In the private sector, when a firm fails, it ceases operations. The opposite happens in government. There is literally nothing a government agency could do that would make the talking heads on the Sunday shows ask, “Maybe we should just abolish this agency? Is it doing more harm than good?” It’s not just Fannie Mae and Freddie Mac: throughout its history, virtually every agency created by the federal government has been deemed too important to fail. The pattern plays out perfectly with the SEC and the Madoff bombshell. FULL ARTICLE
Source link: http://archive.mises.org/9188/the-sec-makes-wall-street-more-fraudulent/
The SEC Makes Wall Street More Fraudulent
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(Yet another) good article Robert.
I think the NASDAQ meltdown in 2000 provides an even more glaring example of the failure and incompetence of the SEC. While it could be argued that it would be ridiculous to expect the cretins at the SEC to understand, let alone regulate, intricate derivative securities, understanding the concept of “a suitable investment” is elementary. For people retired on a fixed income any investment that does not ensure the preservation of principal is unsuitable. Even Dow Jones componenst would be unsuitable, let alone NASDAQ .com stocks. The fact that the SEC allowed retirees to invest in the NASDAQ, because everyone was making money, was a gross dereliction of duty.
I agree with you and you can take the FDIC off the government books as well.
All the market needs to replace these two agencies is for companies to offer investors and insurance policy. The premium would reflect the amount of coverage as well as the risk associated with the fund or bank you are investing in. Based on the premium amount, an investor can get a fair picture of the risk associated with their investment.
Unlike having a handful of rating agencies, the market will have the benefit of a large number of insurers evaluating all the funds. And since the insurers are putting their money on the line, they have a vested interest to get it right. Unlike the rating agencies that are paid by the companies they are rating.
Finally, an investor can opt to invest their money without paying for the insurance. Their choice, their risk. It is a choice we don’t have today.
But we can’t stop at just saying these agencies need to be removed. We must come up with the framework of a market alternative.
Robert,
As usual, your article is lucid, logical and well written.
You stated “Whenever a government regulatory agency proves itself to be incredibly incompetent or corrupt, the respectable media swoop in to declare that the “free market” has failed and the agency in question obviously needs more money and power.â€
It is obvious that free market ventures are without exception more efficient than government bureaucracies are. The reason the media ignores this is also obvious.
Intellectuals depend on the political establishment for their livelihood. I just opened up Verizon’s Yellow Pages and searched for the heading “Intellectuals.†Guess what? The section doesn’t exist. Apparently there isn’t any demand for the general services of an intellectual. On an unhampered market they would actually have to satisfy the consumers’ most urgent desires to earn a living—something I’m sure truly frightens them.
There is no way these intellectuals are going to bite the hand that feeds them. For them it is dispensing anti-capitalistic, pro-government propaganda or searching for honest employment.
“The SEC should be abolished, and investors should rely on private-sector watchdog groups to spot swindlers.”
Of course that isn’t going to happen. Who is going to abolish it? for should it happen it would expose the Ponzi scheme perpetrated by those that created the SEC. and the Federal Reserve. What in essence you are asking is the same as asking the Pope to declare his Atheism. All we are going to get is the same as before and more of it.
Using nominal numbers is misleading. It suggests a failure to understand the impact of inflation—the devaluation of the dollar, or the intent to make a case without regard to the true underlying facts.
If one is seriously looking at the cost and effectiveness of the SEC, it is also important to look at the growth in the size of the marketplace that it is expected to monitor.
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