Wednesday, December 17, 2008

See? This Is What I Don't Get

Securities and Exchange Commission chairman Christopher Cox said Tuesday his agency repeatedly failed for at least a decade to pursue allegations of wrongdoing by Wall Street figure Bernard L. Madoff, the alleged perpetrator of a $50 billion Ponzi scheme.

(From this article, emphasis added)

Why is this stuff under government control again? You have to federalize to professionalize, right? Because the government is going to make sure everyone's on the up and up? Because if the government doesn't do something, then everyone will just go crazy?

Too many people believe that government oversight is a necessary (and legitimate) function of the government on the state and federal levels. As if nobody will behave themselves without government scrutiny. As if creating a regulation or an agency or a law will somehow ensure moral behavior.

So what happens when the government agency or its agent fails? There's no option, no alternative. By law, there are no alternatives. But people are supposed to be protected, right? (Answer: No. You don't have the right not to have bad things happen, only the right to take the perpetrators to court and get reimbursed, etc.) The only thing the SEC (or the FDA or the USDA or the DMV or DFACS or TSA or what have you) can do is make MORE regulations to provide people with the illusion that something is changing, that the risk is mitigated, that there will be no more bad decisions.

But a regulation or the existence of a government agency simply can't guarantee moral behavior. Which is what I think many people seem to think. That we're somehow safer from people doing bad things (like fraud). That only the government can handle such oversight (what about UL?).

Look, there are going to be people who do bad things and act wrongly. And of course it's just to catch them and put them in jail or fine them or whatever needs to be done. But when the people gaming the system are The System, and that system has power over us . . . when we only have a chance every couple of years to change an administration who may or may not improve things . . . we are not protected. It's an illusion. And we're stuck with the same illegitimate crappy agencies, with the same crappy regs, and they have the force of government to back up their actions. Not only there is no actual protection from Bad Guys, we're less free. I'm just sayin'.


Kelly said...

Well said, Bravo!

Amy said...

What's UL? Link is broken.

Kevin said...

Also regulations give you the, "Nobody can blame us." syndrome. Meaning if they are fully compliant with the regulations they can argue that they can't be held accountable because they did everything right. They followed the regs to the letter, so go ahead try and prove that we didn't.

UL is Underwriters Laboratories, Inc..

Anonymous said...

Not following you at all here...yes, these agencies sometimes fail. Companies fail, political parties and even nations fail. What is the alternative? You don't mention one. Without some gov't oversight, who is ensuring unsafe toys don't make it to the marketplace? Ensuring I can't bring a gun on board a plane? Preventing one from siphoning money from an employers retirement fund? Ensuring food products have warning labels? Tamper-proof bottle caps? Are you suggesting we rely on the honor system, that everyone act independently, behave nicely and hope for the best?

Without these agencies, who sets the standards and what's the audit trail? How do the evil-doers get caught and punished?

To be sure, government agencies are full of pork and inefficiency. I don't think that means they should exist at all.

Am I not understanding what you are saying? I'd like to hear of alternatives to the FDA, TSA and SEC if you will endulge me. WWARD? (What Would Ayn Rand Do?) :)

Anonymous said...

oops...not a Freudian slip...the second to last paragraph should say: "I don't think that means they shouldN'T exist at all.

Rational Jenn said...

Thanks for your comments and I'll fix the broken linkage. Was trying to get this post out in a bit of a hurry this morning!

Anon--No, I'm not suggesting the honor system, but rather independent certification organizations--removing this function from the hands of the government entirely.

Because what do people want? They want some quality assurance, or a streamlined way to judge for themselves the safety of a product or food, or their safety when flying, etc.

There is a notion, I think, that having this function be part of the government ensures some kind of objectivity and THAT is what I think is dead wrong.

Think of an organization like UL or Consumer Reports. Those companies are not under the government's purview (correct me if I'm in error). Yet when it's time for me to buy a carseat for one of my kids, CR is the first place I look, because I have found their testing to be thorough and accurate and objective. And they have competition, too. CR knows that if its certification process were called into question--if products it recommends turn out to be awful, for example--people will stop buying their magazine and learn about products elsewhere.

That's how it should work in all areas--airport security, food production, EVERYTHING. Having this function be part of the government not only is not objective, there is an inherent conflict of interest, since the government has the power to change the rules, vote itself more powers, etc.

Hope this helps shed some light on my perspective. Thanks for stopping by!

Mike N said...

Good post Jenn:
The regulatory agencies are useless. They con people into a false sense of security.

And you can bet that when this Madoff scandle unfolds it will be revealed that he was able to con so many out of so much because he had the phoney aura of safety and integrity that comes with following government regulations.

The FDA and USDA et al mostly would not exist in a free market. Or they would as private rating and or inspection agencies like UL and Good Houskeeping and others. As for the regulators protecting us from tainted toys from abroad, well that's just it, they didn't. The tainted toys got through anyway.

Anonymous said...

ok, I have two seconds and will write more when I have a chance, but to Mike N, tainted toys are going to get through anyway - no system is (or ever will be) perfect.

brendan said...

Anon -

You're quite right, no system will ever be perfect. Why, then, are you willing to entrust something like this to the government?

From your previous response, I think you'd say that it's the best alternative. I must disagree; I think it is the worst.

Why? Because the essential difference between a private organization and government, is that government MAKES the laws. It is judge, jury, and executioner. As such, they can (and almost always do) exclude themselves from being legally culpable.

If you need an example of this, look at financial firms. There have been cases recently where people have invested retirement money with a firm, and that firm (or someone in it) has misused the money, costing people their retirement. The victims are able to sue the company -- they have some recourse when the company acts improperly.

Now try suing the Social Security Administration for all of your retirement money that has been squandered by politicians trying to buy votes. Over the course of your entire professional career. They're immune, because they're the government. If they run out of money, they can (and will) just take more. And more. And more...

Monica said...

"ok, I have two seconds and will write more when I have a chance, but to Mike N, tainted toys are going to get through anyway - no system is (or ever will be) perfect."

That's true -- but at least at that point they won't have a corrupt federal agency behind them bowing to political pressure behind the scenes and there will be more consumer choice. Bad companies selling toxic toys will always exist but they will be brought to a minimumm because they will not be able to hide behind the FDA (or whatever agency).

Another example is that the USDA has has been actively blocking Mad Cow Disease testing for about three years now due to special interest pressure. Would every company test for it if it were allowed? No. But at least consumers would have a choice. Creekstone Farms wants to test EVERY animal. The USDA won't let it and controls access to the test kits.

I've written more about this insanity here:

and here: