Report Spotlights 'Revolving Door' Issues at SEC … Former U.S. Securities and Exchange Commission staffers who now work in the private sector may have helped derail last year's effort to reform the $2.6 trillion money market fund industry, a report said. The case study on money market fund lobbying is part of a 60-page report by the Project on Government Oversight (POGO). It is one example within a broader review by the non-profit government watchdog that examines in detail how the "revolving door" at the SEC may have impacted policy and enforcement decisions over a 10-year period. The publication of the report comes a few weeks after President Barack Obama nominated Mary Jo White, a former prosecutor and high-profile white collar defense lawyer, to lead the SEC. – Fox Business
Dominant Social Theme: Regulators will have to do better. They need to be like doctors or priests.
Free-Market Analysis: POGO didn't need to write this report. It could just have come to us. We've explained at length how regulation doesn't work. And that goes to financial regulation, which is at the heart of the modern regulatory democracy. Just search for "financial regulation" or "SEC" and "Daily Bell."
Even granting that regulatory regimes can do some good (and we don't), the longer that a specific regulatory body continues to ply its craft, the more intensely it is subject to regulatory capture. Regulatory capture is simply a fancy way of saying that and industry's largest players take over the agency and use it to raise barriers of entry and generally force out competition.
This is generally known in public circles. The reason that regulation persists and that it is the singular feature of modern democracies is because regulation is being pushed on governments by powerful outside forces.
The main backing for regulation comes from a tiny, unaccountable power elite that derives its wealth from central banking and is gradually implanting world government. This power elite counts on mercantilism, the ability to pursue its aims via secret government levers provided by regulation. If government is too simple or too small and doesn't seek to regulate business, then the power elite itself has no way to influence society.
And so the farce of regulation continues, substituting the laws of man for the Invisible Hand of competition. One works and the other doesn't. Laws need constant repetition, a criminal justice system, a penitentiary complex, etc. Competition on the other hand tends to generate private watchdog groups and other elements of a private surveillance society that is self-funding and disciplines through private exposure and even privately initiated justice.
This is how human society worked for thousands of years. It is only in our modern era of great sophistication and elaboration that we have gotten away from the simple rules that served us well for eons. And so, governments − and "good government" groups − around the world write white papers to determine what is wrong, never realizing that the answers are embedded in history and available to anyone who wants to look. Here's more from the article:
"The revolving door is deeply embedded at the SEC and throughout the federal government," the report says. "The close linkage between the regulators and the regulated can influence the culture, the values, and the mindset of the agency -not to mention its regulatory and enforcement policies."
The report also calls for reforms to help prevent problems that may be posed by the revolving door. They include requiring agencies to post disclosure statements online, expanding the criteria for when staffers must file post-employment statements, and extending the cooling off periods for employees who enter and leave the government.
POGO's report analyzes disclosure forms obtained through a Freedom of Information Act request that were filed by over 400 former employees representing clients or new employers before the SEC from 2001-2010.
… SEC spokesman John Nester also downplayed the impact of the revolving door on the money market fund debate, telling POGO, "I imagine you could find alumni on all sides of this issue, but … matters are decided on their merits."
Notice the blanket assertion here. Because the spokesman declaims, we are informed it must be so. But it is not so. The article provides us with other examples of ways that SEC investigations were derailed by Wall Street heavyweights.
It's not hard to do. People are motivated by self-interest and if an ambitious lawyer at a regulatory agency gets a call from a top man in his industry – for whom he may wish to work some day – he's going to be more receptive than if he receives correspondence from small fry.
This is the way human nature works. It's not going to change. All the white papers in the world won't rectify what is wrong with the regulatory model. It doesn't work.
In fact, laws don't work in general. Every law is a price fix and creates an unexpected and usually negative conclusion. But laws and regulations are not supposed to work, in our humble opinion. They are simply being created to generate an environment that is increasingly receptive to world government.
Whether this strategy continues to be implemented aggressively in the Internet era remains to be seen. We think it's going to run into trouble, however, because the implausibility of regulatory democracy is going to become clearer and clearer. Eventually the business world and the marketplace are going to collide.
People are getting fed up, in our view, and all the palliating papers by government watchdogs and "good government" third parties like POGO are not going to alleviate this trend.