there was or wasn't global warming (or climate change, if you prefer), but it wasted countless hours of staff time preparing a report and voting on new regulations.
While the SEC's attention was diverted to posturing over global warming, the "Flash Crash" overwhelmed Wall Street and, as usual, the federal regulator didn't know what had happened and had no effective contingency plans with which to respond. The result was that Wall Street's cop was forced to bring out the broom after the circus parade passed us by. The one saving grace of that incident was that the SEC actually moved quickly to institute single-stock circuit breaks, for which I complimented the regulator.
On June 30, 2010, during an open meeting of the SEC, Commissioner Luis A. Aguilar gave a speech titled: "Preventing Investor Harm Should be SEC Priority Number One." It was with some surprise that I read Commissioner Aguilar's comments because he offered a superb description of what constitutes effective regulation. Now, if only the astute commissioner could transform his vision into action, and drag his colleagues into the 21st Century!
I commend his words to you:
Regulatory oversight functions best when we have a regulatory regime that prevents misconduct in the first instance -- long before investors can be harmed. If the conduct is not affirmatively prevented, investors are harmed. It's true that once investors are harmed and lose faith in the integrity of our institutions -- irreversible damage has taken place. Enforcement actions are rarely, if ever, able to make investors whole, sufficiently punish all the fraudsters, and prevent a loss of investor trust in these financial institutions and the securities industry as a whole. The best course of action is to prevent the significant harm in the first place. Prophylactic rules, consistent and effective inspections, and strong enforcement must work together to protect investors.Read Commissioner Aguilar's Entire Speech at: http://sec.gov/news/speech/2010/spch063010laa.htm
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The answer is not that we need more, it's that we need better. More laws and regulations only hinder the honest people who try to follow them. More regulations aren't any good if we can't enforce the ones we already have. Both dems and repubs need to stop all the culture war garbage and stop trying to fix every problem with legal solutions and start working on the competency of government, before the entire country falls apart.
As I have long argued, it's rarely that we need more laws -- it's usually that we need better enforcement of those already on the books. It's not that we need to raise the salary and increase the numbers of folks who are regulators -- it's that we need to hire more competent, dedicated employees who are comparably paid to those they are charged with regulating.
As far as screaming about the laws and our elected officials, I fear that I have long ago gone hoarse from the effort.
My favorites are all the new laws, such as Sarbanes Oxley, that come out every time there is a huge fraud case. They take activities that were already illegal and make them more illegal, as if the person who didn't care about the first 12 felonies he committed is suddenly going to become concerned about committing that 13th one, or afraid he will get 450 years in prison instead of the 380 that he could have received but didn't deter him before the new laws came out.
The more laws and regulations they pile on, the harder it is for honest people to follow them, and eventually everyone becomes a law breaker.
Excellent article.
Effective regulation “prevents misconduct in the first instance”; deregulation prevents the prosecution of misconduct thereafter.
If the SEC’s mission “is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation” using their proscribed regulations prohibiting deceit, misrepresentations, and other frauds, why in the scope of our current economic peril is Climate Change even open to contemplation here?
The misdirected efforts of the SEC (“Commission Guidance Regarding Disclosure Related to Climate Change”) are even more obscene when taken in the context of their failure to regulate. During recent testimony before the House Financial Services Committee, a former regulator blistered the SEC approach in realizing their mission:
“The SEC: we’re told they’re only 24 people in their comprehensive program. Who decided how many people there would be in their comprehensive program? Who decided the staffing? The SEC did. To say that we only had 24 people is not to create an excuse — it’s to give an admission of criminal negligence. Except it’s not criminal, because you’re a federal employee.”