Want to Stop Corruption on Wall Street? Gut the SEC!
Posted by jemartynowski on January 27, 2009
That’s right. I said it. Actually, Yaron Brook, executive director of the Ayn Rand Center for Individual Rights, says it much better, but it is exactly what needs to be done. I say these things every day because I work in the financial industry. His short commentary on how to stop the next Madoff is excellent, but I know that many people who need to hear these things won’t read it. It is highly unfortunate, but if you know anyone who needs some real world examples, let me give you a good one:
I recently did a financial plan for a couple that was very detailed. It involves their investments they will make with me and their personal needs and goals. I tried to be as honest as I could with these people and abide by all the rules of disclosures for my investment recommendations. However, when given a prospectus on each of the eight mutual funds, they laughed. A prospectus has all of the legal information necessary for a fund and is like a small book. Then, I gave them a one-page report on a fund that had six pages of disclosures in fine print attached.
The point is this: are these people really going to read six pages of small print about a mutual fund? If it was just one page, wouldn’t the odds of them reading and understanding it go way up? Much of these disclosures and prospectuses are written by lawyers for lawyers. The government’s involvement has gone beyond the scope of their original powers. They were supposed to stop people from lying and cheating. If someone was lying or cheating, they would punish them. Now, however, they appear to be in the business of making investments as safe as possible for the public, even though that is not possible or even the point of investing.
Mr. Brook says, “In pretending to guarantee to investors that their investments are sound, which is impossible, the SEC encourages the kind of blind group-think that characterized the Madoff investors.” He is exactly right. When people start to believe that everything is covered and watched over by someone else, they get careless and make poor decisions. It is a direct consequence. Plus, with the SEC wasting time doing things they shouldn’t they miss some obvious problems. Don’t believe me? “…a 29-point, 17-page report on Madoff, submitted in 1999, 2001, and 2005, entitled The World’s Largest Hedge Fund is a Fraud slipped through its cracks…” That’s pretty sad for an organization whose sole purpose is to stop these things. This is a prime example of big government gone seriously wrong. When politicians say we need to increase the scope of these oversight organizations they are getting it completely wrong. We need to get them focused on what they were intended to do from the beginning.