Saturday, October 04, 2008
The End of Anti-Regulation
If you haven't read Steve Labaton's story in yesterday's NYT on how one minor SEC rule-making caused today's absolutely foreseeable financial collapse, do it!
As you read, here's a mental exercise:
Every time you read Merrill Lynch, think AT&T.
When you read Lehman Brothers, think Verizon.
When you read SEC think FCC.
Its about the behemoths and the federal agencies that are supposed to regulate them.
The current financial crisis has shown that competition is no substitute for regulation. If competition were king, you'd think that Bear Stearns, Lehman Brothers, Merrill Lynch, and the others, instead of enriching themselves by providing faulty products, would have been offering better products and cutting their prices lo these last four years. You'd think that if some of them were not providing the highest quality services in the marketplace, that its customers would leave in droves for better-performing competitors.
Of course, that didn't happen. Modern corporations are not vendors selling apples in a marketplace. There is no magic hand. There *is* plenty of sleight of hand.
In the one example that Labaton's story brings to light, the financial giants snowed the SEC, the "expert agency" that was supposed to regulate them, in a little-noticed meeting on April 28, 2004, into granting an arcane rule change that would let them fill their pockets faster, with worse damages. Four short years later, the regulators all but forget while the nouveau riche finance kings have bailed with their billion dollar booty, leaving the taxpayer with an empty bag. Now its a crisis, quick! quick! an emergency! fill the bag!
The one circumspect witness to this 2004 meeting, Leonard Bole, a financial consultant, was alarmed. He wrote,
So now you have the SEC Chairman who presided over the debacle saying,
I am NOT saying that 500 page laws are needed where three pages will do. However, these three pages should say the right thing. The law should be wise. Regulators should pass a public-spirit screen. I've had it with incompet-ocracy. And with congress-on-the-take. And with expert agencies full of bozos, dupes, and incompetents.
Government is best NOT when it governs least, but when the best and the brightest are in charge.
As you read, here's a mental exercise:
Every time you read Merrill Lynch, think AT&T.
When you read Lehman Brothers, think Verizon.
When you read SEC think FCC.
Its about the behemoths and the federal agencies that are supposed to regulate them.
The current financial crisis has shown that competition is no substitute for regulation. If competition were king, you'd think that Bear Stearns, Lehman Brothers, Merrill Lynch, and the others, instead of enriching themselves by providing faulty products, would have been offering better products and cutting their prices lo these last four years. You'd think that if some of them were not providing the highest quality services in the marketplace, that its customers would leave in droves for better-performing competitors.
Of course, that didn't happen. Modern corporations are not vendors selling apples in a marketplace. There is no magic hand. There *is* plenty of sleight of hand.
In the one example that Labaton's story brings to light, the financial giants snowed the SEC, the "expert agency" that was supposed to regulate them, in a little-noticed meeting on April 28, 2004, into granting an arcane rule change that would let them fill their pockets faster, with worse damages. Four short years later, the regulators all but forget while the nouveau riche finance kings have bailed with their billion dollar booty, leaving the taxpayer with an empty bag. Now its a crisis, quick! quick! an emergency! fill the bag!
The one circumspect witness to this 2004 meeting, Leonard Bole, a financial consultant, was alarmed. He wrote,
“Has the trading environment changed sufficiently since 1997, when the current requirements were enacted, that the commission is confident that current requirements in examples such as these can be disregarded?”But the commission never called him back. Hmm, come to think about it, has the FCC ever called you back to discuss comments you've filed?
So now you have the SEC Chairman who presided over the debacle saying,
“The last six months have made it abundantly clear that voluntary regulation does not work."And you have one of the SEC Commissioners who made the rule and then left the commission saying,
"In retrospect, the tragedy is that the 2004 rule making gave us the ability to get information that would have been critical to sensible monitoring, and yet the S.E.C. didn’t oversee well enough . . .”The "Government is always the problem," meme is over. Totally over. Drowning in its own bathtub. Dead. Rotting. Corruption, abetted by incompetence, is the problem.
I am NOT saying that 500 page laws are needed where three pages will do. However, these three pages should say the right thing. The law should be wise. Regulators should pass a public-spirit screen. I've had it with incompet-ocracy. And with congress-on-the-take. And with expert agencies full of bozos, dupes, and incompetents.
Government is best NOT when it governs least, but when the best and the brightest are in charge.
Technorati Tags: Bushco, Competition, Corruption, FCC, JunkEconomics, Regulatorium, SEC
Comments:
We agree that there is a problem with regulation. You want better regulation. I want unregulation.
Here's why your solution cannot work: it is not possible to gather together the information accurately enough and quickly enough to be able to regulate markets.
If regulation is such a great solution, then why, after so many years of so much regulation of the financial sector, has it come to such a mess? You want better regulation? I want a pony. Who is more likely to get what they want?
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Here's why your solution cannot work: it is not possible to gather together the information accurately enough and quickly enough to be able to regulate markets.
If regulation is such a great solution, then why, after so many years of so much regulation of the financial sector, has it come to such a mess? You want better regulation? I want a pony. Who is more likely to get what they want?
