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One of the many unfortunate side effects of the timing of the 2008 financial crisis, coming as it did right on the hinge of a presidential transition, is that the terrible reality of many regulatory agencies escaped notice in the frenzy of avoiding collapse. Witness the latest from the Securities and Exchange Commission:
The U.S. Securities and Exchange Commission is supposed to “protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.” It is odd, then, that the regulatory body decided last week to preserve one of the most egregious loopholes in the entire financial system. Money market mutual funds were effectively declared “Too Big to Fail” by the authorities in 2008 yet remain wholly unregulated. They are the rotten core of the shadow banking system—providing ridiculously cheap leverage to speculators courtesy of the American taxpayer.
The detail on money market funds is good and worth reading, but here’s the kicker:
After the crisis was over, the money markets were an area that seemed worthy of further scrutiny. Like asset-backed securities before them, they had appeared boring and safe when they were actually a large source of hidden risk. The industry, however, put up an unprecedented lobbying campaign against the SEC. As a result, it was able to avoid any changes the existing rules, even though they had proven so hopelessly inadequate prior to the crisis. How could this have happened? An excellent and detailed investigative report by Bloomberg provides an answer: the SEC is a captured organization whose employees regularly alternate between government and lobbying on behalf of the firms the SEC is meant to keep in line. It is not right to call this a “revolving door,” since that implies some kind of pause while going from one side to the other.
Let’s be clear. If the events described in the Bloomberg article happened in China, everyone would immediately (and rightly) decry cronyism and corruption. Why not do the same here?
This is some prime Monthly turf of late. John Gravois has done some excellent reporting for this magazine on the new financial regulatory agency, the CFPB, and Charlie Peters (our founder) spoke to Joe Nocera of the New York Times about it:
When I reported back to Charlie about my inspiring day at the new consumer bureau, he wasn’t surprised. “The beautiful thing about a new agency is that everyone is very driven to accomplish the mission. As they mature,” he added, “that’s when people become more concerned with self protection, and maneuvering for the next promotion.”
This is out of the question now, but after the next crisis (it’s coming, just wait) the value of new agencies should be kept in mind, and key regulatory bodies should be killed and reanimated. It wouldn’t have to be very complicated, even. Just fire everyone, maybe change the name a bit, and hire new people.
Just make sure none of the executives or managers have ever worked there before. (Call it the top 20% of positions.) Corruption will creep back in, count on it, but we’ll at least get some breathing space.
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rrk1 on September 08, 2012 11:15 AM:
While Bloomberg's 'expose' of the ineffective SEC, if it rises to that level, is very welcome, but how is that anything new? Most of the federal regulatory agencies are wholly owned by the businesses they supposedly 'regulate'. The NRC (Nuclear Regulatory Agency) and the FDA (Food and Drug Administration) come to mine immediately.
And it isn't just the corrupt rotation of the business executives into and out of the top jobs at the agencies, it's also the Congressman and Senators sitting on the oversight committees who are wholly owned. Our legalized system of bribery in the form of campaign contributions and uncontrolled lobbying does a very effective job of preventing the enforcement or creation of regulations that would protect the public from corporate greed.
The corruption is thorough and essentially complete. Why stop at the SEC? The whole federal structure is rotten to the core.
Arlington BigFish on September 08, 2012 11:55 AM:
Saw the headline, & my first thought was, "Wait a minute! Kilgore -- a rabid Georgia Bulldog fan -- wants to demolish the Southeastern Conference?" But then I realized that 1. It's not Kilgore. And 2. It's not about football.
Neildsmith on September 08, 2012 12:01 PM:
As rrk1 points out, why indeed stop at the SEC? There is a certain perverse logic to the proposal that government has become so unwieldy and corrupt that the only way to fix it is to disband it and start over.
OK - so that really isn't practical, but progressives should keep this in mind the next time they propose another expansion of government. What makes us think, given all the evidence to the contrary, that government can rid itself of corruption to the extent required to salvage it and make it work as we want it to?
This is, I admit, an argument for some sort of revolution - nihilism. Perhaps we had that chance when the economy was in the toilet back in 2009, but we missed the chance because we refused to let it all collapse. Even now progressives are so allergic to any kind of suffering that they would do anything to somehow preserve the status quo.
I remain convinced that the current path advocated by both parties is one of decline for the middle and lower economic classes. There is no way "forward" without going backward.
c u n d gulag on September 08, 2012 12:02 PM:
I'm with rrk1 - it ain't just the SEC. It if was, that's fixable.
We need to take the money out of politics, and out of lobbying.
Publicly funded elections would be a start.
Also, some legislation that caps the salary of anyone at every lobbying group, at the same salary as of, say, a US Senator.
No one working at a group lobbying Congress should make more than the leaders of the group they're lobbying.
Not only would that effectively take the profit(s) out of lobbying, it would also make it less likely that politicians and/or their staff members, would leave to rake in more money lobbying their former cohorts.
Lobbying was originally intended for people with little power, to group together, and make their voices heard in the halls of governnment.
Instead, the lobbyists who DO work for the people with little power can't have their voices heard, because the money from the rich and powerful shouts over those whispers.
Take the money out of politics!
No, I'm NOT high!
And yes, I know I have a better chance of playing 'pick-up sticks' with my greased buttcheeks!
Ed Thibodeau on September 08, 2012 12:07 PM:
Dang. When I saw the title of the post I thought somebody was finally tellng the SEC to go to a nine game conference schedule and to start scheduling better non-conference opponents.
Matt on September 08, 2012 12:54 PM:
I too thought this would be about the Southeastern Conference, which I'm all in favor of burning to the ground, but you make a compelling case for the other thing.
While we're at it, let's get rid of St. Edmund's College and the trigonometric function of the secant, too, neither of which have ever done a damn bit of good for anyone.
Doug on September 08, 2012 7:08 PM:
I find the argument that the SEC should have been deep-sixed during/immediately after the crisis of 2008 a tad too baby and bathwaterish.
It took a complete meltdown of the stock market, followed by over three years of near-inactivity by the Federal government, followed by the collapse of the entire national banking system just to be able to implement the SEC in the first place. Even then, after all that had happened during the 1920s and early 1930s, even then there still remained incredible resistance, both in and outside of Congress, to passing the legislation creating the SEC and providing it with enough power to do its' job.
The only problem with the various commissions established by Congress, that I can see, is that Congress refuses to do ITS job of overseeing those commissions. You want a public outcry over revolving doors in these commissions? Schedule a few House Committee meetings and bring out the abuses*.
If you feel that House members are too fearful of upsetting their donors? Elect different members to the House. We DO have systems in place to rectify these problems, they're called elections. Just because Congress doesn't always do its job doesn't relieve the public from carrying out its' responsibilities.
"Bring out your abuses! Bring out your abuses!" Ain't MP great?