Can the SEC Improve if it Does Not Perform a Viable Function?
By Staff News & Analysis - September 12, 2012

The Great Debate … Can the SEC ever improve? … The U.S. Securities and Exchange Commission's case against Citigroup's Brian Stoker, a director in the bank's Global Markets group, seemed clear-cut. Stoker structured and marketed an investment portfolio consisting of credit default swaps. The agency accused him of misrepresenting deal terms and defrauding investors for not disclosing the bank's bet against the portfolio while pitching the investment vehicle to customers. But when it came to trial earlier this summer, the government could not prove that Stoker knew or should have known that the pitches were misleading, and the jury didn't convict. It's hardly surprising. The SEC's failure to secure a guilty verdict is one more sign that the commission still has not climbed out of the morass in which it was mired for most of the Bush years. The agency tasked with overseeing some 5,000 broker-dealers, 10,000 investor-advisers, 10,000 hedge funds, and 12,000 public companies, as well as mutual funds, the exchanges and even the rating agencies, is ailing because of outdated rules, systems and structures. – Reuters

Dominant Social Theme: It needs tweaking but it is a good agency.

Free-Market Analysis: We've written about the dysfunction of the SEC quite a bit and we know where we stand on the SEC's viability … It never was viable.

The main idea behind the SEC is to force individuals to provide full disclosure of their financial offering in such a way as they can be sued civilly. But like all other regulatory authorities, the SEC doesn't work as planned.

In fact, regulation generally is a price-fix and price-fixes transfer wealth from those who generate it to those who didn't generate it and don't know how to apply it effectively.

The Reuters editorial takes a slightly different stance, of course. Reuters is evidently a limb of money power and thus promotes regulatory democracy. Money Power seeks regulatory democracy because it seeks world government as well and needs to use nation-state governmental mechanisms to realize its goals.

This larger methodology is called mercantilism and it conflates private interests with the public purse. The power elite drives its globalist agenda via government. Here's some more from the article:

What exactly ails the SEC? For starters, the legal framework in place to prosecute securities fraud is flawed. The commission was established to create rules that prohibit "any manipulative or deceptive device or contrivance." But intent or recklessness is required to prove fraud or misrepresentation, and that can be difficult because the agency doesn't have enough staff to comb through reams of documents for rare evidence that someone intended to cheat …

Another glaring structural problem at the agency is that any changes in securities laws require congressional approval, but the SEC also relies on Congress for annual appropriations to continue running.

… The U.S. Treasury Department collects $2.94 trillion in revenue, which runs its core operations. The Federal Deposit Insurance Corporation runs on taxes from banks that form its membership. If the SEC were funded. Independently, securities fraud would presumably be more easily and effectively regulated and prosecuted.

The SEC's bureaucracy is a common complaint among bankers, traders and other financial services workers. Officials spend years launching, investigating and charging parties engaged in wrongdoing. In June, Peter Madoff was charged with fraud, four long years after his brother Bernie. It took a decade for the SEC to hold an Ohio fraudster accountable financially, except by then he was no longer living …

Finally, the agency also suffers from low morale. Last year, the SEC ranked 27th out of 33 federal agencies for workplace happiness, according to a survey by the Partnership for Public Service. In 2007, it came in third. The revolving-door issue also is worth repeating. Young lawyers who start their careers in government often do so to jump, eventually, into the private sector.

Let's take these points one at a time. First, the SEC was indeed established for purposes of mitigating fraud. But this was a great deal different than establishing a policing agency. The SEC is not the FBI of the securities industry.

The SEC was established as basically a civil agency because Money Power that controls the larger securities industry did not want its appendages exposed to criminal risk. It is easy to pay a fine but hard to run a business from behind bars.

Most everything that takes place on Wall Street or in the City of London is broadly fraudulent as it must be since money itself is a monopoly fraud and broadly unconstitutional.

For instance, there is little capital available from institutions these days because most capital is tied up in Treasuries. The Fed charges a tiny amount for borrowing from the discount window and the banks in turn invest that money in Treasuries.

It is yet another kind of almost "risk-free" carry trade and one that guarantees banks some two percent on their money. It is the money center banks that are funding governments with faux money created by central banks. This is a vast illegality but the SEC won't investigate it.

The suggestion is made in this Reuters article that the SEC ought to be able to self-fund based on penalties it collects. But the SEC's rules, from insider trading to securities fraud, are vague, opinionated and in many cases devoid of common sense. To encourage the SEC to make and apply more of these rules in order to generate revenue would poison what is left of the securities industry, especially its smaller players.

The last two points about the clumsiness of the bureaucracy and the low morale of the agency are tied together. What people who join government agencies soon come to realize is that they don't really DO anything.

People in government agencies want a paycheck and are motivated to either enforce rules rigidly and unreasonably or to "pass the buck" to someone else. The idea is to collect a paycheck with the least risk possible. This is not conducive either to high morale or to efficiency.

In fact, the SEC – and all regulatory agencies of Western democracies, for that matter – function mostly as promotions. They are promulgated by Money Power to justify government. Money Power NEEDS government for its own purposes and thus must provide memes proving government is utile.

It was the Federal Reserve that overprinted money illegally and caused the great crash of 1929. But Wall Street was blamed and the SEC was created along with the strange idea of a "public market."

The SEC and other regulatory markets were not created for purposes of "improvement." They were created to trick people about the nature of government.

It is the market itself that can discipline its participants. Those who cheat or otherwise provide little or no value shall not long survive. It is always thus.

After Thoughts

The idea that markets need "policing" is one developed by those who want to justify government. But justifying government and providing a useful function are two separate things. For more on these issues, search the 'Net for "SEC" and "Daily Bell" or "insider trading" and "Daily Bell."

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