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Martin Garbus Headshot

Rolling Back the New Deal

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Most of the Courts in the nation are following the conservative line in cutting back on the power of the Securities and Exchange Commission created under Roosevelt to protect investors and consumers.

Years ago the Federalist Society had a conference entitled "Let's Ban the SEC." The Republican courts and this administration is achieving the same result without reversing precedent and without a politically impossible ban.

The onslaught on the New Deal years continued, when on June 24, 2006, now three judge Circuit Court of Appeals in the District of Columbia Court said in Goldstein v. S.E.C. that the Securities and Exchange Commission did not have the right to regulate hedge funds, a rapidly growing industry with over 1.1 trillion dollars of assets. Two of the three judges were Republican appointees.

A New York Times article noted that Christopher Cox, the Republican S.E.C. Chairman, said the commission would review the issue, but stopped short of indicating that it would continue to seek authority over hedge funds.

"The S.E.C. takes seriously its responsibility to make rules in accordance with our governing laws," Mr. Cox said in a statement. "The court's finding, that despite the commission's investor protection objective its rule is arbitrary and in violation of law, requires that going forward we re-evaluate the agency's approach to hedge fund activity."

He said the commission would "use the court's decision as a spur to improvement in both our rule making process and the effectiveness of our programs to protect investors, maintain fair and orderly markets, and promote capital formation."

As hedge funds have grown, and as some have collapsed amid fraud or because they took excessive risks, pressures to regulate them have grown. But fund managers have protested that the vast majority have acted.

The law was passed by the then Democratic Commission, over the opposing votes of the two Republicans. Conservatives, including Christopher Byron, applauding the ruling, said this case showed why the S.E.C. should be shut down. Such confusion, he said, shows the S.E.C. does not know what to do with hedge funds, and can't regulate them. The now Republican dominated S.E.C. will not appeal the decision overruling its own Commission's rule, a highly unusual event.

Christopher Byron says "the S.E.C. is a poorly led, bureaucratic anachronism from the New Deal that lacks a mission." It had three heads under Bush, it has been marked under Bush by revolving door leadership, staff defections and poor morale. There are many different ways of making the S.E.C. irrelevant.

It is shocking, that with Enron so recent the conservative feel they can freely gut the 70-year-old New Deal's Administrative State.