SEC taps Thomas J. Butler, Wall Street veteran, to oversee ratings agencies … Consumer advocacy groups voiced concern over the appointment Friday of a Wall Street veteran to be the chief overseer of credit-rating agencies, which were found by two government inquiries to have been major causes of the 2008 financial crisis. – McClatchy Newspapers
Dominant Social Theme: OK, great … let's get those ratings agencies under control.
Free-Market Analysis: The SEC couldn't regulate a paper bag. It was set up in the 1930s by global elites to give the appearance of a Wall Street cop without providing the reality.
It's part of Washington's larger dysfunction and is only notable because of its brief, which is to approve the various kinds of paperwork filed by Wall Street firms to inform the "public" of their deals.
The SEC also is supposed to police the securities industry and enforce file civil complaints against those who break economically illiterate rules like insider trading.
As we've written numerous times now, insider trading can occur in numerous ways – most egregiously via the use of high-powered computers that provide some people with specific informational advantages that others do not have.
This is no different than profiting from an "insider" tip from a public company. But those who trade on non-disclosed information can receive prison sentences while those who use computers to manipulate the market often get huge bonuses.
The whole issue of regulation and regulatory authority is rife with silliness and illogical. For a full century or more, the New York Stock Exchange used floor-based "specialists" to generate and retain an orderly market.
The specialists were supposed to step in and use their own capital to "stabilize" the market when it was moving up and down (especially down) too quickly.
This never made sense on numerous levels. What about the fellow who buys at 100 because the specialist is stabilizing the market and ensuring the stock is moving down slowly?
Wouldn't the buyer have wanted the market to move down quickly – to get where it's going, in other words? He might have bought the stock at 90 were the specialist not retarding the market's natural movement.
The specialist system imploded after the stock market crash of 1987. It turned out that the puny resources of individual specialists were no match for the torrent of selling – hundreds of billions – that took place around the world.
This would be less significant had the SEC and NYSE not built an entire regulatory regime around specialists and their supposed market making abilities. Nearly half a century of regulatory wisdom was discarded without apology or culpability.
And so it goes. Regulations in the securities industry anyway are like an infant's blanket. They seem comforting but are hardly a shield against real danger.
The whole idea that regulations can somehow provide safety to investors is wrongheaded. In fact, many top SEC lawyers aspire to work for Wall Street, where they can obtain larger paychecks. They're not apt to be too harsh on their future employers if they can help it.
It's called regulatory capture. It's one big reason why regulation doesn't work and soon becomes nothing but a "barrier to entry" for smaller firms.
The larger ones – the biggest players – continually reengineer regulations to make them more complex and expensive for the competition. Eventually no one is left but the very largest enterprises that can afford to stay in the game.
Everyone else goes bankrupt. Regulation becomes just another form of competitive advantage favoring the global elites' biggest endeavors.
Now Congress, in the glory of its modern day corruption, has given the SEC the power to supervise the nation's top ratings agencies. Big ratings agencies like Moody's Investors Service and Standard & Poor's were giving out AAA ratings right up until disaster struck.
But providing ratings agencies with supervision is like a bad joke that the US government can't stop retelling. Here's some more from the article:
The Securities and Exchange Commission announced that Thomas J. Butler has been appointed the new head of the Office of Credit Ratings. He starts Monday and will supervise a staff of about 25 lawyers, accountants and examiners who will monitor firms such as Moody's Investors Service and Standard & Poor's.
Butler has no regulatory background, nor has he worked for a ratings agency. The SEC said Butler has spent the past 14 years at Wall Street firms – mostly in wealth management positions – including Morgan Stanley Smith Barney, the U.S. division of Swiss global giant UBS Securities, Citi Global Wealth Management and the now-defunct Australian financial firm Babcock & Brown, which helped pioneer the lucrative business of pooling loans into complex bonds …
Consumer advocates reached a different conclusion. They see someone who might be too close to the ratings agencies, which were instrumental in Wall Street's creation of complex financial instruments that received AAA ratings that made them appear to investors as the safest of financial bets.
"The ideal candidate from our point of view for this job would have been someone who knows the credit-rating agencies inside and out, and is aware of their weaknesses, intimately knowledgeable about where they've gone wrong in the past," said Barbara Roper, director of investor protection for the Consumer Federation of America.
Consumer advocates are "worried" because they want to maintain the fiction that regulation can provide some sort of magic bullet to ameliorate the risks inherent in investing. But even if Butler were the most skilled person in the world it would make no difference.
The real flaw in securities investing – certainly public investing – is that monopoly-fiat central banks constantly print more money than is necessary. This gives rise to great booms and busts.
What is actually necessary is a regulatory authority to monitor money printing. Unfortunately, the conclusion would be that the current monetary system doesn't work.
Central banking needs to be shut down. Private money competition is the antidote to monopoly fiat.